Communication from the Commission to the Council and the European Parliament -  Accelerating progress towards attaining the millennium development goals - Financing for development and aid effectiveness {SEC(2005) 453} {SEC(2005) 454}
Date: 2005-10-07
Institutions: European Commission
Subjects: EU aid, EU financial instrument, cooperation policy, developing countries, development aid

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 7.10.2005 
COM(2005) 133 final/2 

CORRIGENDUM: Table 2, p. 7 
Concerns EN, FR, DE 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Accelerating progress towards attaining the Millennium Development Goals - Financing 
for Development and Aid Effectiveness 

{SEC(2005) 453} 
{SEC(2005) 454} 

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EXECUTIVE SUMMARY 

The UN High Level Event (HLE), which will notably take stock of the progress achieved on 
the  Millenium  Declaration,  including  the  Millennium  Development  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 monitoring 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  the  eight  “Barcelona  Commitments”  which  the  EU  made  in  the 
context of the Monterrey Conference on Financing (FfD) in 2002, (2) assesses which of them 
need  to  be  renewed  (Official  Development  Assistance  (ODA),  innovative  sources  of 
financing, debt relief) and where progress in the European Union or on the international arena 
justifies  a  review  of  commitments  (coordination,  Global  Public  Goods  (GPG)),  and  (3) 
presents concrete proposals for new EU commitments. 

The  original  commitments  on  ODA  volume,  coordination  of  policies  and  harmonisation  of 
procedures, untying of aid, Trade-Related Assistance (TRA) and debt relief could be met in 
2006,  and  it  might  therefore  be  timely  to  consider  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 commitments. The state of discussions on the reform of 
the International Finance System, however, makes it unlikely that the desired results will be 
achieved by 2006. 

The Communication outlines a way towards a possible 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 modalities as well as a line on innovative finance 
sources and proposes ways to address the remaining post-HIPC debt problems of low income 
countries.  With  regard  to  GPG  it  suggests  redefining  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  results  of  the  recent  High  Level  Forum  on  aid 
effectiveness  and  concrete  steps  forward  on  complementarity  in  aid  delivery.  The 
commitment on reform of the International Finance System must be strengthened. 

1. 

BACKGROUND:  THE  MONTERREY  CONSENSUS,  THE  EU  CONTRIBUTION  AND  THE 
WAY AHEAD  

The Conference on Financing for Development in Monterrey addressed the 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. These are two mutually reinforcing objectives, and progress should 
be  made  on  both.  The  EU  contributed  to  the  positive  result  of  the  Monterrey  Conference, 
through the so-called “Barcelona commitments”1 composed of: 

1

Council Conclusions of 14 March 2002 on the UN Conference on FfD (Monterrey), see Annex 1. 

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•  Commitments on ODA, volume and sources – increased ODA volumes, innovative 
sources  of  financing,  initiatives  concerning  GPG  and  debt  relief  for  Heavily 
Indebted Poor Countries (HIPC); 

•  Commitments  on  aid  effectiveness  –  closer  coordination  of  policies  and 
harmonisation  of  procedures,  untying  of  aid,  trade-related  assistance  (TRA),  the 
reform of the International Financial System. 

The Council mandated the Commission to monitor 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  gap,  (ii)  the  effective  use  of  ODA  and  (iii)  the 
continuing unsustainable debt burden on many poor countries. 

A detailed description of the state of progress in the implementation of the EU commitments 
is set out in a separate Staff Working Paper5. 

2 
3 
4 
5 

SEC(2003) 569, 15.5.2003. 
COM(2004)150, 5.3.2004. 
Council conclusions of the GAERC 22-23.11.2004; 14724/04 (Presse 325) p. 37, see Annex 2. 
Staff  Working  Paper  SEC(2005)  453:  EU  follow-up  to  the  “Barcelona  commitments”  and 
operationalisation of the Monterrey Consensus. 

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2. 

THE COMMITMENT TO INCREASE FINANCIAL RESOURCES FOR ODA 

2.1. 

EU performance in 2003 

In terms of the ODA/GNI ratio the Barcelona commitment sets an individual baseline target 
of  0.33%  for  each  MS  that  contributes  to  achieving  the  collective  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 Switzerland). Ten MS have either achieved or 
pledged  to  achieve  the  commitment  of  0.7%  ODA/GNI.  An  ODA  decrease  in  Austria, 
Denmark,  Ireland,  Spain,  Sweden  and  Italy  recorded  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 

I

/

N
G
A
D
O
%

0,9
0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0,0

> 0.7%
ODA/GNI

< 0.7%
ODA/GNI

< 0.33%
ODA/GNI

DK LU NL SE BE FR IE FI

UK DE ES PT EL

AT IT

New MS

Data source: OECD/DAC Annual report 2004, statistical annexes. 

