EN

(...PICT...)|EUROPEAN COMMISSION|

Brussels, 21.4.2010

SEC(2010) 420 final

COMMISSION STAFF WORKING DOCUMENT

Financing for Development - Annual progress report 2010 Getting back on track to reach the EU 2015 target on ODA spending? accompanying the COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A twelve-point EU action plan in support of the Millennium Development Goals

{COM(2010) 159} {SEC(2010) 418} {SEC(2010) 419} {SEC(2010) 421} {SEC(2010) 422}

STAFF WORKING DOCUMENT

Financing for Development - Annual progress report 2010 Getting back on track to reach the EU 2015 target on ODA spending? TABLE OF CONTENTS

1. Financing for Development: a core ingredient of the global partnership 4

2. The path for growing out of aid dependency – efficient tax sytems in support of development 6

2.1. Fighting corruption, illegal capital outflows and tax evasion 6

2.2. The way forward 7

3. Enhancing the impact of international private flows on development- an issue for a "whole of the Union" approach 8

3.1. Private capital flows - a favourable business climate required 8

3.2. Corporate social and environmental responsibility – a way to contribute to development objectives 9

3.3. Social and environmental considerations in public procurement rules 10

3.4. EU remittances: resilient to the global economic crisis? 10

4. ODA flows to developing countries - a crucial source of financing 14

4.1. EU ODA decreased in 2009 14

4.2. Set to miss the agreed intermediate ODA targets of 2010 15

4.3. Lessons learnt - the impact of EU ODA targets on policy decisions in EU Member States 17

4.4. Enabling factors for aid increases in Member States: 17

4.5. How to demonstrate the EU's resolve to reach the 0.7% ODA/ GNI target by 2015? 18

4.6. International burden-sharing 20

4.7. EU not acting in line with its promise on ODA to Africa 22

4.8. ODA to Least Developed Countries – EU target - still within reach 24

4.9. Reinforced reporting on ODA flows 25

4.10. A credible pathway for the future 25

5. Innovative sources and mechanisms of financing: a new debate 26

5.1. EU Member States lead most initiatives on innovative sources of finance 27

5.2. Broadening existing mechanisms and introducing new ones 29

6. Debt sustainability and debt management capacity – major concerns 29

6.1. Implementing debt relief and preserving debt sustainability: all donors must participate 30

6.2. Next steps 31

7. International governance reforms – strengthening the voice and representation of developing countries 32

7.1. Governance reform of the Bretton Woods institutions 32

7.2. Improved efficiency and instruments of the International Financial Institutions 33

7.3. United Nations governance reform 34

7.4. The way forward 34

8. Successive crises and climate change - the most important global challenges 35

8.1. Impact of the financial and economic crisis on developing countries 35

8.2. Global public goods and global challenges 35

8.3. Climate Change financing - a major issue in the international negotiations 36

Annex 1: UN Convention against Corruption (Merida Convention) - State of signature and ratification by the EU 43

Annex 2: EU ODA levels 2006-2009, estimates and gaps for 2010 44

Annex 3: ODA indicators – preparedness to meet the individual commitments 46

Annex 4: The Commission methodology applied for analysing ODA indicators/ forecasts provided by EU Member States: 48

Annex 5: ODA trajectories of all EU Member States 1995 - 2015 50

1. Financing for Development: a core ingredient of the global partnership

This monitoring and progress report on financing for development forms part of the overall 2010 spring 'development package' COM(2010) 159 'A twelve point action plan to support the Millennium Development Goals'; COM(2010) xxx 'Tax and Development - Cooperating with Developing Countries on Promoting Good Governance in Tax Matters ' and SEC(2010) xxx on the same subject; SEC(2010) 418 'Progress made on the Millennium Development Goals and key challenges for the road ahead '; SEC(2010) 422 'Aid Effectiveness Progress Report 2010"); SEC(2010) 419 "Aid for Trade Monitoring Report 2010'; SEC(2010) 421 ' Policy Coherence for Development Work Programme 2010-2013; all published on 21 April 2010. , which proposes EU actions for speeding up progress towards the Millennium Development Goals (MDGs), to contribute to the forthcoming UN MDG Review High Level Plenary Meeting (HLPM) in September 2010 http://www.un.org/millenniumgoals/ .[1][2]

COM(2010) 159 'A twelve point action plan to support the Millennium Development Goals'; COM(2010) xxx 'Tax and Development - Cooperating with Developing Countries on Promoting Good Governance in Tax Matters ' and SEC(2010) xxx on the same subject; SEC(2010) 418 'Progress made on the Millennium Development Goals and key challenges for the road ahead '; SEC(2010) 422 'Aid Effectiveness Progress Report 2010"); SEC(2010) 419 "Aid for Trade Monitoring Report 2010'; SEC(2010) 421 ' Policy Coherence for Development Work Programme 2010-2013; all published on 21 April 2010.

http://www.un.org/millenniumgoals/

This is the eighth of the Commission's annual monitoring reports , which assess where the EU and its Member States stand in relation to their commitments on financing for development (FfD). Based on the Council's mandate to the Commission after the International Conference on Financing for Development in 2002, progress reports ("Monterrey reports") have been presented to the Council every spring since 2003 Council Conclusions of 21 May 2003 and 24 May 2005. . The Council extended the monitoring mandate to cover aid effectiveness and aid for trade Council Conclusions of 15 May 2007 on the European Conduct of Division of Labour in development policy, Council Conclusions of 29 October 2007 on the EU Aid for Trade Strategy. , for which separate Staff Working Papers have been prepared See footnote 1. . The report follows the structure of the Doha Declaration on Financing for Development Doha Declaration, available at: http://www.un.org/esa/ffd/doha/ and builds on the input provided by the EU Member States and Commission departments in the annual 'Monterrey questionnaire', which covers all EU commitments on FfD issues. EU action to support developing countries in coping with the crisis is tackled as a crosscutting issue in this document.[3][4][5][6]

Council Conclusions of 21 May 2003 and 24 May 2005.

Council Conclusions of 15 May 2007 on the European Conduct of Division of Labour in development policy, Council Conclusions of 29 October 2007 on the EU Aid for Trade Strategy.

See footnote 1.

Doha Declaration, available at: http://www.un.org/esa/ffd/doha/

Financing for development aims to create a favourable environment for development by addressing the responsibilities of both the developing countries and the global community. At the UN Doha follow-up Conference on Financing for Development in 2008, the global community reiterated that mobilising financial resources for development and the effective use of all those resources are central to the global partnership for sustainable development. It was also recognised that each country has primary responsibility for its own development and that national policies, domestic resources and national development strategies are essential.

The EU and other donors need to demonstrate that they are ready to live up to their commitments , to keep their part of the agreement on what is needed to achieve the MDGs. This report shows that despite the impact of the crisis on Member States' economies, in 2009 EU Official Development Assistance (ODA) continued to increase as a share of GNI, reaching 0.42%, but at the same time the total ODA volume decreased to EUR49 billion The 2008 outcome was 0.40% of GNI and EUR 50 billion in current prices. . Nonetheless the EU remains the world's most generous donor both in absolute aid volumes (accounting for about 56% of DAC ODA) and in terms of relative effort (ODA as a share of GNI).[7]

The 2008 outcome was 0.40% of GNI and EUR 50 billion in current prices.

This report also reveals that the EU is far from the collective EU target level of 0.56% of GNI that was promised for 2010. With fair EU internal burden-sharing, however, the target of 0.7% of GNI by 2015 is still attainable. Other donors have yet to demonstrate similar efforts. According to OECD estimates for 2010 OECD DAC press release 14 April 2010: http://www.oecd.org/document/0,3343,en_2649_34487_44981579_1_1_1_1,00.html . the DAC average ODA spending will be 0.31% of GNI, with the US and Japan expected to stand at only 0.20% and 0.18% respectively, and Canada at 0.30%. Based on the forecasts of the 27 EU Member States, the Commission estimates that the EU will provide in 2010 collectively 0.45-46% of its income as ODA. [8]

OECD DAC press release 14 April 2010: http://www.oecd.org/document/0,3343,en_2649_34487_44981579_1_1_1_1,00.html .

The Monterrey Consensus and the Doha Declaration recognise the importance of other financial flows for development besides ODA. To achieve sustainable progress towards the MDGs the financing discussion should look holistically at increasing developing countries' overall revenue base for development. The EU can effectively support increasing partners' domestic resources for development. The Communication " Tax and Development - Cooperating with Developing Countries on Promoting Good Governance in Tax Matters " See footnote 1. proposes measures for improving domestic tax revenue and the international environment. This report demonstrates that innovative sources and mechanisms of financing can also be used to raise new funds for development.[9]

See footnote 1.

Global challenges are multiplying, and the growing importance of issues such as climate change, international peace and security and migratory flows in relation to development is increasingly recognised. The report underlines that these challenges need to be dealt with in a coherent and mutually supportive manner, taking into account the development dimension.

The UN has a central role in global FfD discussions, and the EU has been one of the driving forces behind this. The Doha Conference of late 2008 decided to strengthen the FfD follow-up process at the UN. The UN Conference on the World Financial and Economic Crisis and its Impact on Development of June 2009 therefore created separate follow-up processes relating to the crisis http://www.un.org/ga/search/view_doc.asp?symbol=A/RES/63/303&Lang=E . The July 2009 UN ECOSOC meeting suggested several concrete measures to the General Assembly ( UNGA ) to strengthen the FfD process, including greater interaction with the international financial and trade organisations, changing the timing of the ECOSOC (Economic and Social Council) spring meeting to better link with World Bank/ IMF spring meetings and devoting more time for FfD discussions.[10]

http://www.un.org/ga/search/view_doc.asp?symbol=A/RES/63/303&Lang=E

The changes made in the UN FfD follow-up process have not yet really been tried and tested. But there is potential for overlap with the follow-up actions to the economic crisis, including the ad-hoc UNGA Open-Ended Working Group on the follow-up to the outcome of the UN Conference on the economic crisis and its impact on development (OEWG) and the proposed UN 'ad hoc panel of experts on the world economic and financial crisis and its impact on development' , both resulting from the UN Crisis Conference and dealing partly with the same issues as the FfD process. The EU should use its influence in the UN to seek the best added value from both processes, while recognising the temporary nature of the economic crisis follow-up in comparison to the established and continuing FfD process. It is clear that the EU's performance on the FfD agenda and commitments will come under increasing and more regular scrutiny at global level in the UN, notably at the UN 2010 High-Level Plenary Event on the MDGs.

