EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 7.10.2005 
COM(2005) 133 final/2 
  
CORRIGENDUM: Table 2, p. 7 
Concerns EN, FR, DE 
COMMUNICATION FROM THE COMMISSI ON TO THE CO UNCIL AND THE 
EUROPEAN PARLIAMENT 
Accelerating progress towards attaining the Millennium Development Goals - Financing 
for Development and Aid Effectiveness 
{SEC(2005) 453} 
{SEC(2005) 454} 
 
EN 2   EN EXECUTIVE SUMMARY  
The UN High Level Event (HLE), which will nota bly take stock of th e progress achieved on 
the Millenium Declaration, in cluding the Millennium Deve lopment Goals (MDGs), will 
include a distinctive meeting on Financing for Development (FfD) and will be prepared by the UN High Level Dialogue on FfD. The annual mon itoring questionnaire submitted to Member 
States in October 2004 took these circumstances  into account in the formulation of the 
specific questions. 
Based on the replies by Member States (MS) the Commission: (1) provides an update on the 
state of implementation of th e eight “Barcelona Commitments” which the EU made in the 
context of the Monterrey Conference on Financin g (FfD) in 2002, (2) assesses which of them 
need to be renewed (Official Developmen t Assistance (ODA), innovative sources of 
financing, debt relief) and wher e progress in the European Uni on or on the international arena 
justifies a review of commitments (coordi nation, Global Public Goods (GPG)), and (3) 
presents concrete proposals for new EU commitments. 
The original commitments on ODA volume, coor dination of policies and harmonisation of 
procedures, untying of aid, Trad e-Related Assistance (TRA) and debt relief could be met in 
2006, and it might therefore be timely to consid er new concrete commitments for the time 
thereafter. The state of the art of work on GPG and Innovative Sources  of Financing would 
justify consideration of more concrete commitme nts. The state of discussions on the reform of 
the International Finance System, however, make s it unlikely that the de sired results will be 
achieved by 2006. 
The Communication outlines a way towards a po ssible new interim target for increased ODA 
volumes in the EU by 2010 and towards the UN target for ODA of 0.7% Gross National 
Income (GNI) by 2015. It suggests new aid modalitie s as well as a line on innovative finance 
sources and proposes ways to address the remain ing post-HIPC debt problems of low income 
countries. With regard to GP G it suggests redefi ning the EU commitment. On coordination 
and harmonisation the main challenge ahead lies  in credible implementation of the recently 
agreed EU framework as well as of the re sults of the recent High Level Forum on aid 
effectiveness and concrete steps forward on complementarity in aid delivery. The 
commitment on reform of the Internationa l Finance System must be strengthened. 
1. B
ACKGROUND : THE MONTERREY CONSENSUS , THE EU CONTRIBUTION AND THE 
WAY AHEAD  
The Conference on Financing for Development in Monterrey addressed th e two issues of the 
necessary “means” (i.e. financing) and the most effective “ways” (i.e. aid effectiveness) of 
achieving the internationally agreed development goals including the objectives of the Millennium Declaration. Thes e are two mutually reinforci ng objectives, and progress should 
be made on both. The EU contributed to the positive result of the Monterrey Conference, through the so-called “B arcelona commitments”
1 composed of: 
                                                 
1 Council Conclusions of 14 March 2002 on the UN Conference on FfD (Monterrey), see Annex 1. 
 
EN 3   EN • Commitments on ODA, volume and sources  – increased ODA volumes, innovative 
sources of financing, initiatives concer ning GPG and debt relief for Heavily 
Indebted Poor Countries (HIPC); 
• Commitments on aid effectiveness  – closer coordination of policies and 
harmonisation of procedures, untying of ai d, trade-related assistance (TRA), the 
reform of the International Financial System. 
The Council mandated the Commission to mon itor the implementation of the commitments. 
The 2003 report fed into the preparations for the first UN High Level Dialogue on FfD in 
October 20032. The 2004 report3 triggered the EU report “ Advancing coordination, 
harmonisation and alignment: The contribution of the EU ”, endorsed by the Council in 
November 20044, which formed a substantial input to  the High Level Forum II (HLF II) in 
Paris in March 2005. 
Among the key challenges for the HLE, to which the EU is expected to make a substantial 
contribution, are: (i) a persistent financing ga p, (ii) the effective use of ODA and (iii) the 
continuing unsustainable debt  burden on many poor countries. 
A detailed description of the state of progres s in the implementation of the EU commitments 
is set out in a separate Staff Working Paper5. 
                                                 
2 SEC(2003) 569, 15.5.2003. 
3 COM(2004)150, 5.3.2004. 
4 Council conclusions of the GAERC 22-23.11.2004; 14724/04 (Presse 325) p. 37, see Annex 2. 
5 Staff Working Paper SEC(2005) 453: EU follow-up to the “Barcelona commitments” and 
operationalisation of the Monterrey Consensus. 
 
