Communication from the Commission to the Council and the European Parliament - Financing for Development and Aid Effectiveness - The challenges of scaling up EU aid 2006–2010 {SEC(2006) 294}
Date: 2006-03-02
Institutions: European Commission
Subjects: EU financial instrument, Member States' contribution, coordination of financing, developing countries, development aid, financing of aid, third country

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 2.3.2006 
COM(2006) 85 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Financing for Development and Aid Effectiveness –  

The challenges of scaling up EU aid 2006 – 2010 

{SEC(2006) 294} 

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1. 

BACKGROUND  

In the run-up to the UN Millennium Review Summit in September 2005 the EU took historic 
new  commitments  to  accelerate  progress  to  achieve  the  Millennium  Development  Goals 
(MDG)1,  building  on  the  earlier  Barcelona  Commitments  taken  prior  to  the  Monterrey 
Conference on Financing for Development in 2002. These decisions were essential to trigger 
commitments  by  others;  they  were  widely  acclaimed  by  our  developing  country  partners, 
particularly because the results of the Summit itself remained below EU ambitions, notably as 
regards  the  financing  for  development  segment.  Subsequently  the  UN  General  Assembly 
agreed  on  a  follow-up  conference  to  take  place  between  2008  and  2009  to  review  further 
progress on the Monterrey consensus. 

The  new  commitments  will  further  reinforce  the  EU’s  position  as  the  world’s  biggest  aid 
donor and constituted fundamental elements of the ‘European Consensus on Development’2 – 
and the EU Strategy for Africa3 agreed later in 2005. They comprise 

•  new  targets  for  Official  Development  Assistance  (ODA):  through  progressive  ODA 
increases  the  EU  will  collectively  provide 0.56%  of  its  GNI  by  2010,  as  an  intermediate 
step to achieving the UN target of 0.7% by 2015. This commitment is combined with the 
promise to provide fifty percent of increased aid volumes to Africa; 

•  additional  commitments  concerning  innovative  sources  of  financing  for  development 

further debt relief and International Public Goods; 

•  better  coordinated  and  more  effective  aid  at  EU  level  as  well  as  implementation  of  the 
Paris  Declaration  on  Aid  Effectiveness,  including  more  predictable  aid  mechanisms, 
notably budget support, mitigation of exogenous shocks, aid untying and reform of the 
international financial institutions; 

•  trade-related  assistance  (TRA),  for  which  the  Council  further  specified  commitments 

prior to the WTO Ministerial in Hong Kong4. 

The  Council  invited  the  Commission  to  monitor  the  implementation  of  these  commitments 
and to report progress annually on the financing and effectiveness of aid, including for Africa. 
This Communication provides the first such assessment of the implementation of the extended 
set of EU commitments and is based on the Member States’ (MS) contributions in the annual 
monitoring  survey  of  late  2005.  A  detailed  evaluation  of  progress  is  contained  in  the 
complementary Staff Working Paper5. 

1 

2 

3 

4 
5 

the  Council, 

Council Conclusions of May 2005. ‘Millenium Development Goals: EU Contribution to the Review of 
the MDGs at the UN 2005 High Level Event’. 
Joint  Statement  by  the  Council  and  the  Representatives  of  the  Governments  of  the  Member  States 
the  Commission;  Council 
meeting  within 
Document 14820/05. 
European  Council  of  15-16.12.2005  ‘The  EU  and  Africa:  Towards  a  strategic  partnership’ 
(document 15961/05 of 19.12.2005). 
“Aid for Trade” Council Document 15579/05 DEVGEN 250 RELEX 748 of 09.12.2005. 
‘The EU monitoring of Financing for Development and Aid Effectiveness: Starting to deliver on the new 
commitments’ SEC(2006) 294. 

the  European  Parliament  and 

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2. 

THE  COMMITMENT  TO 
DEVELOPMENT ASSISTANCE (ODA) 

INCREASE  FINANCIAL  RESOURCES  FOR  OFFICIAL 

In 2005 the EU increased the initial ODA targets set for 2006 by those MS that participated in 
the “Barcelona commitments” (EU15: 0.33% ODA/GNI individual baseline target to ensure 
an  EU  collective  average  of  0.39%).  In  order  to  achieve  the  0.7%  UN  goal  by  2015,  all  25 
MS,  including  the  countries  that  joind  the  EU  in  2004  (EU10)  subscribed  to  new 
commitments: the EU15 promised to reach, by 2010, an individual baseline of 0.51% - the 
EU10  of  0.17%  -  ODA  as  a  percentage  GNI;  corresponding  to  a  collective  result  of  0.56% 
ODA/GNI.  The  acceding  countries  Bulgaria  and  Romania  aligned  themselves  with  these 
commitments. 