Diagram 2: ODA/GNI contributions in 2003: The EU compared to other DAC Members 

I

N
G

/

A
D
O

%

1
0,9
0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0
EU 25

United States Japan

New Zealand

Gap to
UN
target
2015

ODA
level
2003

Norway

Canada

Australia

Switzerland

Data source: OECD/DAC Annual report 2004, statistical annexes. 

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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 collective contribution by 53% in real terms. 

While  ODA  flows  have  grown,  a  sizeable  proportion  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, such 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  measurability  of  the  donors’  commitment  made  in 
Monterrey. 

Diagram 3:EU ODA flows and debt relief 2000-2003 

EU ODA flows 2000-2003

n
o

i
l
l
i

m
€

40 000

35 000

30 000

25 000

20 000

15 000

10 000

5 000

 0

Paris Club
Commitment
HIPC

Non HIPC
Debt
Non-Debt

2000

2001

2002

Data source: OECD/DAC Annual report 2004, statistical annexes. 

2.2. 

ODA perspective for 2006 

2003

2005-Iraqi Debt

2006-Iraqi Debt

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 
concern. 
context, 

Italian  ODA 

particular 

remains 

level 

low 

the 

of 

of 

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%), Germany (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%). 

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Table 1: EU ODA levels 2003-2006 

2003

2006

ODA
€ ml

GNI
%

ODA
€ ml

GNI
%

447
1640
2
80
1547
1
494
6420
6005
320
19
446
2153
1
2
172
3
3524
24
283
13
20
1736
2124
5560

32871
165
33036

0,2
0,6
0,02
0,11
0,84
0,013
0,35
0,41
0,28
0,21
0,03
0,39
0,17
0,008
0,01
0,81
0,07
0,8
0,01
0,22
0,05
0,1
0,23
0,79
0,34

0,35
0,04
0,34

814
1568
3
125
1716
2
672
8284
7565
616
27
856
4795
5
14
223
9
3947
227
479
33
29
3288
2819
8146

0,33
0,5
0,02
0,133
0,82
0,02
0,42
0,47
0,33
0,33
0,03
0,61
0,33
0,037
0,07
0,9
0,18
0,8
0,1
0,33
0,092
0,1
0,37
1
0,42

45788
474
46262

0,43
0,09
0,42  

Austria
Belgium
Cyprus
Czech Republik
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
The Netherlands
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
UK

EU 15 TOTAL
EU 10 Total
EU 25 TOTAL

Data sources: OECD/DAC Annual report 2004, statistical annexes and replies of EU Member States to the Monterrey questionnaire 

2.3. 

A new interim target for 2010 

The European Council of December 2004 confirmed 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 intertwined targets to be reached by 2010: 

(1) 

an  individual  threshold  for  MS,  differentiating  between  those  who  were 
already  members  of  the  EU  in  2002  (Barcelona  commitments-EU15)  and 
those who joined later (EU10); 

(2) 

a collective average for all Member States (EU25). 

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These targets have to be sufficiently ambitious in order to credibly ensure that it is possible to 
reach 0.7% by 2015. In line with the Council 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) 

(2) 

for  each  of  the  Member  States  which  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.  

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  estimated  additional  €20  billion  by 
2010. 

Table 2: Proposal for new EU ODA targets 2006-2010 

2006

2010

GAP 2010-2015

ODA
€ml

%GNI

ODA
€ml

%GNI

ODA
€ml

%GNI

Austria
Belgium
Cyprus
Czech Republik
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
The Netherlands
Poland
Portugal
Slovak Republic
Slovenia
Spain
Sweden
UK

EU 15 TOTAL
EU 10 Total
EU 25 TOTAL

813,5054
1567,99
2,773301
124,9292
1716,347
1,963152
671,9009
8283,897
7565,331
616,4509
26,48715
855,8221
4794,862
5,189312
14,41453
223,2018
8,79661
3946,952
227,1215
479,0306
33,18513
29,31612
3288,282
2818,721
8145,778