EN 4   EN 2. T HE COMMITMENT TO INCREASE FINANCIAL RESOURCES FOR ODA 
2.1. EU performance in 2003 
In terms of the ODA/GNI ratio the Barcelona comm itment sets an individual baseline target 
of 0.33% for each MS that c ontributes to achieving the co llective EU target of 0.39% by 
2006. In 2003 the EU reached an average of 0.34% of ODA/GNI. This is above the average of OECD/DAC countries (except for Norway and Sw itzerland). Ten MS have  either achieved or 
pledged to achieve the commitment of 0.7%  ODA/GNI. An ODA decr ease in Austria, 
Denmark, Ireland, Spain, Sweden and Italy reco rded in 2003 is partly a consequence of 
exceptional ODA increases in 2002 due to special debt relief efforts.  
Diagram 1: EU ODA levels by Member States in 2003 
0,00,10,20,30,40,50,60,70,80,9
%ODA/GNI
DKLUNLSEBEFRIEFI
UKDEESPTELATIT
New MS> 0.7%
ODA/GNI
< 0.7%
ODA/GNI
< 0.33%
ODA/GNI
 
Data source: OECD/DAC Annual re port 2004, statistical annexes. 
Diagram 2: ODA/GNI contributions in 2003: The EU compared to other DAC Members  
00,10,20,30,40,50,60,70,80,91
EU 25
United StatesJapan
New Zealand
Canada
Australia
Switzerland
Norway% ODA/ GN IGap to
UN
target2015
ODAlevel
2003
 
Data source: OECD/DAC Annual report 2004, statistical annexes. 
 
EN 5   EN In terms of actual volume, ODA rose  in 2003 in 12 MS compared to 20026. EU-25 ODA 
flows increased from €28.4 bn in 2002 to €33 bn in 2003, representing an additional €4.6 bn 
p.a.. The new MS increased their collectiv e contribution by 53% in real terms. 
While ODA flows have grown, a sizeable proporti on of the increase is due to debt relief 
operations. It is not in keeping with the spirit  of the Monterrey consensus, which indicated 
that the HIPC initiative “should be fully financed through additional resources”. In this 
respect, the effect and impact on ODA flows of the debt relief efforts, su ch as the one for Iraq, 
will have to be scrutinized. In addition, it is important that debates on the definition of ODA 
don’t undermine the credibility and measurab ility of the donors’ commitment made in 
Monterrey. 
Diagram 3:EU ODA flows and debt relief 2000-2003 
EU ODA flows 2000-2003
 05 00010 00015 00020 00025 00030 00035 00040 000
2000 2001 2002 2003
2005-Iraqi Debt 2006-Iraqi Debt€ millionPar is  Club
Commitment
HIPC
Non HIPCDebt
Non-Debt
 
Data source: OECD/DAC Annual re port 2004, statistical annexes. 
2.2. ODA perspective for 2006 
If commitments by MS are confirmed over time , the EU would collectively reach an ODA 
level of 0.42% of GNI in 2006 – representing a potential allocation of  €46.5 bn p.a. In this 
context, the low level of Italian ODA remains of particular concern. 
                                                 
6 Belgium (by 62,9%), France (by 30,5%), Sweden (by 27,6%), Luxemburg (by 26,3%), United Kingdom 
(by23,4%), Ireland (by 18,3%), Ge rmany (by 18,1%), Greece (by 14,4 %), Spain (by 13,7%), Finland 
(by 11,7%), the Netherlands (by 9,9%) and Portugal (by 5,7%). 
 
EN 6   EN Table 1: EU ODA levels 2003-2006 
2003 2006
ODA GNI OD A GNI
€ ml % € ml %
Austria 447 0,2 814 0,33
Belgium 1640 0,6 1568 0,5
Cyprus 20 , 0 2 30 , 0 2
Czech Republik 80 0,11 125 0,133
Denmark 1547 0,84 1716 0,82
Estonia 10 , 0 1 3 2 0 , 0 2
Finland 494 0,35 672 0,42
France 6420 0,41 8284 0,47
Germany 6005 0,28 7565 0,33
Greece 320 0,21 616 0,33
Hungary 19 0,03 27 0,03
Ireland 446 0,39 856 0,61
Italy 2153 0,17 4795 0,33
Latvia 10 , 0 0 8 50 , 0 3 7
Lithuania 20 , 0 1 1 40 , 0 7
Luxembourg 172 0,81 223 0,9
Malta 30 , 0 7 90 , 1 8
The Netherlands 3524 0,8 3947 0,8
Poland 24 0,01 227 0,1
Portugal 283 0,22 479 0,33
Slovak Republic 13 0,05 33 0,092
Slovenia 20 0,1 29 0,1
Spain 1736 0,23 3288 0,37
Sweden 2124 0,79 2819 1
UK 5560 0,34 8146 0,42
EU 15 TOTAL 32871 0,35 45788 0,43
EU 10 Total 165 0,04 474 0,09
EU 25 TOTAL 33036 0,34 46262 0,42 
Data sources: OECD/DAC Annual report 2004, st atistical annexes and replies of EU Memb er States to the Monterrey questionnaire 
2.3. A new interim target for 2010 
The European Council of December 2004 confirme d the EU’s commitment to the MDGs and 
mandated the Commission to present to the Council “ concrete proposals on setting new and 
adequate ODA targets for the period 2009-2010, while taking into account the position of the 
new Member States ”.  
The Commission suggests establishing two in tertwined targets to  be reached by 2010: 
(1) an individual threshold for MS, di fferentiating between  those who were 
already members of the EU in 20 02 (Barcelona commitments-EU15) and 
those who joined later (EU10); 
(2) a collective average for a ll Member States (EU25). 
 