2. The path for growing out of aid dependency – efficient tax sytems in support of development

It is widely recognised that the sustainable provision of public services needed to achieve and maintain the MDGs requires an increase in stable domestic revenue in the developing countries . Building on the EU position for the Doha Conference of late 2008, the Doha Declaration and the G-20 London Summit conclusions, the communication " Tax and Development - Cooperating with Developing Countries on Promoting Good Governance in Tax Matters" aims to enhance the link between tax and development policies. It suggests how the EU could better assist developing countries in building efficient, fair and sustainable tax systems and administrations, with a view to enhancing domestic resource mobilisation. This will contribute to further promoting EU principles of good governance in tax matters.

Sound, transparent and reliable customs systems are equally important to increasing domestic revenues, reducing customs evasion and smuggling and facilitating access to international markets.

2.1. Fighting corruption, illegal capital outflows and tax evasion

The international community has set up conventions and initiatives to effectively address the issues of corruption, tax evasion and illegal financial flows on a global scale. According to the Member States' replies to the Monterrey questionnaire there was little change in EU Member States support for these Conventions in 2009.

The UN (Merida) Convention against Corruption requires signatory countries to implement measures against corruption, notably by adapting their legislation regarding corruption prevention, criminalisation of corrupt acts, international cooperation and asset recovery. The European Community ratified the Convention in November 2008 Cyprus, Estonia and Italy followed by the beginning of 2010. Of the 27 EU Member States, the Czech Republic, Germany and Ireland lag behind and have yet to ratify the Convention (see Annex 1).

The OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions has been adopted and implemented by 22 Member States. So far, remainder are not members of the OECD Working Group on Bribery in International Business Transactions ( Cyprus, Latvia, Lithuania, Malta, and Romania ).

Further progress is required in the EU Member States to implement the Council Framework Decision Council Framework Decision 2005/568/JHA on combating corruption in the private sector.[11]

Council Framework Decision 2005/568/JHA

The Stolen Assets Recovery Initiative ( StAR ) aims to enhance international cooperation on repatriating stolen assets. While the fight against corruption has often focused on corruption issues in developing countries, StAR looks at the other side of the problem: the financial centres where the money is placed are often located in developed countries and bribes sometimes originate from multinational companies based in the industrialised world. Despite the importance of the problem, only eight member states France, Greece, Italy, Luxembourg, the Netherlands, Spain, Sweden and the UK. have reported that they support the initiative. Moreover, several Council Framework Decisions oblige the Member States to ensure a common EU approach to confiscation and call on all Member States to designate Asset Recovery Offices to facilitate the tracking of proceeds of crime, including assets stolen through corruption. So far 18 Member States have designated such offices.[12]

France, Greece, Italy, Luxembourg, the Netherlands, Spain, Sweden and the UK.

The Extractive Industries Transparency Initiative ( EITI ) is a coalition of governments, companies, civil society, investors and international organisations that promotes transparency and accountability in the extractive industries , by supporting verification and full publication of company payments and government revenues from oil, gas and mining . Ten Member States and the European Commission support the initiative Belgium, Finland, France, Germany, Greece, Italy, the Netherlands, Spain, Sweden and the UK. through the World Bank's Multi-Donor Trust Fund, the EITI International Secretariat, and through bilateral projects supporting partner countries in the implementation of the EITI. Denmark and Portugal are considering their participation in the EITI. Several EU Member States, in reply to the Monterrey questionnaire, provided specific suggestions for a more active Commission role in the EITI , e.g. more active participation inboard meetings, greater promotion of the EITI as part of the Raw Materials initiative and mainstreaming the EITI in EU delegations' policy dialogue with resource-rich partner countries.[13]

Belgium, Finland, France, Germany, Greece, Italy, the Netherlands, Spain, Sweden and the UK.

The EU Action Plan on Forest Law Enforcement Governance and Trade (FLEGT) tackles the problems of illegal logging and trade in illegally harvested timber (which lead to revenue losses for developing country governments), and offers support for wood-producing countries.

2.2. The way forward

Further to its communication "Tax and Development – Cooperating with Developing Countries on Promoting Good Governance in Tax Matters" the Commission recommends that Member States:

· speed up ratification of the United Nations (Merida) Convention against Corruption if they have not yet ratified it;

· expand their support to the Stolen Assets Recovery Initiative and other relevant initiatives to fight bribery and corruption effectively and help developing countries to recover the proceeds of such practices;

· Enhance their support for the Extractive Industries Transparency Initiative and actively participate in discussions to further extend its field of application.

3. Enhancing the impact of international private flows on development- an issue for a 'whole of the Union' approach

When endorsing the 'whole of the Union' approach in 2009, the Council emphasised the importance of mobilising all possible sources of financing for development, including export credits, investment guarantees and technology transfers, as instruments to leverage assistance aimed at stimulating inclusive growth, investment, trade and job creation Council Conclusions of 18 May 2009 on Supporting developing countries in coping with the crisis, point 15. . The quality of information on this type of donor financing is important to ensure global accountability and to better grasp the development impact of different financial sources and flows. This requires a comprehensive overview of as many development-relevant financial flows as possible and from as many donors as possible.[14]

Council Conclusions of 18 May 2009 on Supporting developing countries in coping with the crisis, point 15.

Some of these non-ODA flows are, in principle, tracked under the established OECD/DAC reporting system, which needs to be developed further. Not all EU Member States have a reliable system in place yet to monitor such flows. Improving data on the different flows is, however, essential to enable better use of ODA to leverage more, and complementary, flows for development.

3.1. Private capital flows - a favourable business climate required

The economies of developing countries suffer from a general shortage of capital, especially foreign direct investment (FDI) World foreign direct investment flows fell moderately in 2008 following a five-year period of uninterrupted growth, in large part as a result of the global economic and financial crisis. While developed economies were initially affected most, the decline has now spread to developing countries, with inward investment in most countries falling in 2009 too. The decline poses challenges for many developing countries, as FDI has become their largest source of external financing. In particular, FDI inflows in Africa appear to have fallen by about 10% in 2008. , which is worsened in the low income countries by the prevalence of public capital. To increase foreign investment and prevent domestic private capital flight, many developing countries are working to provide companies with transparent and simple regulatory and fiscal frameworks, expanded access to finance, business development services, technology and innovation, in short creating a favourable business climate. This will help create a solid productive base for generating incomes for people and budget revenues for the state. In their replies to the Monterrey questionnaire, the Member States concurred on the importance of private capital flows for development. The majority of Member States reported that they support private flows through investment guarantees, dedicated funds, preferential loans and support for joint ventures in developing countries in sectors that have high returns in terms of development Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Luxembourg, the Netherlands, Slovenia, and Spain. . Some Member States also have special programmes to promote microfinance. Dedicated institutions in the Member States are in charge of specific tools and projects such as national development agencies and development finance institutions. Several Member States also contribute to initiatives led by the international financial institutions that provide capital, guarantees, various forms of finance and risk management tools to the private sector.[15][16]

World foreign direct investment flows fell moderately in 2008 following a five-year period of uninterrupted growth, in large part as a result of the global economic and financial crisis. While developed economies were initially affected most, the decline has now spread to developing countries, with inward investment in most countries falling in 2009 too. The decline poses challenges for many developing countries, as FDI has become their largest source of external financing. In particular, FDI inflows in Africa appear to have fallen by about 10% in 2008.

Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Luxembourg, the Netherlands, Slovenia, and Spain.

On average between 2005 and 2008, Member States committed around three times more than the European Commission in terms of total ODA For statistical information on support for private investment, the OECD Creditor Reporting System database uses the following codes: Banking and Financial System (24000), Business and Other Services (25000), Industry (32100), Tourism (33200). for private investment: respectively EUR 1.62 billion and EUR 0.55 billion a year.[17]

For statistical information on support for private investment, the OECD Creditor Reporting System database uses the following codes: Banking and Financial System (24000), Business and Other Services (25000), Industry (32100), Tourism (33200).

For ACP countries, the support of the European Commission including the Investment Facility reached EUR 131 million p.a., whereas the Member States together provided EUR 249 million p.a.

3.2. Corporate social and environmental responsibility – a way to contribute to development objectives

Corporate social responsibility ( CSR Voluntary inclusion of social and environmental concerns, beyond the minimum legal requirements, in companies' business operations to address societal needs. ) has become an increasingly important concept and is part of the debate about globalisation, climate change, competitiveness and sustainability. CSR practices are not a substitute for public policy but can contribute to a number of public policy objectives in developing countries, especially in relation to labour markets, labour standards, skills development, more rational use of natural resources and overall poverty reduction.[18]

Voluntary inclusion of social and environmental concerns, beyond the minimum legal requirements, in companies' business operations to address societal needs.

In Europe, the promotion of CSR reflects the need to defend common values and increase the sense of solidarity and cohesion. To promote awareness and the adoption of CSR principles by companies operating in developing countries, the Commission is supporting several projects totalling approximately EUR 50 million in the period 2004 - 2010.

The vast majority of Member States undertake national action to promote CSR principles and nine of them report Austria, Belgium Finland, Germany, Ireland, Italy, Slovenia, Sweden and the UK. that they advocate the adoption of internationally agreed principles and standards on corporate social and environmental responsibility by European companies. Most of them strongly support multilateral initiatives such as:[19]

Austria, Belgium Finland, Germany, Ireland, Italy, Slovenia, Sweden and the UK.