2.1. 

Towards meeting the ODA target of 2006 

The EU remains well on track to achieve the initial collective 0.39% ODA target by 2006. If 
forecasts  hold  true  the  EU  can  still  reach  an  approximate  average  of  0.42%.  The  EU 
performance in 2004 is satisfactory in that by collectively providing 0.34% of GNI for ODA 
the  EU  ensures  substantially  higher  levels  than  non-EU  OECD/DAC  donors  (except  for 
Norway  and  Switzerland)  and  remains  well  above  the  DAC  average  of  0.26%.  This 
corresponds  to  additional  aid  flows  of  €2.3  billion  compared  to  2003,  but  has  not  led  to  a 
real increase in percentage terms compared to 2003. 

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Table 1: EU ODA levels 2004 – 2005 – 2006 

ODA Levels

2004

2005

Mio. €

as % of GNI

Mio. €

as % of GNI

Mio. €

Targets
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
EU 10
EU 25

554
1195
4
88
1664
4
535
6921
6155
380
45
496
2011
7
8
192
8
3434
96
842
23
25
1991
2224
6439
35033
308
35341

0,23
0,41
0,04
0,11
0,85
0,05
0,35
0,41
0,28
0,23
0,06
0,39
0,15
0,06
0,042
0,83
0,18
0,73
0,05
0,63
0,072
0,1
0,24
0,78
0,36
0,35
0,07
0,34

1072
1358
4
102
1675
5
600
8093
6204
484
68
546
3279
7
12
204
7
4104
200
454
29
30
2600
2587
7138
40398
464
40862

0,45
0,45
0,04
0,11
0,81
0,06
0,39
0,47
0,28
0,28
0,085
0,40
0,24
0,06
0,06
0,85
0,18
0,83
0,09
0,33
0,09
0,12
0,30
0,88
0,39
0,40
0,09
0,38

1080
1577
5
110
1715
6
671
8213
7505
589
89
675
4577
8
14
216
9
4221
250
450
30
35
3234
3070
8061
45854
556
46410

2006

as % of GNI
0,33 / -

0,43
0,5
0,04
0,11
0,80
0,06
0,416
0,47
0,33
0,33
0,1
0,47
0,33
0,06
0,064
0,86
0,2
0,82
0,1
0,33
0,085
0,127
0,35
1
0,42
0,44
0,10
0,42

Data sources: OECD/DAC Annual report 2005 and replies by EU MS to the Monterrey survey 

The  outlook  for  2005-2006  is  more  promising.  If  current  estimates  hold  true,  the  EU15 
together  will  have  exceeded  the  0.39%  target  already  in  2005.  Italy,  which  is  the  only 
country with a decrease in ODA per GDP between 2003 and 2004, seems to have introduced 
corrective  measures  (estimated  0.24%  ODA/GNI),  but  remains  at  the  lowest  level  of  the 
group.  The  collective  result  in  2006  will  depend  on  those  MS  that  are  still  below  the 
minimum threshold of 0.33%. They must ensure a substantial rise in aid volumes to meet 
their individuals target by 2006 and to avoid jeopardising the strong performance of the EU as 
a whole. The EU10 could collectively contribute almost 0.1% of their GNI for ODA in 2006, 
thus ensuring a stronger performance than previously estimated. 

2.2 Impact of the European Council decision on the scaling up of community aid 

On the Financial Perspective package 2007 – 2013 the European Council concluded that6 the 
EC  budget  for  external  actions  shall  increase  annually  by  4.5%,  and  allocated  an  additional 

6 

“Financial Perspective 2007 – 2013”- Council document 15915/05 CADREFIN 268 of 19.12.2005. 

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€22.682 billion for cooperation with ACP countries during 2008-2013 under a 10th European 
Development  Fund  (EDF).  These  decisions  have  consequences:  Should  they  be  confirmed, 
the real share of the EC’s contribution (from EC budget and EDF) to EU’s collective ODA 
would decrease from today 20% to 15% by 2010 and 13% by 2013. Moreover, if MS honour 
their ODA pledges they will have to provide around 90% of the additional EU aid bilaterally. 