EN 7   EN These targets have to be sufficien tly ambitious in order to credibly ensure that it is possible to 
reach 0.7% by 2015 . In line with the Counc il request to set a “ new and adequate target ” this 
entails to go half the way by 2010  to bridge the gap. Based on the approach applied for the 
Barcelona commitments in 2002 the Commission proposes  
(1) for each of the Member States whic h participated in the Barcelona 
Commitments (EU15) that are still below the following baseline, to increase ODA to the new individual baseline of (0.51) %  of ODA/GNI.  
(2) For the MS having jointed after 2002 (EU10)  to reach an individual baseline 
of (0.17)% ODA/GNI  in 2010, thereby reaching the midpoint towards the 
“Barcelona acquis” of 0.33% in 2015.. 
The figure of 0.51 % in 2010 represents the midpoint between 0.33% in 2006 and 0.7% in 
2015. The proposal will ensure a fair burden sharing between the MS and result in a 
collective average of (0.56 )%  (EU 25), triggering an esti mated additional €20 billion by 
2010. 
Table 2: Proposal for new EU ODA targets 2006-2010 
2006 2010 GAP 2010-2015
ODA %GNI ODA %GNI ODA %GNI
€ml €ml €ml
Austria 813,5054 0,33 1360,872 0,51 538,2346 0,19
Belgium 1567,99 0,5 2376,14 0,7 0 0
Cyprus 2,773301 0,02 25,51623 0,17 25,4952 0,16
Czech Republik 124,9292 0,133 172,847 0,17 0
Denmark 1716,347 0,82 1789,86 0,79 0 0
Estonia 1,963152 0,02 18,06232 0,17 18,04743 0,16
Finland 671,9009 0,42 1212,145 0,7 0 0
France 8283,897 0,47 12210,05 0,64 1215,233 0,06
Germany 7565,331 0,33 12655,66 0,51 5005,403 0,19Greece 616,4509 0,33 1031,23 0,51 407,8586 0,19
Hungary 26,48715 0,03 162,4664 0,17 162,3325 0,16
Ireland 855,8221 0,61 1063,047 0,7 0 0Italy 4794,862 0,33 8021,083 0,51 3172,395 0,19
Latvia 5,189312 0,037 25,8082 0,17 25,78692 0,16
Lithuania 14,41453 0,07 37,8924 0,17 37,86117 0,16
Luxembourg 223,2018 0,9 241,6008 0,9 0 0
Malta 8,79661 0,18 9,521734 0,18 8,423752 0,15The Netherlands 3946,952 0,8 4272,308 0,8 0 0
Poland 227,1215 0,1 417,9342 0,17 417,5897 0,16
Portugal 479,0306 0,33 801,3463 0,51 316,9381 0,19
Slovak Republic 33,18513 0,092 66,37512 0,17 66,32041 0,16
Slovenia 29,31612 0,1 53,94561 0,17 53,90115 0,16
Spain 3288,282 0,37 5194,716 0,54 1634,025 0,16
Sweden 2818,721 1 3051,074 1 0 0
UK 8145,778 0,42 10706,66 0,51 4234,561 0,19
EU 15 TOTAL 45788,07 0,43% 65987,8 0,58% 16524,65 0,12%
EU 10 Total 474,176 0,09% 990,3692 0,17% 815,7582 0,16%
EU 25 TOTAL 46262,25 0,42% 66978,17 0,56% 17340,41 0,14%
 
 
EN 8   EN In the light of the above, the Commission asks the Council to: 
• continue efforts  to implement the Barcelona ODA commitment; call on those of 
the EU-15 who have not yet done so to establish, by 2006, a firm timetable to 
achieve the UN target of 0.7% ODA/GNI; 
• call on Member States having joined the Union after the Barcelona commitments 
(March 2002)  (EU10) to establish a firm timetable to reach the “Barcelona 
acquis ” by 2015; 
• ensure that further developments in debt relief,  on the one hand, and changes in 
the definition of ODA,  on the other hand, do not ha rm the credibility of the 
commitments made in Monterrey; 
• agree to the proposed new individual and collective intermediate targets for 2010. 
3. A ID EFFECTIVENESS : COORDINATION , COMPLEMENTARITY  
Actions to improve the effectiveness of ODA w ould reduce transaction costs, ensure better 
value for money and allow longer-term commitments, all of which translate into the availability of more resources for action in recipient countries. A majority of MS have 
reformed the way they prioritis e, organise and implement their external assistance. The 
Commission’s own reform has begun to bear fr uit and will continue, inter alia through the 
simplification of external assistance instruments, currently discussed in the context of the Financial Perspectives 2007–2013. 
The international process on coordination has received a strong impetus through the second 
High Level Forum on Aid Effectiveness (HLF I I) of Paris in March 2005, which provides a 
comprehensive agenda for immediate implementa tion: International dono rs and aid recipient 
countries agreed on commitments related to ownership, alignment, harmonisation, managing 
for results and mutual accountability7. In view of the HLF II the EU adopted as its 
contribution to the Forum a comprehens ive framework with time-bound objectives8. It is 
based on the Council Conclusions on harmonisa tion in November 2004. Moreover, the EU 
committed itself in Paris to additional concrete targets, in particular to: (1) provide all 
capacity building assistance through coordinated programmes with an increasing use of multi-
donors arrangements, (2) to ch annel 50% of government of government assistance through 
country systems, (3) avoid the establishment of new project impleme ntation units, (4) double 
the percentage of assistance provided through budget support or sector wide arrangements and 
(5) reduce the number of un-coordinated missi ons by 50%. These commitments have to be 
implemented gradually by the year 2010. 
Nevertheless progress is still not fast enough and discrepancies between political 
commitments and concrete im plementation continue. In many politically sensitive areas 
where vital interests are at stake (i.e. immigr ation, research) the EU acts in a much more 
coordinated way in its approach than in devel opment assistance. This is a paradox in an area 
                                                 