45788,07
474,176
46262,25

0,5

0,33 1360,872
2376,14
0,02 25,51623
172,847
0,133
0,82
1789,86
0,02 18,06232
0,42 1212,145
0,47 12210,05
0,33 12655,66
0,33
1031,23
0,03 162,4664
0,61 1063,047
0,33 8021,083
25,8082
37,8924
0,9 241,6008
0,18 9,521734
0,8 4272,308
0,1 417,9342
0,33 801,3463
0,092 66,37512
0,1 53,94561
0,37 5194,716
1 3051,074
0,42 10706,66

0,037
0,07

0,51
0,7
0,17
0,17
0,79
0,17
0,7
0,64
0,51
0,51
0,17
0,7
0,51
0,17
0,17
0,9
0,18
0,8
0,17
0,51
0,17
0,17
0,54
1
0,51

0,43% 65987,8
0,09% 990,3692
0,42% 66978,17

0,58%
0,17%
0,56%

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538,2346
0
25,4952
0
0
18,04743
0
1215,233
5005,403
407,8586
162,3325
0
3172,395
25,78692
37,86117
0
8,423752
0
417,5897
316,9381
66,32041
53,90115
1634,025
0
4234,561

16524,65
815,7582
17340,41

0,19
0
0,16

0
0,16
0
0,06
0,19
0,19
0,16
0
0,19
0,16
0,16
0
0,15
0
0,16
0,19
0,16
0,16
0,16
0
0,19

0,12%
0,16%
0,14%  

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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  harm  the  credibility  of  the 
commitments made in Monterrey; 

•  agree to the proposed new individual and collective intermediate targets for 2010. 

3. 

AID EFFECTIVENESS: COORDINATION, COMPLEMENTARITY  

Actions  to  improve  the  effectiveness  of  ODA  would  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  prioritise,  organise  and  implement  their  external  assistance.  The 
Commission’s  own  reform  has  begun  to  bear  fruit  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 II) of Paris in March 2005, which provides a 
comprehensive agenda for immediate implementation: International donors 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  comprehensive  framework  with  time-bound  objectives8.  It  is 
based  on  the  Council  Conclusions  on  harmonisation  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  channel  50%  of  government  of  government  assistance  through 
country systems, (3) avoid the establishment of new project implementation units, (4) double 
the percentage of assistance provided through budget support or sector wide arrangements and 
(5)  reduce  the  number  of  un-coordinated  missions  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  implementation  continue.  In  many  politically  sensitive  areas 
where  vital  interests  are  at  stake  (i.e.  immigration,  research)  the  EU  acts  in  a  much  more 
coordinated way in its approach than in development assistance. This is a paradox in an area 

7 
8 

Paris Declaration on Aid Effectiveness, High Level Forum Paris 28.2.-2.3.2005. 
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. 

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where  the  EU  provides  the  biggest  share  of  ODA  in  the  world  (55%)  and  where  calls  for 
solidarity and collective response 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 common actions (European Security Strategy). It is 
hard  to  understand  that  in  the  context  described  above,  a  policy  area  like  development, 
governed  by  precise  rules  of  the  Treaty  (Nice  or  Constitutional  Treaty),  is  not  further 
advanced. In order to enhance, implement and monitor EU coordination and complementarity 
the  EU  should  seek  to  agree  on  a  true  European  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  frameworks  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 other policy areas – play a 
catalytic role through enhanced operational modalities such as co-financing and institutional 
cooperation.  The  EU  Donor  Atlas  identified  areas  of  fragmentation,  gaps  and  duplication 
among  donors.  A  qualitative  jump  is  necessary  in  the  implementation  of  the  concept  of 
division  of 
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. 

labour  which  needs 

to  be  addressed 

It is essential that future efforts to enhance coordination and complementarity also cover the 
contribution by the private sector as well as civil society actors.  

In the light of the above, the Commission invites the Council to: 

•  Closely  monitor  the  implementation  of  the  recommendations  of  the  Council 

Conclusions of November 2004. 

•  Launch  a  discussion  on  the  establishment  of  an  EU  voluntary  framework  for 
development  assistance  based  on  an  open  method  of  coordination  allowing  a 
combination of Community competence 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  particular  on  division  of 
labour  at  country  level,  in  the  context  of  joint  multi-annual  programming 
documents. 

4. 

UNTYING AID 

As agreed in Barcelona, the European Union has 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  progressing  towards  further 
untying. Proposals for untying EC aid are currently in the legislative process. The EU is also 
pursuing concurrent changes to Annex IV of the Cotonou Agreement. 

The Commission notes that EC Single Market and competition rules apply to the procurement 
of Member States’ development assistance and it will actively ensure the functioning of the 

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Single  Market.  In  addition,  two  studies  commissioned  by  the  OECD/DAC  and  the 
Commission have highlighted the added benefit and positive impact of further untying. 