· The OECD Guidelines for Multinational Enterprises , which set recommendations for good corporate behaviour http://www.oecd.org/department/0,3355,en_2649_34889_1_1_1_1_1,00.html ;[20]

http://www.oecd.org/department/0,3355,en_2649_34889_1_1_1_1_1,00.html

· The UN Global Compact , a voluntary corporate citizenship initiative for companies committed to supporting and enacting a set of 10 core values in the areas of human rights, labour, the environment and combating corruption http://www.unglobalcompact.org/ ;[21]

http://www.unglobalcompact.org/

· The International Labour Organisation (ILO) Conventions and recommendations on labour standards http://www.ilo.org/global/What_we_do/InternationalLabourStandards/lang--en/index.htm .[22]

http://www.ilo.org/global/What_we_do/InternationalLabourStandards/lang--en/index.htm

There is a variety of other activities that a few Member States support . These include d evelopment partnerships with the private sector promoting international standards such as the International Finance Corporation (IFC) "Performance Standards on Environment and Social Sustainability" and “Towards Sustainable Development – European Development Finance Institution (EDFI) Principles for Responsible Financing", public information and awareness raising, international initiatives like Fair Trade, the UN Special Representative for Business and Human Rights, the Third International Finance Conference http://ifc3.org. and company initiatives.[23]

http://ifc3.org.

3.3. Social and environmental considerations in public procurement rules

The EU public procurement Directives Directive 2004/17/EC of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (OJ L 134, 30.4.2004) and Directive 2004/18/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ L 134, 30.4.2004). allow contracting authorities to take into account environmental and social considerations at all stages of the procurement procedure. The prerequisite is that these considerations are linked to the subject matter of the contract or to the execution of the contract, if they are addressed in the contract performance clauses, and comply with the fundamental principles of the Treaty on the Functioning of the EU (transparency, non-discrimination) and with relevant EU law.[24]

Directive 2004/17/EC of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors (OJ L 134, 30.4.2004) and Directive 2004/18/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (OJ L 134, 30.4.2004).

EU Member States may introduce more specific rules in their national legislation, in order to further promote the inclusion of social and environmental considerations in public procurement, provided such national rules are in line with the public procurement Directives and all relevant EU law. Most Member States did not report substantial reforms of their rules in 2009. Germany and the Netherlands reported that they had introduced a social clause into their national procurement rules, while Sweden and Spain (the latter specifically for ODA financing) are working to strengthen social and environmental considerations in national procurement laws.

3.4. EU remittances: resilient to the global economic crisis?

Remittances sent by migrants to their countries of origin are essential to improving the livelihoods of millions of people and often more significant in volume than ODA. The economic downturn has strongly affected remittance transfers . The impact of the economic crisis on migration employment, migrants stocks and flows and irregular migration is not easy to assess, but it is generally recognised that migrants are often more affected by the economic downturn either because they work in sectors that are more affected by the crisis, such as tourism or construction, or because of their particular vulnerability Source – International Organisation for Migration (IOM) Policy Brief. The impact of the global financial crisis on migration. J January 2009 . In the Monterrey survey some Member States observed a slight fall in both the number of new work permit applications and the number of new work permits awarded in 2009, but this phenomenon very much depends on the system in place in each Member State. Some Member States also observed a small fall of the estimated number of migrants irregularly entering the EU territory Source – Frontex (http://www.frontex.europa.eu/) estimates. . However, the economic downturn can only be considered as one of the factors possibly influencing the number of new work permits. [25][26]

Source – International Organisation for Migration (IOM) Policy Brief. The impact of the global financial crisis on migration. J January 2009

Source – Frontex (http://www.frontex.europa.eu/) estimates.

Remittance flows grew rapidly in 2007 (up to EUR 208 billion) and reached EUR 231 billion in 2008. Remittance flows started to decrease from the last quarter of 2008; for 2009 global remittances to developing countries are expected to have decreased to EUR 228 billion, because of a deterioration in migrant-receiving countries' economic and employment situation Ratha, D., S. Mohapatra, and A. Silwal ( November 3, 2009) , Migration and Remittances Trends 2009: A better-than-expected outcome so far, but significant risks ahead , Migration and Remittances Team, Development Prospects Group, World Bank, Migration and Development Brief 11. . Countries and regions differ in their exposure to the crisis through remittance effects. For example, three quarters of remittances to Sub-Saharan Africa come from the United States and Europe, which have been badly affected by the downturn; the long-term impact on remittances is uncertain The UNDP Human Development Report 2009. Overcoming barriers: Human mobility and development. . Remittance flows to North Africa are expected to have declined by 7.2 percent and to Sub-Saharan Africa by 2.9 percent in 2009, and to return to positive growth in 2010 and 2011, according to the World Bank.[27][28]

Ratha, D., S. Mohapatra, and A. Silwal ( November 3, 2009) , Migration and Remittances Trends 2009: A better-than-expected outcome so far, but significant risks ahead , Migration and Remittances Team, Development Prospects Group, World Bank, Migration and Development Brief 11.

The UNDP Human Development Report 2009. Overcoming barriers: Human mobility and development.

In the EU, outflows of workers remittances had greatly increased from beginning of 2004 reaching a peak in the last quarter of 2007. While remaining almost stable in 2008 EU outflows are supposed to have markedly fallen in 2009 and to resume their growth in 2011. The drop in the remittances outflows was particularly severe in Spain Eurostat, tables with Quarterly Balance of Payments data per country: http://epp.eurostat.ec.europa.eu/portal/page/portal/balance_of_payments/data/database . .[29]

Eurostat, tables with Quarterly Balance of Payments data per country: http://epp.eurostat.ec.europa.eu/portal/page/portal/balance_of_payments/data/database .

Continuing progress in meeting EU commitments on remittances

In recent years the importance of remittances has been recognised and several international initiatives propose concrete measures to make them more development-friendly.

Some of the main initiatives are: guidelines for the compilation of data on remittances by the 'Luxembourg Group The Luxembourg Group is an informal IMF working group for collecting and compiling remittance data: http://www.imf.org/external/np/sta/bop/2006/luxgrp/060106.htm. ', the ' General Principles for International Remittances Services' and the recent G8 initiative of a 'Global Remittances Working Group' coordinated by the World Bank. In July 2009, at the L ´ Aquila summit , the G8 Heads of States endorsed the '5x5' objective and made a pledge 'to achieve in particular the objective of a reduction of the global average costs of transferring remittances from the present 10% to 5% in five years through enhanced information, transparency, competition and cooperation with partners'.[30]

The Luxembourg Group is an informal IMF working group for collecting and compiling remittance data: http://www.imf.org/external/np/sta/bop/2006/luxgrp/060106.htm.

It is encouraging to see that this objective has been reaffirmed beyond the EU, and the drivers of remittance costs are generally recognised. Regarding the three main areas of EU commitments on remittances Council Conclusions of 11.11.2008 (EU position for Doha FfD Conference), point 27, Council Conclusions of 18.05.2009 (Support to Developing countries in Coping with the Crisis), point 11, Council Conclusions of 18.11.2009 (PCD), points 5-13. the Member States' replies to the Monterrey survey can be summarised as follows:[31]

Council Conclusions of 11.11.2008 (EU position for Doha FfD Conference), point 27, Council Conclusions of 18.05.2009 (Support to Developing countries in Coping with the Crisis), point 11, Council Conclusions of 18.11.2009 (PCD), points 5-13.

(1) Improving data on remittances

· Member States are increasingly adopting the definition of remittances and the recommendations regarding the quality and coverage of data on remittances made by the Luxembourg Group:

– data on remittances provided in Member States' balance of payments now tends to cover flows of remittances both via banks and via Money Transfer Operators

– household surveys and targeted studies are still not widely used in the Member States, but they are the only way to obtain better estimates of informal flows

– The availability of consolidated data at European level has improved, as in February 2010 Eurostat started to publish annual data on remittance flows between each EU Member State and non-EU countries. The new tables cover 2004-2008 and will be updated annually. In January 2010 Eurostat began to publish quarterly data on remittances, with less geographical detail.

(2) Favouring cheaper, faster and more secure remittances flows

Within the EU, substantial progress has been achieved with the adoption of the Payment Services Directive ( PSD ) 2007/64/EC (OJ L 319). , which lays the legal foundation for an EU-wide single market for payments and facilitates access of migrants to formal remittance services. 'Payment institutions', i.e. money transfer operators or telecom providers for their post-paid activities, now have to make charges and other conditions (such as the transfer time and the charge to the recipient) clear to customers. In line with the rationale behind Special Recommendation VI of the Financial Action Task Force on Money Laundering, the Directive provides a mechanism whereby operators unable to meet all the requirements to become "payment institutions" are not forced into the black economy but may provide remittance services, once their identity has been registered. This, however, requires proper enforcement by the Member States competent authorities. The PSD has been implemented in most of the Member States of the EU/EEA.[32]

2007/64/EC (OJ L 319).

The new E-Money Directive ( EMD ) 2009/110/EC, adopted in October 2009 Directive 2009/110/EC of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions (OJ L 267, 10.10.2009). , authorises e-money institutions (such as issuers of pre-paid cards, on-line or telecom providers for their pre-paid activities), as from 30 April 2011, to carry out other business' activities, including payment services such as money remittance. This will allow cross-overs of new payment methods between them (e.g. on-line payment accounts with mobile payments: PayPal or Google) and with traditional payment methods used to send money (e.g. Western Union with telecom providers or with prepaid cards issuers).[33]

Directive 2009/110/EC of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions (OJ L 267, 10.10.2009).

The PSD and the new EMD apply only to payments inside the EU/EEA and do not cover remittances between the EU/EEA and non-EU countries. Extending these rules to extra-EU transfers would help lower remittance costs.

· Fourteen Member States are already applying all or part of the requirements to some extra-EU transfers (one-leg transactions) carried out in currencies other than those of the Member States. It is also positive that Money Transfer Operators with global reach (such as Western Union or Money Gram) and telecom providers (such as Vodafone or Telefónica) are envisaging applying the principles voluntarily.