7 Paris Declaration on Aid Effectiveness, High Level Forum Paris 28.2.-2.3.2005. 
8 See Annex 2. These conclusions are based on the recommendations of the EU Ad Hoc Working Party 
on harmonisation. They are described at length in the Staff Working Paper. 
 
EN 9   EN where the EU provides the biggest share of ODA in the world (55%) and where calls for 
solidarity and collective res ponse are repeatedly made. 
Even in difficult, still largely intergovernmental  fields, like foreign and security policy, the 
EU has been able to adopt the basis for comm on actions (European Security Strategy). It is 
hard to understand that in the context desc ribed above, a policy area like development, 
governed by precise rules of the Treaty (N ice or Constitutional Treaty), is not further 
advanced. In order to enhance, implement a nd monitor EU coordination and complementarity 
the EU should seek to agree on a true Europe an Development Strategy or a framework of 
guiding principles and rules to  make its huge amount of aid more effective and genuinely 
“European”. Several models of flexible fram eworks exist and could be easily adapted. We 
share common objectives (MDGs), and have agreed on the means and some benchmarks. The 
EU needs to formalise such a framework and its operational modalities. Where the EU has an 
added value as a collective actor, Community aid should – as in othe r policy areas – play a 
catalytic role through enhanced operational moda lities such as co-financing and institutional 
cooperation. The EU Donor Atlas identified ar eas of fragmentation, gaps and duplication 
among donors. A qualitative jump is necessary in the implementation of the concept of 
division of labour which needs to be addressed through enhanced operational 
complementarity. EU joint multi-annual programming, as mentioned in the Council Conclusions (ADWPH), will help such a division of labour at country level. 
It is essential that future efforts to enhan ce coordination and complementarity also cover the 
contribution by the private sector as  well as civil society actors.  
In the light of the above, the Co mmission invites the Council to: 
• Closely monitor the implementation of the recommendations of the Council 
Conclusions of November 2004. 
• Launch a discussion on the establishmen t of an EU voluntary framework for 
development assistance based on an ope n method of coordination allowing a 
combination of Community comp etence and national undertakings. 
• Consider a regular report on the State of  the Union on aid effectiveness prepared 
by the Commission together with the Member States. 
• Launch an operational debate  on complementarity, in pa rticular on division of 
labour at country level, in the c ontext of joint mu lti-annual programming 
documents. 
4. U
NTYING AID  
As agreed in Barcelona, the European Union ha s made significant progress to ensure “better 
value for money” from its ODA. The MS have untied their aid to LDCs, as mandated by the 
DAC Recommendation. Moreover, a majority of them are pr ogressing towards further 
untying. Proposals for untying EC aid are currently in the legislative pro cess. The EU is also 
pursuing concurrent changes to Annex IV of the Cotonou Agreement. 
The Commission notes that EC Si ngle Market and competition rules apply to the procurement 
of Member States’ development assistance and it will actively ensure the functioning of the 
 
EN 10   EN Single Market. In addition, two studies  commissioned by the OECD/DAC and the 
Commission have highlighted th e added benefit and positive impact of further untying. 
In the light of the above, the Co mmission invites the Council to: 
• Rapidly complete its wo rk on the Commission’s proposal for a Regulation  on 
untying. 
• Support the ongoing debates at  international level on further untying aid beyond 
the DAC Recommendations, with a sp ecific emphasis on food aid, food aid 
transport and access by recipient countries to donors’ aid. 
5. T RADE -RELATED ASSISTANCE (TRA) 
The EU is the largest contributor to TRA initiatives worldwide9, providing nearly 50% or €1 
billion p.a., including to key multi-donor prog rammes such as the Integrated Framework for 
Least Developed Countries (LDC) and the Doha  Global Trust Fund. In quantitative terms the 
EU is thus on track with the delivery of its 2002 commitment.  
The challenge consists in further improving the quality and effectiveness of TRA and 
responding to new needs. In this context, th e European Commission and some MS evaluated 
their respective TRA activities in 200410. Key findings include that  TRA: (1) resulted in 
improved knowledge of trade-related issues in partner countries and c ontributed to increased 
export performance and productiv ity of local enterprises; (2) needs to be based upon 
comprehensive needs assessments, used by r ecipient governments and all donors; (3) should 
be more flexible to adapt to  rapidly changing situations.  
Coordination of TRA planning  and its effective delivery in the EU and the wider donor 
community should be a focus for the future. The work in the EU Informal Trade and 
Development Expert Group and the constructiv e contribution to the OECD/DAC work on 
monitoring are steps in this di rection. A joint evaluation is planned for 2005 to look at EU 
coordination in the field of TRA.  
There is growing consensus that many developing countries will face significant adjustment 
costs to meet the challenge of integration into  the multilateral trading system and to reap the 
growth benefits of trade liberalisation, achieved through the WT O Doha Development 
Agenda negotiations. Trade-based economic adjustment and growth will only be achieved through substantially increased funding for TRA and supply side development. The 
Commission will seek to establ ish a special facility, which could draw on innovative sources 
of finance, notably to help achieve the objectiv es of connecting Africa in infrastructure and 
trade. 
In the light of the above, the EU invites the Council to agree to: 
                                                