In the light of the above, the Commission invites the Council to: 

•  Rapidly  complete  its  work  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  specific  emphasis  on  food  aid,  food  aid 
transport and access by recipient countries to donors’ aid. 

5. 

TRADE-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 programmes 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, the 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 contributed to increased 
export  performance  and  productivity  of  local  enterprises;  (2)  needs  to  be  based  upon 
comprehensive needs assessments, used by recipient 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  constructive  contribution  to  the  OECD/DAC  work  on 
monitoring  are  steps  in  this  direction.  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  WTO  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 establish a special facility, which could draw on innovative sources 
of finance, notably to help achieve the objectives of connecting  Africa in infrastructure and 
trade. 

In the light of the above, the EU invites the Council to agree to: 

9 

10 

As reported in the Doha Development Agenda Trade Capacity Building Database (TCBDB). The EU 
provides around 50% of worldwide 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. 
UK (DFID evaluation of TRA), the NL and D. 

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•  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.  the  EU  Trade  and  Development  Expert 
Group,  can  be  used.  This  includes  intensified  information  exchange  for  TRA 
planning and delivery and the exchange of “best practices”. 

•  Reinforce  the  dialogue  with  recipient  countries  to  ensure  that  they  integrate 
trade policies into their national poverty reduction and development 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 changing 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  trade  policy  reforms  (2)  to  strengthen  the 
productive sector, (3) support social safety mechanisms to protect the poor and to 
(4)  promote  that  trade  and  environment  policy  frameworks  are  mutually 
supportive and directed at sustainable development.  

•  Provide  additional  support  for  trade  adjustment  and  integration  in  view  of  the 

expected high trade integration costs 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. 

GLOBAL PUBLIC GOODS 

In 2003 France and Sweden established an international Task Force (TF) on Global Public 
Goods. Interested stakeholders have also been involved through the Group of Friends of the 
Task Force. From the Monterrey questionnaire it appears that ten EU Member States and the 
Commission  are  actively  involved  in  the  debate.  The  Final  Report  should  include  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 selected six priority IPGs for 
enhanced  action:  trade,  knowledge,  peace  and  security,  financial  stability,  global  commons 
and  eradication  of  communicable  diseases;  (2)  concerning  readiness  to  examine  the  Action 
Plan with a view to establishing an EU common platform for the provision and financing of 
IPGs, and (3) on the principle that IPGs should only be financed from existing ODA if their 
provision  is  linked  to  the  Millennium  Development  Goals,  the  three  pillars  of  sustainable 
development and other agreed development objectives. 

In the light of the above, the Commission invites the Council to: 

•  Examine  the  forthcoming  Task  Force  action  plan  on  the  basis  of  a  Commission 

proposal for a common EU platform for the provision and financing of IPGs; 

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•  Agree which IPGs fall outside the scope of development and should therefore be 

financed from non-ODA financing sources in their national budgets; 

•  Update  the  Barcelona  Commitment  as  follows:  to  further  work  towards  further 
collective  multilateral  action  to  enhance  the  provision  of  priority  International 
Public  Goods,  starting  with  the  establishment  of  an  Action  Plan  at  EU  level,  by 
2006. 

7. 

INNOVATIVE SOURCES OF FINANCING AND NEW DELIVERY MECANISMS 

The European Council of December 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 countries 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  international 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  Presidents  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 attention but need to be checked against a set of criteria to 
determine  the  most  promising  options.  Such  criteria  could  include:  How  much  would  each 
proposal  raise?  How  far  would  the  funds  be  additional?  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 fastest? Is (almost) universal 
support required or can proposals be implemented at regional, i.e. EU, level?11 

The IFF is designed as a temporary facility to frontload the commitments made in Monterrey, 
by issuing bonds in international 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. 

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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  resources  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  recipient  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. Moreover, after 2015 IFF donors’ aid budgets would be 
partially used to reimburse IFF bondholders, with 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 least it is important to ensure that it does not 
impair fiscal transparency. 