Against  this  background,  the  EU  must  face  a  double  challenge  to  ensure  its  credibility  as  a 
key global donor, as indicated by the European Consensus for Development:  

•  The  Council  Conclusions  do  not  secure  appropriate  funds  for  the  EC  to  respond  to  the 
expectations of partners resulting from the ambitious EC and EU Association/Partnership 
Agreements concluded with many partner countries worldwide.  

If MS’s national aid systems came also under considerable strain due to the scaling up of aid 
that would undermine the commitment to make the EU collectively a stronger, more effective 
aid performer.  

Hence  and  to  ensure  a  global  EU  coherence  and  visibility  it  is  crucial  to  put  in  place 
appropriate  structures  and  ways  also  at  EU  level  that  facilitate  the  coordinated  and 
complementary channelling of MS’ bilateral and EC aid. The Commission will contribute to 
this  effort  by  developing  different  types  of  host  structures  open  to  MS’  voluntary 
contributions,  such  as  the  European  trust  fund  for  infrastructure  in  Africa,  call  for  proposal 
mechanisms as applied under the ACP Water and Energy Facilities, or the exploration of the 
feasibility  of  common  instruments  to  respond  to  global  challenges  related  to  the  fall  in 
commodity prices and natural catastrophes (for example an EU-FLEX or similar). 

2.3 

Scaling-up of EU ODA: the new intermediate targets for 2010 

Preliminary estimates show that the majority of MS have introduced the necessary measures 
to attain the 2010 ODA targets: six MS will provide 0.7% or more of their GNI as ODA, with 
Sweden keeping its ODA at 1.0% of GNI and Luxembourg endeavouring to attain that level. 
A  further  four  MS  will  allocate  around  0.6%  of  their  GNI  for  development  aid  and  others 
foresee progressive year-on-year increases to reach 0.51% ODA/GNI. 

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Diagram 1: Estimated EU ODA in relation to the collective targets 2006-2010 

EU-25 Target 2006

EU-25 Target 2010

EU-10 Target 2010

EU 15 TOTAL

EU 15 Last Figures

EU 10 Total

EU 10 Last Figures

EU 25 TOTAL

EU 25 Last Figures

0,7

0,6

0,5

0,4

0,3

0,2

0,1

0

0,56

0,39

0,17

2002

2003

2004

2005

2007

2008

2009

2006
Target
Year

2010
Target
Year

Sources: Replies of EU Member States to the Monterrey survey

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Table 2: Prospects for achievement of the 2006-2010 intermediate EU goals 

ODA Levels

2006

2010 (latest figures)

2010 (commitments)