 
9 As reported in the Doha Development Agenda Tr ade Capacity Building Database (TCBDB). The EU 
provides around 50% of worldwid e TRA.The lion’s share comes from the EC, which has allocated an 
average of €700 million/year to TRA since 2001. Among the Member States, the picture is mixed: some have scaled up their support for TRA. 
10 UK (DFID evaluation of TRA), the NL and D. 
 
EN 11   EN • Improve EU co-ordination:  (1) at Headquarters and field level, involving the 
beneficiary country/region and other key donors, and (2 ) regarding the EU input 
into wider international initiatives, such  as the Integrated Framework for LDC . 
Existing coordination channels, e.g. th e EU Trade and Development Expert 
Group, can be used. This includes intensified information exchange  for TRA 
planning and delivery and the ex change of “best practices”. 
• Reinforce the dialogue with recipient  countries  to ensure that they integrate 
trade policies into their na tional poverty reduct ion and developmen t strategies.  
• Improve TRA programming by carrying out systematic trade needs 
assessments, where appropriate and agreed to by partner countries;  
• Ensure more flexible TRA programmes that  can adapt to changi ng situations (for 
example to deal with sanitary/phyto -sanitary issues) and that involve new 
delivery methods, e.g. budget and sector support to: (1 ) facilitate adjustment - 
including the social dimension - to trad e policy reforms (2) to strengthen the 
productive sector, (3) support so cial safety mechanisms to  protect the poor and to 
(4) promote that trade and environm ent policy frameworks are mutually 
supportive and directed at su stainable development.  
• Provide additional support for trade adjustment and integration in view of the 
expected high trade integration co sts faced by developing countries. 
• Examine the scope for funding horizontal TRA initiatives  to provide more 
effective support across geographic regions  or involving multilateral agencies. 
6. G LOBAL PUBLIC GOODS  
In 2003 France and Sweden established an international Task Force (TF) on Global Public 
Goods.  Interested stakehol ders have also been  involved through the Group of Friends of the 
Task Force . From the Monterrey questionnaire it app ears that ten EU Member States and the 
Commission are actively involve d in the debate. The Final Report should in clude a time-
bound and fully-costed Action Plan to enhance the provision of the six GPGs. 
There seems to be an emerging consensus among Member States: (1) regarding the definition 
of International Public Goods (IPG) and the relevance of the sele cted six priority IPGs for 
enhanced action: trade, knowledge, peace and s ecurity, financial stability, global commons 
and eradication of communicable diseases; (2 ) concerning readiness to examine the Action 
Plan with a view to establishi ng an EU common platform fo r the provision and financing of 
IPGs, and (3) on the principle that IPGs shoul d only be financed from  existing ODA if their 
provision is linked to the Mille nnium Development Goals, the three pillars of sustainable 
development and other agreed development objectives. 
In the light of the above, the Co mmission invites the Council to: 
• Examine the forthcoming Task Force ac tion plan on the basis of a Commission 
proposal for a common EU platform for the provision and financing of IPGs; 
 
EN 12   EN • Agree which IPGs fall outside the scope of development and should therefore be 
financed from non-ODA financing s ources in their national budgets; 
• Update the Barcelona Commitment as fo llows: to further work towards further 
collective multilateral action to enhance th e provision of priority International 
Public Goods, starting with th e establishment of an Action Plan at EU level, by 
2006. 
7. I NNOVATIVE SOURCES OF FINANCING AND NEW DELIVERY MECANISMS  
The European Council of D ecember 2004 agreed to “ explore innovative ways of financing” 
and asked the Commission to submit relevant  proposals with a view to the HLE. 
Markedly greater aid is needed if developing co untries are to reach the MDGs. In addition to 
new and adequate ODA targets for 2010, which must  remain the EU’s first priority, the EU 
needs to define its position in the internati onal debate on innovative sources. However, this 
must not delay action on increasing traditional sources of finance.  
The objective of mobilising additional and more stable sources of finance must guide the 
discussion on innovative finance sources and aid modalities and should, in the medium term, 
lead to the provision of predictable funding – something akin to “own resources” for 
development. 
Several Member States have been involved in exploring various types of new innovative 
finance mechanisms, of which the most prominent proposals are:  
• the UK proposal to “front-load” pledged aid increases  through an 
“International Finance Facility” (the IFF) ; 
• a range of proposals for international taxation  contained in the “Landau 
Report” and the work of the “Lula Group” comprising the Pres idents of Brazil, 
Chile and France and the Prime Minister of Spain; and 
• voluntary options , such as a global lottery  or charitable donations . 
All these proposals are worthy of at tention but need to be checked against a set of  criteria to 
determine the most promising options. Such cr iteria could include: How much would each 
proposal raise? How far would the funds be ad ditional? How stable and predictable would 
they be? What are the competitiveness/sectoral impacts? What are the drawbacks, e.g. launch and administration costs, etc.? Which proposals can go forward fast est? Is (almost) universal 
support required or can proposals be imple mented at regional, i.e. EU, level?
11 
The IFF is designed as a temporary facility to frontload the commitment s made in Monterrey, 
by issuing bonds in internati onal capital markets, backed by binding commitments of donors 
to provide regular payments to the facility. It is not designed to provide additional resources on top of those already committed in Monterrey in  2002, but could help to fill the financing 
                                                
 
11 The Commission Staff Working Paper ‘Innovative sources of financing for development – a review of 
options’ examines the most important questions - SEC(2005) 467. 
 