Several proposals for genuinely additional resources have been put forward in the course of 
recent discussions: 

•  Environmental/energy/transport-related  taxes,  like  taxes  on  maritime  transport, 

aviation, or a CO2 tax/charge; 

•  Taxes on currency of financial transactions, like the Tobin tax; 

•  Health-related food taxes, 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 responsibility initiatives also merit attention. In 
addition  to  expressing,  in  a  unique  way,  solidarity  between  people,  these  undertakings 
generate substantial amounts of money. The Commission 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  consider  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  traditional  or  innovative  sources, 
increased ODA flows are required. In order to ensure that these 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 aid 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 flexible funding aligned with national priorities. 
But  none  of  them  provides  the  ideal  combination  of  medium-term  predictability  and 
flexibility to finance recurrent costs. Debt relief, though it meets these criteria,  can  produce 
perverse resource allocations. Therefore, new modalities are needed to support the necessary 
reforms for achieving the MDG. Highly aid dependent countries should be eligible for such 
new modalities: They should have shown their commitment to poverty reduction through the 

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implementation  of  a  poverty  reduction  strategy  and  a  credible  results  monitoring  system  . 
They should have the necessary economic stability and have demonstrated progress in public 
finance and governance. 

Several  mechanisms  could  be  envisaged  to  ensure  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  minimum  level  of  aid;  three-year 
rolling  commitments,  etc.  Violations  of  the  "essential  elements"  under  the  terms  of  the 
partnership  and  cooperation  agreements  (e.g.  violation  of  human  rights)  would  lead  to 
suspension of programmes. 

These  proposals  should  be  discussed  with  partner  countries  at  technical  and  political  level. 
Sufficiently  flexible  and  stable  sources  of  finance  need  to  be  available  to  allow  these 
innovative modalities to be implemented. 

For countries facing external shocks, mechanisms of temporary debt relief should be further 
considered. 

In the light of the above, the Commission invites the Council to agree to: 

•  accelerate work on the most promising options 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 support private (corporate and charitable) 

initiatives. 

8. 

REFORM 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  undertaking,  which  requires  long-term  efforts  to 
achieve  progress.  Developing  a  joint  EU  position,  however,  appears  to  be  crucial  to  move 
towards  honouring  the  Monterrey  commitment  on  increased  ownership  by  developing 
countries of their own future. EU Member States have expressed general 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  years  -  in  the  form  of  regular  coordination 
meetings  with  which  the  Commission  is  associated.  Moreover,  the  Economic  and  Financial 
Committee  (EFC)  has  established  a  special  sub-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 collective 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).  

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In the light of the above, the Commission 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 international economic decision-making. 

9. 

DEBT 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. The new Member States are making the necessary 
contribution to HIPC as creditors, and some contributed to the HIPC Trust Fund. Most of the 
Member  States  are  committed  to  go  beyond  the  requirements  of  the  HIPC  scheme,  by 
providing 100% debt relief on their pre-cut-off-date claims.  

However,  major  concerns  regarding  the  debt  situation  of  poor  countries  remain  and  require 
further reflection12 and action. In the short term the overall funding of the HIPC initiative 
is not fully secured as long as non-Paris Club creditors do not deliver their part of debt relief. 
A  consensus  is  emerging  that  the  HIPC  initiative  will  not  suffice  to  ensure  sustainable 
debt levels for poor countries in the long run despite several extensions. G7 members have 
agreed on the principle of possibly full cancellation of multilateral debt13. 

Efforts must therefore now concentrate on developing forward-looking strategies to tackle the 
issues at stake: 

•  The  HIPC  debt  cancellation,  although  criticised,  has  been  the  most  innovative 
approach in terms of aid transfer and transaction costs. However, financing needs 
go far beyond debt cancellation. Moreover, debt cancellation is a bad instrument 
in terms of aid allocation criteria, 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  States  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  additional  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  (DSA)  developed  by  the  IMF/WB  for  low-
the 
income  countries,  and 
aforementioned problems.  

its  strict  application,  are  crucial 

tackle 

to 

12 

13 

See the EC-funded study “Beyond the HIPC Initiative” of March 2004:  
http://www.europa.eu.int/comm/development/body/theme/hipc/docs/Beyond_HIPC_en.pdf#zoom=100. 
G7 Finance Ministers Conclusions on Development, London, February 5, 2005. 

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•  The  DSA  framework  also  emphasises 

the  close  relation  between  debt 
sustainability and vulnerability to external shocks, and the Commission is actively 
investigating instruments to assist countries hit by exogenous shocks. 

In the light of the above, the Commission 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 arrears 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 most of the debt stock in arrears; 

•  explore  the  possibility  of  using  a  temporary  debt  service  relief  facility,  among 
other instruments, to alleviate the effects of exogenous shocks on debt distressed 
countries. 

10. 