· To improve financial literacy and access to financial services , Member States inform migrants about financial products suited to their needs and also work through dialogue with the private sector, for instance in the UK . Member States continue to promote increased transparency by setting up websites Examples of such websites are: www.sendmoneyhome.org (UK), www.geldtransfair.de (Germany), www.envoidargent.fr (France), and www.geldnaarhuis.nl (Netherlands). Sweden is working on a similar initiative. comparing the prices and conditions offered by the different money transfer providers. In addition, the Netherlands, for instance, evaluated its initiative's impact on the cost of remittances; the UK prepared a leaflet explaining what information has to be given to the sender of money, what needs to be checked to make sure that the money reaches the recipient safely and what rights the sender has if things go wrong www.moneymadeclear.fsa.gov.uk . .[34][35]

Examples of such websites are: www.sendmoneyhome.org (UK), www.geldtransfair.de (Germany), www.envoidargent.fr (France), and www.geldnaarhuis.nl (Netherlands). Sweden is working on a similar initiative.

www.moneymadeclear.fsa.gov.uk .

As most migrants have access to financial services similar to that of the rest of the population, the cost of remittances mainly depends on access to financial services in non-EU countries . So some Member States and the Commission run programmes in partner countries aimed at developing the financial sector (e.g. microfinance, and technical assistance with financial sector regulation and supervision) and improving financial literacy, to familiarise households receiving remittances with banking services For instance France, Germany, Luxembourg, the Netherlands, Spain and the United Kingdom. . If some of the remittances are saved, banks can build up their role as intermediaries, turning savings into productive investment with a positive impact on development.[36]

For instance France, Germany, Luxembourg, the Netherlands, Spain and the United Kingdom.

(3) Enhancing the development impact of remittances from the EU

A number of targeted initiatives have been set up to support developing countries in establishing a policy framework more conducive to remittances, such as the Commission's support for the African Remittances Institute Under preparation under the leadership of the African Union and in collaboration with the World Bank. and the contributions of a number of Member States and the Commission to the multi-donor Financial Facility for Remittances of the International Fund for Agricultural Development ( IFAD ), which provides grants for innovative projects that contribute to expanding rural access to finance. In a different vein, recent measures by some Member States such as the decree in Italy requiring money transfer organisations to inform local police within 12 hours if the person wishing to transfer funds is unable to present a residence permit, could be counter-productive from a development perspective, because such restrictions will increase the use of informal channels to transfer remittances.[37]

Under preparation under the leadership of the African Union and in collaboration with the World Bank.

Further actions required to facilitate remittance transfers

The current, substantial initiatives focus on implementing current commitments and will continue to do so. Special consideration should be given to further facilitating remittance transfers:

· through reinforced support to new technology-based transfers (cell phones, Internet) via targeted projects;

· by extending the requirements of the Payment Services Directive to extra-EU transfers when the Directive is revised in 2011;

· by better coordinating work on specific remittance 'corridors' in which flows from several Member States are of particular importance;

· by ensuring proper enforcement of the Payment Services Directive in all EU Member States, bringing all operators providing remittance services within the ambit of its minimum legal and regulatory requirements;

· by ensuring that identification requirements under EU Member States 'national security or immigration laws do not hamper the globally agreed objective of reducing remittance costs.

4. ODA flows to developing countries - a crucial source of financing

In 2002, the EU Member States adopted their initial joint commitments on ODA increases. These commitments were further developed and broadened, and endorsed by the European Council in 2005 ahead of the UN World Summit that undertook the first review of progress on the Millennium Declaration and the MDGs. The EU and its Member States agreed to achieve a collective ODA level of 0.7% of GNI by 2015 and an interim target of 0.56% by 2010, both accompanied by individual targets. The EU Member States agreed to increase their ODA to 0.51% of their national income by 2010 while those Member States that had already achieved already higher levels (0.7% or above) promised to maintain these levels; the Member States that acceded to the EU in or after 2004 (EU-12) promised to strive to spend 0.17% of their GNI on ODA For the exact wording see European Council, 18 June 2005, Doc. 10255/05 Conc. 2, par. 26 onwards. by 2010 and 0.33% by 2015.[38]

For the exact wording see European Council, 18 June 2005, Doc. 10255/05 Conc. 2, par. 26 onwards.

4.1. EU ODA decreased in 2009

Since 2008 the financial crisis has hit EU Member States hard, triggering the deepest global economic recession since decades. State-financed rescue packages for the affected banking sector, higher social protection costs and lower budget revenues have dramatically changed the fiscal situation of many Member States. The crisis has affected EU ODA levels. In 2009 EU-27 ODA continued to increase as a share of GNI from 0.40% in 2008 to 0.42%, but decreased in volume terms to EUR49 billion. The trend among Member States varied, as the tables and figures in Annex 2 show.

The increase was led by France , which contributed EUR1.3 billion, followed by the UK (EUR285 million), and Belgium (EUR214 million). Malta (0.20%) and Cyprus (0.17%) attained or exceeded the individual, intermediate target threshold of 0.17 ODA/GNI, one year ahead of schedule.

Aid volume increases or maintenance in 12 Member States were offset by aid cuts in others. The biggest cuts occurred in Germany; its aid was reduced by almost EUR1.1 billion. The worst aid cuts – more than 30% - were made in Italy (down EUR990 million, to 0.16% ODA/GNI), putting Italy's ODA lowest among the EU donors that had committed to spend at least 0.51% of their income as ODA by 2010, and Austria (down EUR365 million), bringing the country's ODA down to 0.30% of GNI, i.e. below the level that the EU-15 Member States had promised to achieve in 2006 (0.33% ODA/ GNI). Greece ' aid declined by EUR51 million from already low ODA levels. For the first time in many years ODA spending was substantially reduced in the Netherland s (down EUR234 million) and Spain (EUR42 million). Under the impact of the crisis, Irish aid disbursements were cut by EUR203 million, albeit from higher levels and keeping aid spending at 0.54% of GNI.

Member States' Percentage share of EU ODA 2009

(...PICT...)

4.2. Set to miss the agreed intermediate ODA targets of 2010

According to preliminary Commission estimates, the EU needs to bridge a EUR18.4 billion gap to reach the collective 0.56% ODA/GNI target in 2010 from 2009 outcome levels . According to Member States' forecasts, EU ODA should increase in 2010, but the collective EU result in 2010 would be in the range of 0.45% - 0.46 % of GNI (around EUR55 billion). The EU is thus set to miss its collective intermediate target of 0.56% of GNI by 2010 by a wide margin because many Member States will not reach the individual minimum intermediate EU ODA targets fixed for 2010.

Low or negative economic growth rates in the EU as a consequence of the crisis, and given the austerity measures that Member States introduced, lead to different risks. On the one hand lower GNI growth combined with higher public expenditure elsewhere may lead to a cut-back in spending on development co-operation, which in turn would result in a lower trajectory of up-scaling to meet 2015 targets. On the other hand, where aid volumes are not cut, they will show higher aid levels expressed as a percentage share of GNI, without providing additional ODA funding for developing countries. These prospects will harm the credibility of the EU as a whole. Urgent action is therefore needed to remedy this.

In their replies to the survey, a majority of Member States expressed their resolve to further increase ODA in 2010 despite the fact that many of them are facing uncertain budgetary positions due to the crisis-related situation.

The EU scaling-up process has been uneven, with asymmetric efforts. Member States not contributing their fair share to the burden-sharing effort endanger the performance of the EU as whole and substantially increase the risk of collective failure on ODA targets. This needs to change. All Member States are important for a sustained, joint EU scaling-up. The prospects for 2010 according to Member States' reports are as follows:

· Four EU Member States – Sweden, Luxembourg, the Netherlands and Denmark - continued to spend at least 0.8% of their GNI or more on development and are planning to maintain this level or to achieve and sustain a more ambitious target, i.e. a 1% target. These four countries account for over 20% of the EU ODA although their relative economic weight within the EU is much smaller. Belgium is set to join this group of early ODA target achievers by bringing its ODA spending up to 0.7% of GNI in 2010.

· According to the forecasts provided, the UK remains on track to deliver on its ODA spending plans for the financial years (April to March) 2009-10 and 2010-11 (0.56% ODA/GNI) with a view to attaining 0.7% ODA/GNI by 2013 According to Commission estimates on the future economic growth in the Member States the UK may even exceed the national 2010/11 target, as a consequence of a lower economic growth forecast for the UK for 2010. . [39]

According to Commission estimates on the future economic growth in the Member States the UK may even exceed the national 2010/11 target, as a consequence of a lower economic growth forecast for the UK for 2010.

· Ireland and Spain had set themselves national thresholds more ambitious than the EU timeframes. While they may miss those, they want, along with Finland, to meet or surpass the agreed EU individual target of 0.51% of GNI set for 2010.

· While remaining below the 0.51% ODA/GNI threshold, France indicated aid increases for 2010 corresponding to 0.43-0.47% of GNI and Germany targets spending 0.40% of its GNI on aid. Italy should increase its ODA to 0.20% of GNI but risks remaining the weakest performer of the EU-15; it has, meanwhile, been overtaken by some of the EU-12 , for which much lower individual ODA targets apply. Due to their combined weight in the EU economy these three Member States are the key to the EU's collective scaling up . Without their contribution the EU cannot reach its collective ODA goal.

· Austria and Portuga l's ODA levels remain far below the EU average; both are set to miss the 2010 target, although they project increasing ODA levels. Greece's position remains uncertain due to fiscal restraints; it is unlikely that Greece will fulfil its ambition to spend 0.35% of its national income on ODA in 2010.

· There is some good news amongst EU-12 Member States: Cyprus and Malta achieved or exceed their commitments of 0.17 one year ahead of the 2010 deadline. Lithuania steadily increased its figures in recent years; but no forecast has been made available and the country is hard hit by the economic crisis. The other EU-12 donors are off-track, as they forecast they will not reach the 0.17% ODA/GNI target in 2010, although Slovenia is relatively close to the target in 2009 . They need to take decisive steps to get their ODA budgets back on target.

The ODA indicators graphs in Annex 3 show each EU Member State's readiness to meet the individual ODA target levels of 0.51% and 0.17% of GNI respectively in 2010. Annex 4 outlines the methodology used to analyse ODA indicators and forecasts provided by the Member States.

