The EU financial framework 2014 – 2020: what’s in it for development cooperation?

On 29 June, the Commission came out with a Communication on the EU financial framework for the period 2014 – 2020. The media around Europe particularly picked up on a proposal presented in the Communication to introduce a financial transactions tax and a new VAT to finance part of the EU budget. This will reduce the direct contributions from Member States, which are based on the countries’ Gross National Income (GNI) and their national VAT resources. What also caught attention is the proposed level of EU spending. The Commission presents a multi-annual financial framework (MFF) that equals 1.05% of the EU’s GNI and which is to be topped up by another 0.06% of expenditure administered outside the MFF, adding up to a total of 1.11% of GNI. This is an increase as compared to the period 2007 – 2013, where total EU spending is around 1.05%. These two elements, the sources of income and overall level of spending, are quite likely going to be at the centre of the debates on the MFF with the EU Member States and the European Parliament in the months to come. What the proposals imply for the funding of EU external action, and in particular development cooperation, has received little attention so far. This blog will give an analysis of that aspect of the MFF, by describing the overall envelope for EU external action and zooming in on some of the financial instruments.

In line with the current practice, expenditure on EU external action are grouped under Heading IV of the MFF. Expenditure under this heading titled ‘Global Europe’ equal €70 billion, which represents 6.8% of the total MFF. As such, the Commission proposes to increase spending on EU external action in real and relative terms as compared to 2007 – 2013, when it amounted to €56 billion, representing 5.7% of the overall framework. Beyond the MFF the Commission proposes to allocate €30.3 billion to support the African, Caribbean and Pacific Group of States (ACP) and Overseas Countries and Territories through the 11^th intergovernmental European Development Fund (EDF). This is considerably more than the 10^th EDF which is resourced with €22.99 billion. Furthermore, an additional €2.5 billion is proposed for the Emergency Aid Reserve, as well additional resources (level undefined) for the Global Climate and Biodiversity Fund. All in all, the Commission shows an ambition to step up spending on EU external action in general, and development cooperation in particular. This is in line with the spirit of the Lisbon Treaty and evolving international landscape, which requires strong EU action in these areas, as described by the European Think-Tanks Group in a recently policy brief on the EU budget.

In terms of the instruments proposed within Heading IV, these are no major alterations as compared to the structure currently in place. This is reflected in the table below that lists the proposed instruments, most of whom also exist under the current MFF. A novelty is the budget line for the European Voluntary Humanitarian Aid Corps, to be set up in the coming years as envisaged in the Lisbon Treaty, as well as a new ‘ Partnership Instrument’ that replaces the current Instrument for Industrialised Countries.

Table: Budget allocation for EU external action 2014 – 2020

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Six strategic objectives have been defined that should guide spending on EU external action:

(1)  Promoting and defending EU values abroad;

(2)  Projecting EU policies in support of the Europe 2020 agenda;

(3)  Increasing the impact of EU development cooperation, with the primary aim of eradicating poverty;

(4)  Investing in the long-term prosperity and stability of the EU’s neighbourhood;

(5)  Enhancing European solidarity following natural or man-made disasters;

(6)  Improving crisis prevention and resolution.

Given these objectives, and particularly the focus on Europe’s 2020 agenda, the EU neighbourhood, and the emphasis on crisis prevention and resolution, it is not surprising that respectively the Partnership Instrument (former ICI), the European Neighbourhood Instrument, and the Instrument of Stability gain in relative weight. They represent a larger share of Heading IV than their predecessors in the current period.

Ambitions to step up development spending

While the Development Cooperation Instrument does not increase in relative terms, in absolute terms the allocation to this instrument increases from €17.9 billion in 2007 – 2013 to €20.6 in 2014 – 2020. Poverty reduction and achievement of the Millennium Development Goals remain the primary objective of the instrument. All expenditure under this instrument should fall within the official definition of Overseas Development Assistance (ODA). It can be noted that this seems to imply a stronger ODA requirement than reigns under the current Development Cooperation Instrument (DCI), where ODA must account for 100% of the geographical programmes and only 90% for the thematic programmes.

The new DCI will keep a geographic and thematic component. As regards the geographic component of the DCI, it is to cover all developing countries outside the Neighbourhood and the ACP. While no definition of ‘developing countries’ is provided, if it is based on World Bank definitions, then this would cover Low as well as Middle Income Countries. The Commission does specify that ‘As a matter of policy choice grant aid will no longer be offered to the wealthier developing countries’. Here again, the concept ‘wealthier developing countries’ is not defined. In short, while it is clear that focus will be on Low Income Countries, it is unclear at this stage what it will imply exactly for (Lower and Upper) Middle Income Countries.

As regards the thematic component of the DCI, this will support global public goods and challenges. The Commission particularly mentions those areas covered under the current thematic DCI programmes, namely climate change and environment, human development, food security and migration. An additional area is specifically mentioned, that is energy. Finally, it is worth mentioning that the DCI will include a pan-African envelope. This is to support the implementation of the Joint Africa EU Strategy. It is indicated that this should be flexible to accommodate contributions from the Member States, African states, financial institutions and the private sector.

More development funding, with the particular aim of poverty eradication and supporting the pursuit of the MDGs, will be provided to the ACP and OCT through the European Development Fund. As such, the Commission proposes to keep development funding for the ACP and OCT outside the budget. This is quite remarkable, as it is a deviation from its recommendations in previous budget negotiations, when it continuously argued for EDF ‘budgetisation’. There may be several reasons, among which the argument that inclusion in the budget may lead to reduced resources for ACP countries, and development cooperation at large, in these times when the EU budget is under pressure. It seems sensible, also to allow thinking on ACP – EU relations to focus on the ambitions after the expiry of the Cotonou Partnership Agreement in 2020, rather than on budgetisation. The Commission does propose to strengthen parliamentary scrutiny, which is absent under the 10^th EDF. In practice, this may result in the European Parliament getting a say over the EDF strategy papers and indicative programmes as they do under the DCI, something the European Parliament has asked for repeatedly over the years.

The new Partnership Instrument replaces the Instrument for Industrialised Countries. It aims to advance and promote EU and mutual interests and as such, should create opportunities for EU businesses. The Commission proposes for the instrument to have a global coverage, including both developed and developing countries, with a specific focus on strategic partners and emerging economies. It can cover ODA spending but that is not compulsory. As such, the instrument allows for non ODA spending in DCI countries, which solves a legislative gap that prevents the Commission to fund activities going beyond ODA in DCI countries.

It is worth noting that the MFF proposals don’t include specific figures on climate financing. The proposals do highlight that the EU is committed to meeting its international commitments on climate change and biodiversity. It puts particular emphasis on mainstreaming climate change in all relevant programming.

Based on the MFF Communication, the European Parliament, the Member States and the Commission now need to turn the proposals into an agreement. The proposals show the ambition of the Commission to strengthen EU external action, and development cooperation in particular. It remains to be seen what the outcome of the negotiation process and the ultimate implementation, will be. The Commission will present more specific legislative proposals of the instruments in December 2011. ECDPM will be closely following this process.

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Jeske van Seters is Policy Officer Development Policy and International Relations at ECDPM.

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This blog post features the author’s personal view and does not represent the view of ECDPM.

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Tagged as: EU development policy by theme, EU External Action, Jeske van Seters