CONCLUSIONS 

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 enlarged EU to again demonstrate its commitment to 
addressing  the  FfD  challenge  through  reinforced  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  focuses  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. 

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Annex 1 

Summary March 14, 2002: Council Conclusions on the International Conference on Financing 

for Development (Monterrey, Mexico, 18-22 March 2002)  

The Council of the European Union: 

“1.  Considering  that  the  International  Conference  on  Financing  for  Development  represents 
an  historic  opportunity  to  make  progress  towards  the  achievement  of  the  Millennium 
Development  Goals  for  poverty  reduction  and  the  other  internationally  agreed  development 
targets in a holistic manner.  

2. Recalling the need for all international partners to reach the UN goal of 0.7% ODA/GNI 
and  the  European  Council  Presidency  Conclusions  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 according to World Bank estimates a doubling of 
ODA; 

3.  Stressing  that  the  Conference  should  be  based  on  a  spirit  of  strengthened  partnership  in 
which developing countries take primary responsibility for their own development, ensuring 
democracy,  human  rights  and  the  rule  of  law,  while  developed  countries  actively  support 
them, thus contributing to the "global deal" that will be discussed at the Johannesburg Summit 

4.  Recognizing  that  the  issue  of  aid  effectiveness  both  by  donors  and  recipients  must  be 
adequately  addressed  to  ensure  that  increased  ODA  flows  have  a  positive  impact  on 
development,  and  resources  go  effectively  and  efficiently  to  fighting  poverty  and  reducing 
inequality. 

5.  Stressing  that  developing  countries  have  primary  responsibility  to  create  a  sound 
macroeconomic  environment,  an  appropriate  framework  for  investments  and  guarantee  that 
funds  received  are  properly  and  effectively  managed,  engaging  themselves  to  ensure  good 
governance,  achieve  high 
transparency  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  countries,  allowing 
them to realize the full benefits of participation in the world economy. 

standards  of 

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  their  ODA  volume  in  the  next  four  years  within  their  respective 
budget  allocation  processes,  whilst  the  other  Member  States  renew  their  efforts  to  remain 
above  the  target  of  0.7%  ODA,  so  that  collectively  an  EU  average  of  0.39%  is  reached  by 
2006. In view of this goal, all the EU Member States will in any case strive to reach, within 
their respective budget allocation processes, at least 0.33% ODA/GNI by 2006. 

b)  To  take  concrete  steps  on  coordination  of  policies  and  harmonization  procedures  before 
2004, both at EC and Member States level, in line with internationally agreed best practices 

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including  by  implementing  recommendations  from  the  OECD  Development  Assistance 
Committee Task Force on donor practice. 

c) To implement the DAC recommendation on untying 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 maintaining 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  assistance  in  order  to  improve  the  negotiating 
capacity of developing countries in trade negotiations, including by commitments made at the 
WTO pledging Conference in Geneva on 11 March 2002. 

e) To further work towards a participatory process at the global level, including the proposal 
of  setting  up  a  task  force  open  to  all  actors  on  a  temporary  basis,  designed  to  lead  to  the 
identification of relevant Global Public Goods. 

f) To further explore innovative sources of financing and taking into account the conclusions 
of the Commission Globalization Report. 

g)  To  influence  the  reform  of  the  International  Financial  System  by  combating  abuses  of 
financial  globalization,  strengthening  the  voice  of  developing  countries  in  international 
economic  decision-making,  and,  while  respecting  their  respective  roles,  enhancing  the 
coherence between the UN, International Financial Institutions and WTO. 

h)  To  pursue  its  efforts  to  restore  debt  sustainability  in  the  context  of  the  enhanced  HIPC 
initiative,  so  that  developing  countries,  and  especially  the  poorest  ones,  can  pursue  growth 
and development unconstrained by unsustainable debt dynamics." 

Website link: http://europa-eu-un.org/articles/en/article_1222_en.htm 

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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 Hoc Working Party on Harmonisation:  

RECALLING: 

The Commission Communication of 5 March 2004 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 contained in the Commission Communication and 
other relevant proposals with a view to translating the Barcelona Commitment II into practice; 

The  decision  adopted  by  the  COREPER  establishing  the  AHWPH  and  setting  up  its 
mandate17; 

That the Working Party was invited 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 Harmonisation entitled "Advancing 

Coordination, Harmonisation and Alignment: the contribution of the European Union"; 

INVITES the relevant Council bodies to continue the work for preparing 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 
16 
17 

Doc. 7108/04 - COM(2004) 150. 
Doc. 8973/04. 
Doc. 9188/04. 

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