Targets

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

EU 10

EU 25

Mio. €

%GNI

0,33 / -

Mio €

%GNI

Mio. €

%GNI

0,51 / 0,17

0,51 / 0,17

1080

1577

5

110

1715

6

671

8213

7505

589

89

675

4577

8

14

216

9

4221

250

450

30

35

3234

3070

8061

45854

556

46410

0,43

0,5

0,04

0,11

0,80

0,06

0,416

0,47

0,33

0,33

0,1

0,47

0,33

0,06

0,064

0,86

0,2

0,82

0,1

0,33

0,085

0,127

0,35

1

0,42

0,44

0,10

0,42

1397

2561

10

137

1997

8

1287

11483

12359

1041

176

1227

3519

13

20

250

7

4848

570

768

77

58

7136

3783

12863

66519

1076

67595

0,51

0,70

0,06

0,11

0,80

0,06

0,7

0,6

0,51

0,51

0,17

0,62

0,24

0,07

0,07

0,83

0,17

0,8

0,17

0,51

0,17

0,18

0,60

1,00

0,59

0,56

0,15

0,54

1397

2561

28

212

1997

21

1287

11483

12359

1041

176

1227

7478

31

48

258

7

4848

570

768

77

58

7136

3783

12863

70486

1228

71714

0,51

0,7

0,17

0,17

0,80

0,17

0,7

0,6

0,51

0,51

0,17

0,62

0,51

0,17

0,17

0,86

0,17

0,8

0,17

0,51

0,17

0,18

0,6

1

0,59

0,60

0,17

0,57

Source: Replies of EU MS to the Monterrey survey 

While ODA flows are expected to grow consistently, a significant proportion of the increase 
seems  related  to  debt  relief  operations  (notably  Iraq,  Nigeria  throughout  2005-2007). 
Recalling  the  Monterrey  Consensus  the  Commission  underlines  the  need  to  ensure  that 
resources provided for debt relief do not detract from ODA resources intended to be available 
for developing countries. The challenge ahead consists of introducing the necessary dynamics 
in  MS’  budget  planning  to  reach  sustained  higher  ODA  levels  in  view  of  the  2010  goals, 
especially  in  countries  that  are  still  far  from  attaining  the  2006  baseline  target.  There  is  a 
noticeable trend among MS to backload the required growth of aid budgets. 

2.4 

The contribution of the new Member States  

The  ten  countries  that  joined  the  EU  in  2004  (EU10)  have  agreed  to  individual  baselines 
adapted  to  their  specific  situation.  They  have  committed  themselves  to  striving  towards 
reaching the ‘acquis’ of the EU in 2002 by 2015 (0.33%ODA/GNI) through gradual increases 
of their ODA and an intermediate target of 0.17% by 2010. 

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Diagram 2: Projected ODA increases in the EU10 during 2003-2010 compared to US and Japan 

-

N
G
A
D
O
%

0,25

0,2

0,17

0,15

0,1

0,05

0

Official EU-10 Target
(0,17%)

EU 10 Total
(commitments)

EU 10 Total
(assumptions)

USA

Japan

2003

2004

2005

2006

2007

2008

2009

2010 (commitments)

Sources: OECD/ DAC Annual report 2005 and replies of MS to Monterrey survey 

Their  overall  performance  is  impressive,  especially  when  compared  with  other  big 
OECD/DAC  donors.  If  current  trends  are  confirmed,  the  combined  ODA  volume  would 
increase more than six-fold between 2003, the year prior to accession to the EU, and 2010 and 
reach  the  0.17%  baseline  target.  Whereas  some  countries  have  planned  for  progressive  aid 
increases, others need to step up their efforts and adapt their ODA budgets, especially through 
allocations  other  than  their  contribution  to  the  EC  budget  and  the  10th  EDF.  By  2010,  the 
combined aid levels of the EU10 would equate to the projected ODA/GNI ratio of the US. 

2.5 

The special commitment on Africa 

The EU undertook to raise aid to Sub-Saharan Africa and to ensure that half of the envisaged 
collective  aid  increases  as  of  2006  will  be  allocated  to  Africa.  Whereas  the  G8  -  building 
largely  on  the  EU’s  financial efforts  -  also  promised  aid  increases  for  Africa  towards  2010, 
the EU pledge has so far not been matched by commitments from others, neither in scope nor 
in  terms  of  verifiable  indicators.  The  promise  on  Africa  pertains  to  the  collective  EU  effort 
avoiding  interference  with  national  aid  priorities  of  individual  MS.  Further  work  on  the 
division  of  labour  needs  to  ensure  a  fair  burden-sharing  amongst  EU  donors  and  with 
international partners. 

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Diagram 3: Share of allocations to Africa in EU total ODA – average 2000 - 2004 

e
g
a

t

n
e
c
r
e
P

100

90

80

70

60

50

40

30

20

10

0

Austria

Belgium

Denmark

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Netherlands

Portugal

Spain

United Kingdom EC 
Sweden

Source: OECD/DAC Annual Report 2005 

The Commission invites the Council to: 

•  call on other donors to commit more substantially to ensuring proper financing for 

the MDGs, notably in Africa, in the medium and long term; 

•  in  the  light  of  the  negative  effect  on  EC  aid  of  the  Financial  Perspective 
Conclusions  adopted  by  the  European  Council,  call  on  MS  to  contribute, 
especially  for  Africa,  to  common  EU  and  other  aid  instruments  to  ensure  an 
effective implementation of the forthcoming aid increases; 

•  encourage MS whose ODA levels are still below the individual baseline to make 

every effort to reach the targets in 2006 and in 2010 respectively; 

•  ensure that further developments in debt relief remain in keeping with the spirit of 

the Monterrey consensus and the EU commitments; 

•  encourage MS that joined the EU after 2002 to sustain and step up their efforts to 

achieve 0.17% ODA/ GNI individually by 2010. 

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3. 