EN 13   EN gap up to 2015 identified if the MDG are to be met. The European Commission believes that 
the IFF proposal merits careful  study, though it raises some concerns and many details still 
have to be clarified, notably in  terms of governance issues. While  the idea of frontloading is 
tempting as it would raise additional resour ces immediately, the absorption capacity of 
developing countries would need to be enhanced in such a scenario. There might also be inter-
generational implications in donor and recipi ent countries. The facility’s costs would 
ultimately be borne by tomorrow’s taxpayers, though the proponents claim that they are designed to be fit within  the increased aid budgets that would be delivered in keeping with the 
pledges made at and since Monterrey. More over, after 2015 IFF donors’ aid budgets would be 
partially used to reimburse IFF bondholders, w ith a potential risk for reduced ODA volumes 
available for developing countries . It is also not yet clear what accounting method would be 
used for donors’ contributions, but for EU MS at le ast it is important to ensure that it does not 
impair fiscal transparency. 
Several proposals for genuinely additional resour ces have been put forward in the course of 
recent discussions: 
• Environmental/energy/transport-related taxes, like taxes on maritime transport, 
aviation, or a CO
2 tax/charge; 
• Taxes on currency of financial tr ansactions, like the Tobin tax; 
• Health-related food taxe s, like a tax on the sugar content of food; 
• Taxes on the trade of arms; 
• Taxes on the profits of large multinational companies. 
Charitable activities  and corporate social respon sibility initiatives  also merit attention. In 
addition to expressing, in a unique way, solid arity between people, these undertakings 
generate substantial amounts of money. The Co mmission believes that here , too, there is wide 
scope for innovation: much will need to come from the voluntary sector itself, for example 
using internet technology to enhance solidarity, but the Commission and Member States’ 
Governments could cons ider helping through tax incentives  for charitable donations, 
twinning,  or by supporting the organisation of voluntary sources such as a global lottery . 
Whatever options are finally implemented, whether from trad itional or innovative sources, 
increased ODA flows are required. In order to ensure that th ese increased resources support 
developing countries’ efforts to reach the MDG in the most effective way, new aid 
modalities,  more predictable and less volatile, have  to be designed. Current aid modalities do 
not provide the flexibility and predictability of ai d flows that partner countries need to embark 
upon the medium-term investments needed to accelerate progress towards the MDG.  
Each existing financing instrument has merits : projects can involve non-government actors, 
and on a larger scale budget support provides flexib le funding aligned with national priorities. 
But none of them provides the ideal combin ation of medium-term predictability and 
flexibility to finance recurrent  costs. Debt relief, though it m eets these criteria, can produce 
perverse resource allocations. Therefore, new modalities are needed to support the necessary 
reforms for achieving the MDG. Highly aid depende nt countries should be eligible for such 
new modalities: They should have shown thei r commitment to poverty reduction through the 
 
EN 14   EN implementation of a poverty reduction strategy and a credible results monitoring system . 
They should have the necessary economic stability and have de monstrated progress in public 
finance and governance. 
Several mechanisms could be envisaged to en sure sufficient predictability while allowing 
donors to further adapt the level of their commitments on a performance basis: support 
guaranteed for three to five years, with a mid- term review defining the level of support for the 
next period; contracts over a ten-year period ensuring a minimu m level of aid; three-year 
rolling commitments, etc. Violations of th e "essential elements" under the terms of the 
partnership and coope ration agreements ( e.g. violation of human ri ghts) would lead to 
suspension of programmes. 
These proposals should be disc ussed with partner countries at  technical and political level. 
Sufficiently flexible and stable sources of fi nance need to be available to allow these 
innovative modalities to be implemented. 
For countries facing external shocks, mechanisms  of temporary debt re lief should be further 
considered. 
In the light of the above, the Commis sion invites the Council to agree to: 
• accelerate work on the most promising op tions for innovative additional sources 
of finance; 
• explore the scope for a European initiative  to develop new, more predictable and 
less volatile aid modalities; 
• study in depth innovative proposals to suppor t private (corporate and charitable) 
initiatives. 
8. R EFORM OF THE INTERNATIONAL FINANCIAL SYSTEM  
Effective monitoring of progress on this specific  “Barcelona EU commitment” is difficult due 
to the general and complex nature of the unde rtaking, which requires long-term efforts to 
achieve progress. Developing a joint EU positi on, however, appears to be crucial to move 
towards honouring the Monterrey commitmen t on increased ownership by developing 
countries of their own future. EU Member States  have expressed genera l satisfaction with the 
improved informal EU coordination between the EU Executive Directors of the IMF and the 
World Bank in Washington over the past few y ears - in the form of regular coordination 
meetings with which the Commission is associ ated. Moreover, the Economic and Financial 
Committee (EFC) has established a special su b-committee (SCIMF) to coordinate the EU 
position on IMF and related issues. This kind of EU collaboration should also be extended to 
the Regional Development Banks, where colle ctive EU shareholding is significant.  
However, more needs to be done. Several Member  States expressed the wish to go further 
(e.g. improved information sharing, more harmonised approach).  
 