4.3. Lessons learnt - the impact of EU ODA targets on policy decisions in EU Member States

Some key lessons can be drawn from experience since the adoption, in 2002, of EU ODA commitments and their revision in 2005: back-loading the increase in ODA expenditure has been the main factor in missing target levels. Sustained scaling-up process through debt relief grants is impossible: debt relief grants are "one-off" exercises by nature and insufficient if not replaced after the debt relief spike by "fresh money" in ODA budgets.

The EU commitments have been a useful anchor for scaling-up processes in a number of Member States:

- by bolstering more ambitious national plans or multi-annual budget planning (e.g. Spain and the UK: 0.56% by 2010);

- by "limiting the damage" in those Member States that have decided, since 2005, to slow down their initially more far-reaching national ODA plans: in France, Finland and Ireland 0.51% ODA/GNI provided the bottom line for downgraded national objectives for 2010;

- by setting in motion some kind of national process to increase ODA although not at a pace sufficient to meet the 2010 target (e.g. the Czech Republic, Germany, Greece, Portugal, and Slovenia).

This proves that the targets agreed at EU level have had a positive effect on increasing ODA. Some Member States, however, have not demonstrated any sustained trend of increasing ODA levels and some have yet to strengthen their efforts as new donors (see tables in Annex 5 on the ODA trajectories of individual EU Member States since 1995).

4.4. Enabling factors for aid increases in Member States

There has been some progress in establishing what can be considered "multi-annual timetables" for ODA, as called for by repeated Council Conclusions Most recently in the Council Conclusions of 18 May 2009, point 14. . Timetables have proven a useful tool for embedding the scaling-up of aid volumes in national budgets in line with stated commitments. Member States have taken different paths in developing timetables. [40]

Most recently in the Council Conclusions of 18 May 2009, point 14.

Enacting legislation to make 0.7% ODA/GNI a binding obligation. Belgium has set, by law, a minimum aid level commitment, called the ‘growth-path’ towards the 0.7 target. The ‘growth path’ is set out in the solidarity notes and can also be amended by the solidarity notes; these are drafted and approved by the government but the government cannot amend the legally binding target of 0.7% to be reached in 2010 See Article 10. http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=1991071746&table_name=loi . . In the UK , a draft International Development Spending Bill, published on 15 January 2010, introduces a legal obligation to spend 0.7% of GNI on ODA as from 2013; it is now being examined by the House of Commons In view of the forthcoming parliamentary elections in the UK the government has stated its intention to present a full Bill in the next parliamentary session. Draft bill: http://www.official-documents.gov.uk/document/cm77/7792/7792.pdf .[41][42]

See Article 10. http://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=fr&la=F&cn=1991071746&table_name=loi .

In view of the forthcoming parliamentary elections in the UK the government has stated its intention to present a full Bill in the next parliamentary session. Draft bill: http://www.official-documents.gov.uk/document/cm77/7792/7792.pdf

Multi-year budget spending plans /inclusion of ODA targets in national budget laws. So far the UK Government has set departmental budgets on a multi-year spending cycle over a three-year period through spending reviews. The Pre-Budget Report and Comprehensive Spending Review 2007 covers the financial years 2008/9 to 2010/11; it includes the ODA allocation to 2010 and details the commitment to reaching 0.7% ODA/GNI by 2013. In Ireland and Sweden the national ODA targets are enshrined in the annual budget law http://www.regeringen.se/content/1/c6/13/17/16/95c2a5d5.pdf. .[43]

http://www.regeringen.se/content/1/c6/13/17/16/95c2a5d5.pdf.

Government-endorsed development policy documents : Spain' s "Master Plan for Development Cooperation 2009-2012" was endorsed by the Spanish Government and Parliament. The Master Plan sets out the timeframes for reaching national ODA targets (which are more ambitious than the EU goals). Portugal published an annex to the budget law outlining future aid increases that are, however, not commensurate with its individual target of 0.51% for 2010) http://www.dgo.pt/oe/2009/Aprovado/Relatorio/Rel-2009.pdf . . The Finnish Development Policy Programme, i.e. a Government Decision-in-Principle, has stated the Government's commitment to ensuring that development cooperation appropriations will take Finland towards 0.7%. [44]

http://www.dgo.pt/oe/2009/Aprovado/Relatorio/Rel-2009.pdf .

Indicative multi-annual timetables : Both Bulgaria and Romania intend to have an indicative multi-annual timetable ready in 2010. Estonia will include a timetable for 2015 ODA targets in the Strategy for Estonian development cooperation and humanitarian aid for 2011-2015, which is under preparation.

4.5. How to demonstrate the EU's resolve to reach the 0.7% ODA/ GNI target by 2015?

As outlined in the Communication See footnote 1. , the EU now needs to demonstrate how to get back on-track to reach the 0.7% ODA/ GNI target and to prepare a credible pathway for bridging the gap to meeting the 2015 deadline . Any back-loaded scaling up of aid would be detrimental to supporting partner countries in achieving the MDGs and other internationally agreed development objectives, which is the rationale behind the EU ODA targets. As development assistance takes time to trigger results in reducing poverty, a sudden increase in aid only in 2015 would not help. Member States should therefore begin early with gradual ODA increases and indicate their chosen trajectories. Such national action plans should consist of the following, complementary elements: [45]

See footnote 1.

(1 ) Confirmation of the 0.7% target for 2015 as the EU collective target. Achieving this target entails that individually

- The Member States (EU-15) undertake to achieve 0.7% ODA/GNI;

- those which have achieved that target commit themselves to remaining above the target;

- the Member States that joined the EU since 2004 (EU-12) strive to increase their ODA/GNI to 0.33%.

This re-confirmation is necessary albeit, on its own, insufficient to re-establish EU credibility and needs to be complemented by action on the part of each Member State.

(2) Establishment of realistic and verifiable national ODA Action Plans by all Member States outlining how they aim to scale up and strive to achieve the 2015 ODA targets. Each Member State should commit to publishing individual plans for year-on-year ODA increases. The first action plans (covering actions in 2010 and 2011) should be published prior to the September UN HLPM. Subsequent annual action plans should be published by the end of the year preceding the spring Foreign Affairs Council (Development) (FAC). Core elements of the action plan are:

- Increasing ODA each year (by volumes and as a percentage of GNI) compared to the previous year in order to reach and sustain EU targets. ODA increases are an issue of political choice, even in difficult budgetary situations.

- Indicating ODA estimates for the remaining period until 2015 . Overall ODA increases in the period 2010–2015 should be commensurate with the individual target to be reached or sustained by and beyond 2015 (= 0.7% of GNI for the EU-15 and 0.33% for the EU-12; higher aid levels already achieved by the strong performers above established EU ODA thresholds should be maintained);

- Describing concrete actions to build public support for development in the Member State concerned;

- Outlining concrete actions to improve coverage of development-related issues in the national media and find new and better means of communication on development The Eurobarometer survey "Development aid in times of economic turmoil" of October 2009 revealed that 72% of Europeans are in favour of honouring or going beyond existing aid commitments to the developing world. Public support for the EU's motto “keeping our promises” is real. Europeans expressed a genuine interest in knowing more about development, mainly through better press coverage; most of the Mediterranean countries of the EU are dissatisfied with the level of media coverage : http://ec.europa.eu/public_opinion/archives/ebs/ebs_318_en.pdf . . The EU and its Member States need to better communicate development success stories and should do this more systematically and jointly. A better informed and educated public that is supportive to development cooperation can be a powerful ally in government commitments to increase ODA spending: only an educated public will be able to hold governments accountable for delivering on their commitments. [46]

The Eurobarometer survey "Development aid in times of economic turmoil" of October 2009 revealed that 72% of Europeans are in favour of honouring or going beyond existing aid commitments to the developing world. Public support for the EU's motto “keeping our promises” is real. Europeans expressed a genuine interest in knowing more about development, mainly through better press coverage; most of the Mediterranean countries of the EU are dissatisfied with the level of media coverage : http://ec.europa.eu/public_opinion/archives/ebs/ebs_318_en.pdf .

(3) Creating an EU-internal annual "ODA Peer Review" mechanism at the spring session of the FAC (Development) to assess the progress of each Member State, based on the annual monitoring report. The FAC should assess progress in every Member State and make recommendations to improve performance, as appropriate. The FAC should report the res ults of the ODA Peer Review and progress towards the 0.7% ODA/ GNI target annually to the European Council .

(4) Describing mechanisms for ensuring scaling up . The existence of national legislation, ring-fencing ODA goals or making them legally binding has proven instrumental in some Member States to ensuring ODA increases designed to reach the 0.7% target early (Belgium) or to maintain aid levels at or above that level (Sweden). Against this background, Member States should consider enacting national legislation on ODA levels with a view to reaching the agreed EU ODA targets or maintaining higher national aid levels (either through specific legislation, such as that currently being examined in the UK) or through specific annotations in the national budget laws.

The Commission is ready to extend its support, especially to those Member States that have joined the EU since 2004. Member States more advanced in the scaling-up process could also offer their cooperation to identify success factors that could foster national processes in those Member States that have to do better.

There are different options for going forward. Each Member State will have to define its individual path to reach the 2015 targets. The trajectory will differ depending on the choice made. Various options are available to bridge the gap from 2010–2015 (see illustrating graphs in Annex 5 for each Member State) The graphs confront the proposed trajectory with the forecast figures that Member States have provided for 2010 and beyond . . Whatever choice Member States make, serious and sustained efforts are required during the entire period. Back-loading ODA increases would harm efforts to reach the MDGs, as resources to support progress before 2015 are needed immediately. [47]

The graphs confront the proposed trajectory with the forecast figures that Member States have provided for 2010 and beyond .

· Adoption of an intermediate target for 2012 to bridge the gap between the 2009 results (EU 27 0.42% of GNI) and the 0.7% target for 2015. Individual minimum targets in the range of:

– EU-15: 0.57% ODA/ GNI by 2012 0.7%–0.44% of GNI in 2009 = 0.26%: 2 = 0.13% + 0.44% = 0.57%. [48]

0.7%–0.44% of GNI in 2009 = 0.26%: 2 = 0.13% + 0.44% = 0.57%.

