At the end of 2011 the European Commission published a Commu­nication on the future of EU budget support. This Communication intro­duces important changes, particu­larly for the EC as a budget support provider. The new Communication obliges the EC to open up its budget support approach to promote, de­mocracy and human rights, alongside the goal of reducing poverty.

It is perhaps no accident that this policy change comes at a time of increasing criticism by member states of the EC’s previous budget support strategy.

While the EC can no longer afford to be am­bivalent to democratic governance conditions in recipient countries, tying budget support more strictly to political conditions poses a number of significant challenges.

Four interrelated messages have emerged from our analysis:

1. Accounting for the prevailing political con­ditions in recipient countries in different ways in different budget support operations makes little sense from a purely technical perspective. Yet from a political perspective such an approach is likely to shield the EC from domestic criticism.
2. Currently no clear strategy exists on how bud­get support can be used to leverage politi­cal change and promote democratic gov­ernance. There is also ambiguity surrounding criteria for determining if a recipient country can receive budget support.
3. If rigid selectivity is pursued the EC faces the challenge of safeguarding its leverage and scope for action, forcing it more closely to the position of the ‘28th European donor’.
4. In certain contexts donors can leverage changes in democratic governance, provid­ed they drastically improve on coordination to produce coherent incentives for the recip­ient government and employ a credible set of sanctions in case of non-compliance. Yet donors do not have a strong track record in doing either of these.