WRITTEN QUESTION P-3373/01

by Maurizio Turco (NI) to the Commission

(28 November 2001)

Subject: Relations between the European Union and the Palestinian Authority

On 18 November the EU Troika composed of Belgian Prime Minister Verhofstad, Commission President Prodi and High Representative for Foreign Policy Javier Solana met the Israeli Prime Minister, Ariel Sharon.

According to international press reports, Prime Minister Sharon asked the European Union at that meeting to stop funding the Palestinian Authority directly because these funds are helping to buy arms

which are used against us (Israel). President Prodi is reported to have replied that the 200 million paid by the EU to Arafat over a period of 14 months had served to meet the basic needs of the Palestinian people, thereby promoting a return to peace.

Can the Commission answer the following:

- What activities have actually been funded and why does the Commission finance the Palestinian Authority directly rather than contribute via third parties?

- Have quantitative and qualitative checks been carried out on the use made of the funds allocated to the Palestinian Authority? If so, what were the results?

- EU funding is conditional upon respect for the democracy clause. Does the Commission consider that the Palestinian Authority is respecting the underlying principles of this clause?

Answer given by Mr Patten on behalf of the Commission

(15 January 2002)

The financial and technical co-operation granted by the Community to the Palestinian Authority is mainly covered by the following budget lines:

- B7-410: Meda (Supporting measures to the reforms of the economic and social structures in the Mediterranian third countries); and

- B7-420: Community actions connected with the peace agreement concluded between Israel and the Palestinian Liberation Organisation (PLO).

Concerning direct budgetary aid, community financial agreements are normally concluded with the national authorities of the beneficiary state. In the case of the Palestinians this is the Palestinian Authority (PA). The utilisation of third parties in this instance would not guarantee the proper monitoring and would not allow the attachment of fiscal and administrative conditions that exist in the present arrangement. The International Monetary Fund (IMF) however monitors and reports to the Commission on the PA's fiscal and budgetary situation and on the fulfilment of Community conditions on budget support.

The conditions attached to the Community's financial support consist of the reduction of PA expenditure through a spending plan, fiscal reform eliminating scope for any extra-budgetary spending (consolidation of accounts) and freeze of the pay-role. The Commission receives monthly reports from the IMF on the fulfilment of the Community conditions. Payments are subject to the PA's fulfilment of EU conditions.

The IMF closely reviews the monthly fiscal information communicated by the PA:

- revenue developments (domestic revenue, estimated clearance revenue collected and withheld by Israel),

- evolution of employment (wage bill),

- non-wage expenditures,

- debts and arrears.

The IMF has secured an every-day presence in the PA Ministry of Finance to monitor incoming requests by line ministries and corresponding approvals by the Ministry of Finance; verifies consolidated banking data and transactions on the single treasury account against these requests and approvals.

The IMF has confirmed that the Community conditions have been met by the PA and have achieved their purposes beyond the expectations of the monitoring party.

Regarding development projects, the Commission is fully involved in the programming, preparation, implementation and monitoring of assistance projects to the Palestinian Authority. Beneficiaries are required to send reports on regular basis and projects are audited by the Commission staff and outside evaluation.