– EU-12: 0.22% of GNI by 2012 0.33%-0.10% of GNI in 2009 = 0.23%: 2 = rounded up 0.12% + 0.10% = 0.22%. [49]

0.33%-0.10% of GNI in 2009 = 0.23%: 2 = rounded up 0.12% + 0.10% = 0.22%.

could lead to a collective EU average of the order of 0.6% by 2012.

· Linear ODA volume increases from 2009 aid levels to individually reach a minimum of 0.7% ODA/GNI by 2015 (EU-15) and of 0.33% (EU-12) and to maintain high levels once thresholds have been achieved.

· Regular percentage increase in ODA volumes from 2010–2015 with a view to reaching 0.7% by 2015 (same percentage of the absolute amounts in each year, but different percentage levels depending on where Member States stand today). The average annual increase required in ODA volumes is 12% for the EU-15 and 30% for the EU-12 Annex 5 details the individual increase required under this option for each Member State. . This option is also ambitious but entails some slight back-loading compared to linear scaling-up. [50]

Annex 5 details the individual increase required under this option for each Member State.

Fair burden-sharing among EU Member States is a key element in this undertaking. Lack of action will jeopardise the success of the EU as a whole on its collective 0.7% ODA/GNI target and each Member State needs to demonstrate its contribution to achieving the agreed common goal.

4.6. International burden-sharing

At the Pittsburgh Summit, the G-20 leaders reaffirmed their resolve to support the achievement of the MDGs and to deliver on their respective ODA pledges, including commitments on "Aid for Trade", debt relief, and those made at Gleneagles, especially to Sub-Saharan Africa, by 2010 and beyond G-20 Pittsburgh Summit Leaders' Statement 24-25 September, 2009, point 37. .[51]

G-20 Pittsburgh Summit Leaders' Statement 24-25 September, 2009, point 37.

Global ODA levels have steadily increased since 2000 Except in 2007, when global and EU aid slumped. , and ODA volumes are expected to rise by about 36% between 2004 and 2010. However, this increase falls short of demonstrating the necessary dynamics to meet the international ODA commitments , including those given by the G-8 in Gleneagles. While there should be additional aid of USD28 billion from 2004 to 2010, there is a USD22 billion shortfall between the 2005 pledges and recent OECD estimates for the 2010 outcome. Of this shortfall, USD18 billion results from lower-than-promised ODA spending, and USD4 billion from lower-than-expected GNI growth OECD DAC press release 14 April 2010: http://www.oecd.org/document/0,3343,en_2649_34487_44981579_1_1_1_1,00.html . .[52][53]

Except in 2007, when global and EU aid slumped.

OECD DAC press release 14 April 2010: http://www.oecd.org/document/0,3343,en_2649_34487_44981579_1_1_1_1,00.html .

Figure: Aid flows of EU and non-European G7 countries 2000 – 2010

(...PICT...)

According to OECD projections for 2010 only Norway (1.0% ODA/GNI) and Switzerland (0.47% ODA/GNI) will achieve aid levels higher than the expected combined EU-27 result: all other donors that are members of the OECD/DAC will have a substantially lower outcome, despite increasing aid volumes. The US may double its ODA to Sub-Saharan Africa between 2004 and 2010, but overall aid levels are forecast to remain as low as 0.19% of GNI. Japan may reduce the aid level to 0.18% of GNI in 2010. Canada, Australia and New Zealand are expected to live up to their pledge to double aid volumes from 2004 levels, reaching between 0.32% and 0.35% of their national income. New partners in development also need to contribute their fair share to the effort.

The EU continues to stand out as the only group of donors that has given a time-bound commitment on the 0.7% of GNI goal for ODA (by 2015). EU disbursements in line with this pledge could add up to EUR55.3 billion in 2010, mobilising an additional EUR7.6 billion compared with 2006 levels.

The difference in donors' aid targets demonstrates a global imbalance in commitment to supporting developing countries in achieving their development goals. As in previous years, in 2009 the majority of the global ODA came from the EU, which disbursed around 56% of the aid provided by DAC members. As up to now, most of the global ODA increase is set to come from the EU See previous footnote . .[54]

See previous footnote .

(...PICT...)

4.7. EU not acting in line with its promise on ODA to Africa

Since making the commitment to direct 50% of EU aid increases to Africa in 2005, the combined EU aid to Africa has not risen, but fallen. 2005 and 2006 were peak years for debt relief operations, also benefitting some African countries. In the years that followed, the increases in programmable aid did not make up for the drop in debt relief grants. As a result, the EU-15 total net ODA to Africa fell by EUR2.7 billion from its 2005 level. The fall in aid to Sub-Saharan Africa was even more acute as net ODA fell by EUR3.2 billion from its 2005 level. Combining this result with the fact that the EU's overall ODA continued to increase, the EU has not delivered on the commitment to provide 50% of the collective EU ODA increase to the African continent. Only Belgium, Denmark, Finland, Luxembourg and Portugal channelled more than 50% of the ODA increase to Africa in 2009, compared to 2005 levels .

Sub-Saharan Africa has also fared particularly badly in terms of the G8 Gleneagles pledge of an additional USD25 billion per year, with a gap of USD14 billion (in 2004 prices) estimated by the OECD.

Africa's overall share in the collective EU ODA has fallen from 44% to 37% from 2005 to 2009. A positive sign though is that if looking exclusively at total net aid excluding debt relief, ODA from the EU-15 to Africa rose from EUR7.2 billion in 2005 to EUR9.7 billion in 2009. Sub-Saharan Africa accounted for most of this increase (from EUR 6.2 billion to EUR 8.4 billion).

Some EU countries stand out for their special focus on Africa and Sub-Saharan Africa. Looking at the accumulated flows since 2005, 63% of Irish ODA has gone to Africa, the same for 60% of French and Portuguese ODA , with Belgium , Denmark , and Luxembourg and the UK also around the 50% level.

Many Member States stated in reply to the Monterrey survey that their bilateral aid programmes focus on Africa. The White Paper on Irish Aid states that Africa should remain the primary geographic focus for Ireland’s development programme. Other Member States - Belgium, Cyprus, Finland, France, Italy, Netherland, Portugal and Spain - have decided to spend or are spending at least 50% of their bilateral programmable aid in Africa. Most of the EU-12 contribute to Africa through multilateral channels, although some are considering increasing their bilateral commitment to the region as well.

(...PICT...)

(...PICT...)

4.8. ODA to Least Developed Countries – EU target still within reach

In November 2008, Member States promised, as part of the EU's overall ODA commitments, to provide collectively 0.15% to 0.20% of their GNI to Least Developed Countries (LDCs) by 2010 while fully meeting the differentiated commitments set out in the "Brussels Programme of action for the LDCs for the decade 2001-2010".

According to the Commission simulations, LDCs' share of EU ODA has decreased both in absolute and relative terms and was at EUR 13.5 billion or 0.12% of GNI in 2009. Nevertheless, reaching collectively the lower end of the target of 0.15%-0.20% ODA/GNI allocated to LDCs by 2010 and onwards remains feasible. According to the replies to the 2010 Monterrey survey, 10 of the EU-15 Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, the Netherlands, Sweden, the UK. will reach or have already reached this target. The vast majority of the EU-12 are ready to reserve a certain amount of ODA for LDCs. [55]

Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, the Netherlands, Sweden, the UK.

Figure: EU ODA to LDCs

(...PICT...)

4.9. Reinforced reporting on ODA flows

Most EU non-DAC donors report their ODA to the OECD/DAC. The Commission encourages all of them to do this, in line with DAC reporting rules, although none of the EU-12 are yet DAC members. Bulgaria and Malta have yet to start reporting systematically to the DAC . The Commission will continue to work with the DAC secretariat on providing support to the EU's non-DAC donors in enhancing their statistical reporting capacity.

The Commission is ready to support the OECD/DAC in its efforts to develop, in addition to the work on ODA, more detailed reporting on other, non-ODA financial flows that have an impact on development. This information could provide transparency in donors' non-ODA actions, which may help or hinder developing countries' progress towards their development objectives.

4.10. A credible pathway for the future

· In order to reach the ultimate EU goal to provide 0.7% of the combined national income as ODA by 2015 and beyond, drawing up annual national action plans is essential and should be complemented by reinforced EU internal monitoring ( annual ODA "Peer Review" ).

· Consideration should be given to enacting national legislation on ODA levels with a view to reaching the 0.7% ODA target by and beyond 2015 and to ring-fencing ODA spending commensurate with this target.

· Member States should redouble their efforts to increase their aid to Sub-Saharan Africa and to provide half of the pledged aid increases to the African continent.

· Member States need to enhance their efforts to increase aid to LDCs with a view to meeting the 0.15-0.20% ODA/ GNI target in 2010 and to sustain their efforts once they have achieved that level.

· The EU should call on all international donors and new actors to contribute their fair share of the effort by increasing their aid levels.

· Reinforced efforts are required by the EU and its Member States and by the OECD DAC to better track and report on ODA and non-ODA flows relevant to the development of poor countries.

5. Innovative sources and mechanisms of financing: a new debate

The European Council Conclusions of the European Council of 29-30 October 2009, point 27. :[56]

Conclusions of the European Council of 29-30 October 2009, point 27.

· agreed on the need to prepare a coordinated strategy for exiting from the broad-based stimulus policies when recovery is secured,

· invited the Commission to examine innovative financing at global level , with a view to facilitating fiscal exit strategies and fiscal consolidation,

· recognised the need to significantly increase financing to help developing countries implement ambitious climate mitigation and adaptation strategies, without jeopardising the fight against poverty and continued progress towards the MDGs,

· highlighted the role of innovative financing in ensuring predictable flows of financing for sustainable development, especially towards the poorest and most vulnerable countries.

Initially, innovative financing mechanisms were considered in order to address financing needs for development. Not least because of many donor countries' difficulties in meeting their ODA commitments in the medium term, innovative sources of financing could play a more prominent role in the near future. Development budgets are coming under increasing pressure, partly because of the significant commitments that developed countries made in the Copenhagen Accord to scale up the financing of climate change measures in developing countries.