EN 15   EN In the light of the above, the Co mmission invites the Council to: 
• agree to present as often as possible a single European position in the 
international financial institutions (IFIs) , to increase the visibility and influence 
(or voice) of the European Union in the IFIs; 
• develop a joint EU position on enhancing the voice  of developing and transition 
countries in internationa l economic decision-making. 
9. D EBT RELIEF  
The EU is well on track in its support to the implementation of the extended HIPC initiative, 
and is fully delivering on this commitment. Th e new Member States ar e making the necessary 
contribution to HIPC as creditors, and some c ontributed to the HIPC Trust Fund. Most of the 
Member States are committed to go beyond th e requirements of the HIPC scheme, by 
providing 100% debt relief on th eir pre-cut-off-date claims.  
However, major concerns regarding the debt si tuation of poor countries remain and require 
further reflection12 and action. In the  short term the overall fundi ng of the HIPC initiative  
is not fully secured as long as non-Paris Club creditors do not deli ver their part of debt relief. 
A consensus is emerging that the HIPC initiative will no t suffice to ensure sustainable 
debt levels for poor countries in the long run  despite several extens ions. G7 members have 
agreed on the principle of possibly full cancellation of multilateral debt13. 
Efforts must therefore now concentrate on devel oping forward-looking stra tegies to tackle the 
issues at stake: 
• The HIPC debt cancellati on, although criticised, has been the most innovative 
approach in terms of aid tr ansfer and transaction costs.  However, financing needs 
go far beyond debt cancellation. Moreover, de bt cancellation is a bad instrument 
in terms of aid allocation cr iteria, because the most indebted countries are neither 
the poorest, nor the best governed nor the most needy. 
• Several countries , mostly in post-conflict situations , may still remain excluded 
from the HIPC initiative. Most Member St ates agree that this is a concern, but 
have no coherent view on possible solutions. 
• Detailed analysis reveals that some countries, even after their graduation from 
HIPC, will remain in or return to debt distress situations . Most Member States 
agree or are not opposed to providing addi tional debt relief, but have diverging 
views on delivery arrangements. 
• There is broad agreement in the EU that the forward-looking, sound debt 
sustainability analysis framework (D SA) developed by the IMF/WB for low-
income countries, and its strict appl ication, are crucia l to tackle the 
aforementioned problems.  
                                                 
12 See the EC-funded study “Beyond the HIPC Initiative” of March 2004:  
http://www.europa.eu.int/comm/development/body/th eme/hipc/docs/Beyond_HIPC_en.pdf#zoom=100. 
13 G7 Finance Ministers Conclusions on Development, London, February 5, 2005. 
 
EN 16   EN • The DSA framework also emphasises the close relation between debt 
sustainability and vulnerability to extern al shocks, and the Commission is actively 
investigating instruments to assist  countries hit by exogenous shocks. 
In the light of the above, the Co mmission invites the Council to: 
• support – beyond the implementation of the extended HIPC initiative – the 
creation and implementation of alternative, tailor-made options  for those post-
conflict countries with sizeable external ar rears which will not have been able to 
benefit from the HIPC initiative, so that they can better tackle the problem of 
having fragile institutions and mo st of the debt stock in arrears;  
• explore the possibility of using a temporary debt serv ice relief facility, among 
other instruments, to alleviate the effects of exogenous shocks  on debt distressed 
countries. 
10. C ONCLUSIONS  
The EU is well on track to deliver on most of the “Barcelona commitments”. The UN HLE in 
September 2005 will focus on how to accelerate  progress towards attaining the MDGs, 
especially in Africa. This challenges the enlarg ed EU to again demonstrate its commitment to 
addressing the FfD challenge through reinfo rced EU commitments. With the proposals 
included in this document the Commission intends  to initiate a discussion with a view to 
establishing a new set of commitments and to reach an agreement on “Barcelona II”-type 
commitments. Whereas this Communication fo cuses on the tools for improved FfD, the 
Communication on Policy Coherence14 proposes other policy measures that could be 
undertaken to support the achievement of the MDGs. 
                                                 
