The Financial Perspectives 2007-2013 – What’s in it for development?

21 December 2005
Sven Grimm
Comment
The European Union has a new financial framework for the years 2007-2013. This fact is suprising in itself and marks a positive end to the UK Presidency. The deal was not expected by many observers, because the Presidency was an active partner in the negotiation rather than being merely an honest broker – not least because of its interest in maintaining the rebate.

The agreement of 16 December forsees an overall expenditure of € 862.36 billion for the EU over the next seven years, which is 1.045% of the EU’s Gross National Income. This compromise is thus between the 1.06% suggested by Luxemburg in June and the 1.03% the UK Presidency had proposed at the beginning of the negotiations. The European Commission had originally suggested 1.21% of GNI as a ceiling for EU expenditure.


Many small struggles were going on in different arenas: the British rebate, a revision of the common agricultural policy, financing the EU’s eastern enlargement via structural funds, etc. Now that the dust has settled and European leaders are back home, smoothing their ruffled feathers and each of them declaring satisfaction with the compromise reached - what is in all of this for developing countries?  Three main questions need to be answered:

  1. What about overall spending on external policies? The section on funding external policy is quite short: only 1.5 pages out of 34 in the compromise agreement are dedicated to external action – as compared to 18 pages of detail for structural funds, which provide for support to poorer regions within Europe. An overall ceiling for spending on external action has been established, at  €50 bn. This is roughly the same share of the total (10%) as the current budget. Annual spending on external actions can grow in absolute figures from roughly € 6.2 billion (2007) to a maximum of € 8.1 billion in 2013.
  2. How much of this is for development? External policies cover aid to pre-accession states and to Europe’s immediate neighbours as well as more direct foreign policy expenditures – so not all the funds provided will qualify as development assistance. The financial perspectives paper makes clear that ‘the Union's external actions and policies are […] grouped in the main under the following instruments: Pre-accession, Stability, Development Cooperation and Economic Cooperation, European neighbourhood and partnership, Humanitarian aid and Macrofinancial assistance.” Having six instruments is already an improvement in transparency, given the current total of more than 30 different legal instruments (programmes). However, no decision was taken about allocation of funding between these sub-headings, which will depend on the annual budget procedure. One exception is the emergency aid reserve, which was fixed at a level of € 221 million per annum, with the proviso that it “be adequately ring-fenced”. Other sub-headings, however, are open to debate. The European Parliament has already made clear that it is not willing to accept a lumping together of development and economic cooperation. The financial perspectives paper states that at least 90% of the spending on external assistance should conform to the current DAC definition of official development assistance.
  3. Will foreign policy compete with development for funding? Budgetary funds for foreign policy in the past were minor: around 0.1% of overall spending in external actions was on the Common Foreign and Security Policy (CFSP). Many CFSP missions were funded on an ad hoc basis by Member States’ voluntary contributions, which was certainly inconvenient for the EU foreign policy chief, Javier Solana – as it was not very predictable for his planning. The European Council has consequently called on the budgetary authority (i.e. mainly Parliament and Council) to allocate more funds to CFSP activities. The European Parliament, however, is free in its decisions within the limits of the overall ceiling for external actions imposed by the Financial Perspectives. The discussion between foreign policy and development cooperation is thus far from over.

So can the EU still deliver on doubling aid to Africa until 2015? Yes. This pledge was made by the EU as a whole. There are three channels whereby increased funding to Africa can materialise:

(a) First, the EU budget will grow and the share of aid from the EU budget will remain at its current level. This means payments will increase in absolute terms.
(b) Second, most of the money channeled through Brussels to Africa comes via the European Development Fund (EDF). This fund is negotiated every five years and remains outside the EU budget.
(c) Third, most aid from EU countries – on average about two thirds of the overall sum – is not channeled through Brussels, but is funded bilaterally, with some funds additionally provided via multilateral institutions like the UN and the World Bank. All of these can be increase regardless of the Financial Perspectives.

It was good for the international credibility of the EU to have a signal that European leaders can still take difficult decisions. In terms of financing development, however, the Financial Perspectives were only a start for delivering promises made.

Sven Grimm