The Leading Group on Innovative Financing for Development is spearheading the international debate on this issue. It was founded in 2006 with a Secretariat in Paris and now has 59 member countries from the North and South, in addition to the main international organisations and NGO platforms For further information see www.leadinggroup.org. . EU Member States are very supportive of this initiative: nine are members ( Belgium, Finland, France, Germany, Italy, Luxembourg, Poland, Spain and the UK) , as is the Commission; Austria, the Netherlands and Romania are observers , and Denmark, the Netherlands, Portugal and Sweden have expressed interest in joining . Sector-relevant discussions are pursued in a number of thematic working groups where concrete proposals for action against hunger and poverty, on illicit flows and tax evasion, on international financial transactions for development, and on education and development are examined. In addition, the Leading Group cooperates with the Taskforce on Innovative Finance for Health Systems led by the World Bank and the UN. [57]

For further information see www.leadinggroup.org.

In October 2009 the Leading Group on Innovative Financing for Development established a Taskforce on International Financial Transactions for Development, in which Belgium, Fran ce, Germany Spain and the UK are represented, in addition to six non-EU countries.

In its recent Staff Working Paper "Innovative financing at a global level" SEC(2010) 409 of 1 April 2010. , the European Commission provided an assessment of the various instruments of innovative financing relating to the financial sector, climate change and development on the basis of a number of criteria.[58]

SEC(2010) 409 of 1 April 2010.

5.1. EU Member States lead most initiatives on innovative sources of finance

Depending on the definition, only about a third of all EU Member States raised funds via innovative mechanisms in 2009, but they are piloting most of the existing mechanisms.

· Air ticket levy : France was one of the first countries (in July 2006) to introduce an air ticket levy with a sliding scale based on destination and class. Most of the proceeds are earmarked for development finance, notably an International Drug Purchase Facility (UNITAID) aimed at combating the major pandemic diseases affecting the developing world. The French air ticket levy collected EUR 165 million in 2007, EUR 173 million in 2008 and EUR 162 million in 2009. Following this example, which was subsequently promoted by the Leading Group on Innovative Financing for Development , several other countries around the world introduced similar air ticket levies, including Chile , the Ivory Coast , the Republic of Korea , Madagascar , Mauritius and Niger, which allocate all or a share of the revenues to UNITAID. Furthermore, Luxembourg and Spain collect voluntary contributions from air passengers. Cyprus (EUR 0.4 million), Luxembourg (EUR 0.5 million) and the UK (£25 million) are supporting UNITAID from their general budgets.

· International Financing Facility (IFF) : The general concept of the IFF was first put forward by the UK Government in 2003. It is designed to frontload aid by issuing bonds in international capital markets, backed by binding long-term commitments from donors to provide regular payments to the facility. The first concrete implementation of the IFF concept is the International Finance Facility for Immunisation ( IFFIm ) begun in November 2006. The IFFIm' total anticipated disbursement of USD 4 billion is expected to protect more than 500 million children through immunisation in more than 71 developing countries. So far, IFFIm bonds have raised more than USD 2 billion for immunisation programmes run by a charity called the GAVI Alliance. IFFIm's financial base consists of legally binding grants from its sovereign sponsors, which are France , Italy , Norway , Spain , Sweden, the United Kingdom and South Africa .

· Advance Market Commitment (AMC): The idea of an AMC was strongly promoted by the governments of Italy and the UK from the end of 2005. The idea is that donors guarantee a set envelope of funding to purchase at a given price a new product that meets specified requirements, thus creating the potential for a viable future market. In June 2009, the governments of Italy, the UK, Canada, the Russian Federation, Norway and the Bill & Melinda Gates Foundation launched the pilot AMC against pneumococcal disease with a collective USD 1.5 billion commitment. The supporters of this pilot AMC estimate that the introduction of a pneumococcal vaccine through the AMC could save approximately 900,000 lives by 2015 and over 7 million lives by 2030. In October 2009, four suppliers made offers to supply vaccines under the Pneumococcal Advance Market Commitment.

· Debt-for-development swaps: for instance Germany introduced the conversion of debt into grants for health financing in the "Debt2Health initiative". It reduces partner countries’ debt as the corresponding amounts are invested in additional financial resources for health systems through the Global Fund. In this way, Germany disbursed EUR 40 million in 2008 and EUR 10 million in 2009. Similarly, the government of Australia is implementing an arrangement worth some EUR50 million with the Indonesian Government.

· Tax discounts: Many Member States provide tax exemptions or write-offs for private funding of development, for example through civil society organisation, foundations or charities. Such tax reductions exist in Austria, Belgium, Denmark, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain and the UK .

Some Member States are considering broadening the application of the above existing mechanisms either by joining them or by extending their scope to new areas. Romania considers the introduction of an airline ticket levy to support UNITAID and Portugal is assessing possible support to UNITAID. The UK is currently exploring the potential for a second vaccine AMC and an AMC for climate change. The Commission proposed in early 2009 to launch an IFF for climate change, but this is finding little support among Member States Communication COM(2009) 39 of January 2009 “ Towards a comprehensive climate change agreement in Copenhagen”. .[59]

Communication COM(2009) 39 of January 2009 “ Towards a comprehensive climate change agreement in Copenhagen”.

In their replies to the annual questionnaire several Member States indicated their interest in introducing new levies, with all or part of the revenues earmarked for development. Several Member States consider a financial transactions tax or a currency transaction levy , in particular, a promising instrument for raising revenues For instance Austria, Belgium, Spain and the UK. .[60]

For instance Austria, Belgium, Spain and the UK.

More recently, a stability levy on certain positions on banks' balance sheets is gaining increasing international support. This follows its use by Sweden for a crisis management fund and the proposal by the US administration to recover support for the financial sector from the general budget in the current crisis. For climate change , auctioning emission allowances will be the mainstay of the EU Emission Trading Scheme (ETS) from 2013 on, at least half of the revenues of which should be used for energy and climate change purposes, some of it for developing countries. Already Member States can auction part of the ETS emission allowances. Germany has taken this approach and raised revenues of EUR 933 million in 2008 and about EUR 530 million in 2009, of which EUR 120 million and EUR 230 million respectively were used for ODA. Several Member States also support using revenues from levies on international aviation and maritime transport to finance climate change projects in developing countries Finland, France and Poland would support aviation and maritime levies to fund climate change related projects. Belgium, Denmark and Spain only explicitly supported an aviation levy for that purpose, but did not mention maritime transport levies. (Austria explicitly disagrees to an aviation levy for this purpose). . The feasibility of a specific mechanism for tax discounts called "De-Tax" is being examined by Italy : a certain share of value added tax (VAT) on goods and services, based on consumer and business choices, would be earmarked for development and then be topped up by voluntary contributions by the businesses benefitting from the scheme in a dedicated fund to strengthen health systems in poor countries. Finally, Belgium has earmarked nearly EUR 90 million of lottery proceeds for development-related purposes.[61]

Finland, France and Poland would support aviation and maritime levies to fund climate change related projects. Belgium, Denmark and Spain only explicitly supported an aviation levy for that purpose, but did not mention maritime transport levies. (Austria explicitly disagrees to an aviation levy for this purpose).

5.2. Broadening existing mechanisms and introducing new ones

The above FfD mechanisms, most of them frontloading public funding through the capital markets or leveraging private finance through public incentives, have proven to deliver important contributions. While their individual revenue-raising potential might be limited, the combination of these instruments has a significant effect in specific areas, notably in the health sector. Frontloading public finance for development can be particularly efficient if it prevents substantially higher costs or risks in the future by acting at an early stage. However, these debt-based instruments can entail the risk of additional and hidden burdens on the aid budgets of donor countries in the future. As a consequence, future aid flows may be adversely affected, creating inter-temporal distribution problems where the projects financed have a lower-than-expected economic rate of return. Instruments aimed at leveraging private finance increase the capacity of public funds to channel resources into investments with high economic returns, but the risk of deadweight effects in the private sector needs to be properly addressed.

The value added of innovative mechanisms compared to general budget resources as sources of financing for development should be properly assessed. While the general budgets of donor countries will have to be the major source of development finance, there is little doubt that pressure will mount to further exploit the potential of innovative finance mechanisms, notably to increase the prospects of meeting the MDGs. However, innovative financing related to economic activities, e.g. taxes on transactions, transport or emissions, can also be subject to volatility as the tax base changes with economic cycles. This became evident in the lower revenues from some of the above mechanisms in 2009. Revenues from innovative financing are also frequently used for so-called " vertical funds " which face problems of aid effectiveness by often being insufficiently owned by partner countries and not well integrated into their broader poverty reduction strategies. Furthermore, setting-up and managing such vertical funds can be complex and tie up considerable resources for administration, which are then not available for their main purpose of reducing poverty. It is therefore indispensable to secure , also in the field of innovative finance, the full respect of the agreed principles of aid effectiveness . Relevant implementation issues to ensure effective disbursement at beneficiary level have to be addressed. This requires specific in-depth analysis and full agreement among the main stakeholders concerned.

6. Debt sustainability and debt management capacity – major concerns

Debt relief has substantially alleviated debt burdens in recipient countries. However, a number of challenges remain as Heavily Indebted Poor Countries ( HIPCs ), which have not yet reached completion point C ompletion point is the second and last step (after the decision point) towards receiving a full and irrevocable reduction in debt under the HIPC/MDRI initiatives. It is reached once the triggers agreed at the decision point are met by the debtor country. under the IMF/ World Bank HIPC initiative and the Multilateral Debt Relief Initiative ( MDRI ) See ' Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) - Status of Implementation 2009' of September 15, 2009, available on the IMF and World Bank web sites. , need to strengthen their debt management policies and institutions with continued support from the international community. It is crucial to that HIPCs are granted full debt relief, if eligible under the HIPC Initiative and the MDRI, from all creditors, including smaller multilateral creditors, non-Paris Club bilateral official creditors, and private creditors. Moreover, these international debt relief initiatives themselves need to be fully financed, also to cover potential new HIPCs which may require additional resources from some contributors.[62][63]

C ompletion point is the second and last step (after the decision point) towards receiving a full and irrevocable reduction in debt under the HIPC/MDRI initiatives. It is reached once the triggers agreed at the decision point are met by the debtor country.

See ' Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) - Status of Implementation 2009' of September 15, 2009, available on the IMF and World Bank web sites.

Notwithstanding debt relief, maintaining debt sustainability beyond the completion point is a worry for many HIPCs and the global crisis has exacerbated such concerns. Although analyses from the World Bank and the IMF do not so far indicate a great danger of a widespread debt crisis among HIPCs, the risks are increasing. HIPCs need to carry out sound borrowing policies and strengthen their capacity to manage public debt to avoid falling back into debt distress situations.

6.1. Implementing debt relief and preserving debt sustainability: all donors need to participate

Continued participation by creditors and donors in existing debt relief initiatives , in particular the HIPC and MDRI, is central to debt sustainability. In order to alleviate the impact of the financial and economic crisis on progress towards the MDGs, the EU needs to continue to give full support to the HIPC/MDRI initiatives. The statements by almost all Member States in their replies to the Monterrey survey that they have delivered on their commitments to the HIPC/ MDRI initiatives on time , are consistent with World Bank/IMF reporting on the subject.

Member States' replies also suggested that existing debt management and sustainability mechanisms should be further enhanced, their membership broadened and capacity in developing countries improved.

Despite the risk of more restricted access to new loans and the higher borrowing costs, many developing countries will be forced to resort to new borrowing to support continued investment in human and physical capital. These new loans need to be carefully managed, especially since a number of post-completion-point HIPCs were already assessed as being at high risk of debt distress prior to the economic downturn. Maintaining long-term debt sustainability in post-HIPC/MDRI Low-Income Countries ( LICs) will be central in the future. EU Member States apply the OECD principles and guidelines to promote sustainable lending practices in the provision of official export credits to low income countries and are committed to using the joint World Bank/IMF Debt Sustainability Framework to make informed decisions on lending. Much of the debt sustainability problem derives from the failure to enhance debt management capacity. It is therefore encouraging that twelve Member States Austria, Belgium, Czech Republic, Denmark, France, Germany, Ireland, the Netherlands, Poland, Portugal, Spain, the UK. reported that they were taking action to promote debt sustainability, mainly by participating in existing international initiatives in this area such as the Debt Management and Financial Analysis System Programme (DeMFAS) managed by UNCTAD See http://r0.unctad.org/dmfas/ . and the Debt Management Facility (DeMF) Information available on the Wold Bank web site: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,contentMDK:22359443~menuPK:6030665~pagePK:64166689~piPK:64166646~theSitePK:469043,00.html . managed by the World Bank, to which the Commission is also planning to contribute. Moreover, some Member States are exploring the possibility of supporting the African Legal Support Facility http://www.afdb.org/en/topics-sectors/initiatives-partnerships/african-legal-support-facility/ . .[64][65][66][67]

Austria, Belgium, Czech Republic, Denmark, France, Germany, Ireland, the Netherlands, Poland, Portugal, Spain, the UK.

See http://r0.unctad.org/dmfas/ .

Information available on the Wold Bank web site: http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,contentMDK:22359443~menuPK:6030665~pagePK:64166689~piPK:64166646~theSitePK:469043,00.html .

http://www.afdb.org/en/topics-sectors/initiatives-partnerships/african-legal-support-facility/ .

Member States have not usually taken individual action to mitigate the negative impact of the economic and financial crisis on debt sustainability but have rather supported and participated in multilateral initiatives, e.g. the EU Vulnerability Flex initiative or the World Bank crisis response window.

Questioned on the need to reform the international architecture for restructuring sovereign debt in order to deal with potential future cases of debt distress in LICs, Member States do not propose to go beyond the line expressed in the Council Conclusions of May 2009 Council Conclusions 18 May 2009 (Support to developing countries in coping with the crisis) point 12. , which is 'to support discussions, if relevant, on enhanced forms of sovereign debt restructuring mechanisms, based on existing frameworks and principles (…)'. Most Member States do not expect the EU or the Commission to take the initiative in this field but to participate in a coordinated manner in discussions which are mainly led by the international financial institutions (IFIs).[68]

Council Conclusions 18 May 2009 (Support to developing countries in coping with the crisis) point 12.

A majority of Member States see a role for the EU and the Commission in encouraging more participation from the non-Paris Club creditors in debt relief for LICs and to promoting comparable treatment for non-HIPC countries that have benefited from the Evian approach of the Paris Club.

In its May 2008 Conclusions Council Conclusions of 27 May 2008, point 41. , the EU committed itself to not sell claims on HIPCs to creditors unwilling to provide debt relief and called on all countries to do likewise and to deter aggressive litigation by distressed-debt funds (commonly referred to as 'vulture funds'). Questioned on the need for specific interventions to prevent these aggressive litigations against HIPCs, the questionnaire replies demonstrate that specific interventions by EU Member States are still rare and isolated and that, for the moment, there seems to be no desire for a Commission proposal or an EU initiative in this area.[69]

Council Conclusions of 27 May 2008, point 41.

6.2. Next steps

In the light of these findings and challenges, and reflecting earlier Council Conclusions, the following measures should be taken:

· provide continued full and timely support for implementation of the HIPC/MDRI initiatives including for arrears clearance;

· call on commercial and non-Paris Club official creditors to step up their contribution to implement the HIPC initiative and to granting comparable treatment to non-HIPC countries that have benefited from the Evian approach;

· support discussions on enhanced sovereign debt restructuring mechanisms based on existing frameworks and principles, including the Paris Club, with a broad participation by creditors and debtors and comparable burden sharing among creditors and with a central role for the IMF and the World Bank in the debate As reflected in the May 18, 2009 Council Conclusions. ;[70]

As reflected in the May 18, 2009 Council Conclusions.

· strengthen the debt management capacity of debtor nations giving a preference to participation in existing international initiatives;

· provide highly concessional loans to HIPC graduated countries in risk of debt distress.

7. International governance reforms – strengthening the voice and representation of developing countries

International financial stability is a global public good. The global financial and economic crisis has revealed a clear global and economic governance deficit. The ongoing international review of the international financial and monetary architecture and global economic governance should ensure more effective and coordinated management of global issues such as financial stability, food and energy security, climate change and the fight against major pandemics. The review should encompass the World Bank, other multilateral development banks (MDBs), the IMF and the United Nations and its specialised agencies, funds and programmes (such as the FAO, the WHO and the ILO), the WTO and relevant regional organisations . The main challenge is to strike the correct balance between the legitimacy (through representativeness) and the effectiveness of global institutions. In this context the implementation of the G20 London Summit commitments including those on the reform of global financial governance are essential G-20 London Summit Communique of 2 April 2009. . Europe, in line with its long-standing commitments Council Conclusions on the UN Conference on Financing for Development (Monterrey), 14 March 2002 point 7 g). , should be driving the necessary reforms and should ensure that the interests and needs of developing countries are taken into account.[71][72]

G-20 London Summit Communique of 2 April 2009.

Council Conclusions on the UN Conference on Financing for Development (Monterrey), 14 March 2002 point 7 g).

7.1. Governance reform of the Bretton Woods institutions

The 2008 reform package adopted by the International Monetary Fund was a first step in improving the alignment of members' quotas with their relative positions in the world economy and has helped to strengthen the voice and representation of developing countries; the next review of quotas should be completed by January 2011 G-20 London Summit Leaders' Statement of 2 April.2009, point 20. .[73]

G-20 London Summit Leaders' Statement of 2 April.2009, point 20.

The currently discussed World Bank governance reform package includes an increase in developing and transition countries' voting shares in the International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) with special emphasis on the smallest poor members as an important first step. The G20 and Development Committee decided a shift in voting rights of at least 3% towards developing and transition countries in addition to the 1.46% increase favouring underrepresented countries, agreed on in the first phase of the reform. The majority of EU Member States agree that a f urther realignment of shareholdings in the Bank should take account of the evolving weight of all members in the world economy 14 out of 27: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden and the UK. and contributions to the World Bank Group, particularly to the IDA This was stated by several EU Member States, e.g. Belgium, France, Germany, Finland and Spain. . This is consistent with the World Bank Group's ' Development Mission' . A number of Member States Austria, Denmark, Finland, France, Greece, Italy, Luxembourg and the UK. and the Commission believe that strengthening basic votes (in the IBRD and IFC The International Bank for Reconstruction and Development and the International Finance Corporation. ) would be a good option to protect and strengthen the voting power of the poorest, the low income countries (LICs ). The crucial question is how this increase in voting power for developing and transition countries will be implemented. For the EU, t he long-term objective should be one single European seat at the IMF and the World Bank.[74][75][76][77]

14 out of 27: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Sweden and the UK.

This was stated by several EU Member States, e.g. Belgium, France, Germany, Finland and Spain.

Austria, Denmark, Finland, France, Greece, Italy, Luxembourg and the UK.

The International Bank for Reconstruction and Development and the International Finance Corporation.

The majority of EU Member States All Member States that were members of the EU prior to 2004. and the Commission support an open, transparent merit-based process to select the IMF Managing Director, the World Bank President and senior staff of the two institutions regardless of their nationality. [78]

All Member States that were members of the EU prior to 2004.

7.2. Improving the efficiency and instruments of the International Financial Institutions (IFIs)

The G20 called for increased the resources and improved IFI instruments , particularly for low-income countries, and the Bretton Woods institutions took steps to support developing countries:

· Regarding the IMF http://www.imf.org/external/np/exr/facts/sdr.htm . : (1) allocation of USD250 billion of Special Drawing Rights (SDR); (2) gold sales; (3) changes to IMF instruments, also favouring low income countries; (4) an appeal from the G-20 Pittsburgh Summit to developed countries, to volunteer their own Special Drawing Rights (SDR) resources to support IMF lending to the poorest countries G-20 London Summit Leaders' Statement point 36. .[79][80]

http://www.imf.org/external/np/exr/facts/sdr.htm .

G-20 London Summit Leaders' St