14 COM(2005) 134. 
 
EN 17   EN Annex 1  
Summar y March 14, 2002: Council Conclusions on th e International Conf erence on Financing 
for Development (Monterrey, Mexico, 18-22 March 2002)  
The Council of the European Union: 
“1. Considering that the International Confer ence on Financing for Development represents 
an historic opportunity to make progress to wards the achievement of the Millennium 
Development Goals for poverty re duction and the other internat ionally agreed development 
targets in a holistic manner.  
2. Recalling the need for all international pa rtners to reach the UN goal of 0.7% ODA/GNI 
and the European Council Presidency Conc lusions in Gothenburg and Laeken, and 
recognizing that mobilizing international private and public resources for sustainable development is essential, that resources would need to be increased in order to reach the 
Millennium Development Goals, including accord ing to World Bank estimates a doubling of 
ODA; 
3. Stressing that the Conference should be base d on a spirit of strength ened partnership in 
which developing countries take primary respons ibility for their own development, ensuring 
democracy, human rights and the rule of law,  while developed count ries actively support 
them, thus contributing to the "global deal" th at will be discussed at the Johannesburg Summit 
4. Recognizing that the issue of aid effectiv eness both by donors and recipients must be 
adequately addressed to ensure that in creased ODA flows have a positive impact on 
development, and resources go effectively and efficiently to fighti ng poverty and reducing 
inequality. 
5. Stressing that developing countries have  primary responsibility to create a sound 
macroeconomic environment, an appropriate fr amework for investments and guarantee that 
funds received are properly and effectively managed, engaging themselves to ensure good governance, achieve high standards of tr ansparency and eliminate corruption.  
6. Recalling the importance to development financing of the Doha Development Agenda, 
which should address the specific  concerns and priorities of developing count ries, allowing 
them to realize the full benefits of  participation in the world economy. 
7. And thus, in order to achieve  a successful outcome of the Conference, the Council stresses 
the value of the Monterrey Consensus,  and affirms its willingness to make the following 
commitments;  
a) In pursuance of the undertaking to examine the means and timeframe that will allow each 
of the Member States to reach the UN goal of 0.7% ODA/GNI, those Member States that 
have not yet reached the 0.7% target commit themselves - as a first significant step - individually to increasing thei r ODA volume in the next four years within their respective 
budget allocation processes, whilst the other Memb er States renew their efforts to remain 
above the target of 0.7% ODA, so that collec tively an EU average of 0.39% is reached by 
2006. In view of this goal, all the EU Member Stat es will in any case st rive to reach, within 
their respective budge t allocation processes, at  least 0.33% ODA/GNI by 2006. 
b) To take concrete steps on coordination of  policies and harmonizati on procedures before 
2004, both at EC and Member States level, in lin e with internationally agreed best practices 
 
EN 18   EN including by implementing recommendations  from the OECD Development Assistance 
Committee Task Force on donor practice. 
c) To implement the DAC recommendation on unt ying of aid to Least Developed Countries 
and continue discussions in view of further untying. The EU will also consider steps towards 
further untying of Community aid while maintain ing the existing system of price preferences 
of the EU-ACP framework. 
d) To increase assistance for long-term trade -related capacity building,  productive capacity 
and measures addressing supply-side constraints in developing countries, as well as to provide 
immediate support for trade-related technical a ssistance in order to improve the negotiating 
capacity of developing countries  in trade negotiations, includi ng by commitments made at the 
WTO pledging Conference in Geneva on 11 March 2002. 
e) To further work towards a participatory proc ess at the global leve l, including the proposal 
of setting up a task force open to all actors on a temporary basis, designed to lead to the 
identification of releva nt Global Public Goods. 
f) To further explore innovative sources of fi nancing and taking into account the conclusions 
of the Commission Globalization Report. 
g) To influence the reform of the Internati onal Financial System by combating abuses of 
financial globalization, streng thening the voice of developi ng countries in international 
economic decision-making, and, while respecti ng their respective roles, enhancing the 
coherence between the UN, Internati onal Financial Institutions and WTO. 
h) To pursue its efforts to restore debt sustai nability in the context of the enhanced HIPC 
initiative, so that de veloping countries, and es pecially the poorest one s, can pursue growth 
and development unconstrained by unsustainable debt dynamics." 
Website link: http://europa-eu- un.org/articles/en /article_1222_en.htm 
 
EN 19   EN Annex 2  
Extract of the Conclusions of the General Affairs and External Relations Council of 22-
23 November 2004 on the report of the Ad Ho c Working Party on Harmonisation:  
RECALLING: 
The Commission Communication of 5 March 20 04 on 3translating the Monterrey Consensus 
into practice: the contribution by the European Union"15; 
Its Conclusions of 27 April 200416, which called for the establishment of an Ad-Hoc Working 
Party of the Council consisting of experts on Harmonisation (AHWPH), in order to examine 
in detail the Commission recommendations c ontained in the Commission Communication and 
other relevant proposals with a view to translating the Barcel ona Commitment II into practice; 
The decision adopted by the COREPER es tablishing the AHWPH and setting up its 
mandate17; 
That the Working Party was inv ited to report back to Council no later than November 2004, 
with a view to adoption by the Council of an EU Action Plan for Coordination and 
Harmonisation for submission to the Second  High Level Forum on Harmonisation and 
Alignment for Aid Effectiveness to be held in Paris in 2005; 
THE COUNCIL, 
NOTING that the COREPER, on 18 November  2004 agreed on the Report presented by the 
AHWPH; 
ENDORSES the report of the Ad -Hoc Working Party on Harm onisation entitled "Advancing 
Coordination, Harmonisation and Alignment: th e contribution of the European Union"; 
INVITES the relevant Council bodie s to continue the work for pr eparing the participation of 
the EU to the Second High Level Forum on Harmonisation and Alignment for Aid Effectiveness to be held in Paris in 2005; 
REAFFIRMS its intention to monitor regularly the further progress made with the view to 
translating the Barcelona Commitment II into practice. 
                                                
 
15 Doc. 7108/04 - COM(2004) 150. 
16 Doc. 8973/04. 
17 Doc. 9188/04.