COMMITMENT ON INNOVATIVE SOURCES OF FINANCING 

In  2005,  the  Council  considered  the  most  promising  options  for  innovative  sources  of 
financing for development  on the  basis of technical analyses provided by  the Commission.7 
As a result of this process, two proposals received the support of some MS: 

•  The  International  Finance  Facility  (IFF)  for  Immunisation  (IFF-Im),  launched  in 
September  2005  by  France,  Italy,  Spain,  Sweden  and  the  UK  as  a  mechanism  to  bring 
forward  in  time  resources  already  pledged  to  partner  countries  for  immunisation 
programmes,  involves  a  €3.3  billion  commitment  over  ten  years;  first  disbursements  are 
expected in 2006; 

•  A  solidarity  levy  on  airline  tickets  to  facilitate  the  financing  of  existing  ODA 
commitments, in particular for projects in the health sector: The UK indicated that part of 
the  existing  Air  Passenger  Duty  should  be  diverted  for  development  financing.  France 
decided to introduce air ticket tax as of July 2006 and estimates to raise some €210 million 
p.a.. 

A  technical  workshop  of  Commission  departments  and  MS  on  innovative  financing  in 
February 2006 revealed that the implementation of the initiatives under preparation may have 
a positive effect on MS’ readiness to join, or carry forward, proposals of innovative financing 
for development. 

Linking new sources of finance to specific issues and goals may lead to further vertical and 
issue-based funds and programmes that need also to ensure country ownership. 

The objective of mobilising additional, more stable sources of finance must guide the overall 
discussion on innovative financing and aid modalities and should, in the medium term, lead to 
the provision of more predictable funding. 

Against  this  background  the  Commission  proposes  that  the  Council  should  continue  to 
consider innovative sources of finance, including by monitoring the implementation of current 
initiatives. 

4. 

COMMITMENT ON DEBT RELIEF 

The main event on debt in 2005 was the G8 proposal for the cancellation of the IMF, World 
Bank (WB) and African Development Bank debt remaining in countries having reached the 
HIPC Completion Point. This Multilateral Debt Relief Initiative (MDRI) was endorsed by the 
September 2005 Annual Meetings of the International Finance Institutions and is now being 
operationalised  by  the  three  institutions  concerned.  The  countries  benefiting  from  this 
additional debt reduction will thus probably reach long term debt sustainability. 

7 

“New Sources of Financing for Development: A Review of Options” SEC(2005)467 of 05.04.2005; "An 
analysis of a possible contribution based on airline tickets as a new source of financing development" 
SEC(2005)  733  of  15.06.2005;  "A  possible  contribution  based  on  airline  tickets  as  a  new  source  of 
financing  development:  technical  reflections  in  the  run  up  to  the  UN  High  Level  Event” 
SEC(2005) 1067 of 01.09.2005. 

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5. 

COMMITMENT ON AID EFFECTIVENESS 

Since  2004  both  the  EU  and  the  donor  community  at  large  -  together  with  beneficiary 
countries - agreed to concrete aid effectiveness deliveries. This year, how successful we have 
been  in  honouring  these  commitments  will  be  judged  against  the  degree  of  genuine 
implementation. 

The Commission plays an active role in the development of a strong monitoring mechanism 
for the objectives and indicators of the Paris Declaration. Considering the delays in finalising 
that monitoring tool, it is essential that this process finds its cruising speed in 2006, without 
watering down the commitments, in order to keep up the pace of the necessary reforms. 

This progress report will in the future assess the status of the EU’s own commitments, which 
were  recorded  during  the  Paris  High  Level  Forum.  A  comprehensive  Action  Plan  on  the 
effectiveness  of  EU  aid  brings  together  nine  deliverables  that  the  EU  will  have  to  further 
develop in 2006 and implement in the field until 2010.8 

The Council repeatedly highlighted the need to enhance the complementarity of our activities 
by  improving  our  division  of  labour,  as  a  key  component  to  improving  the  effectiveness  of 
EU  aid.  Although  reorganising  ongoing  activities  is  difficult,  it  is  crucial  in  view  of  the 
projected scaling-up of aid and requires a concerted effort. The EU Action Plan responds to 
these challenges. 

Improved  aid  effectiveness  requires  efforts  from  partner  countries  and  donors  alike:  Partner 
countries need to put in place procurement and public finance management systems that meet 
international standards. Donors need to explore ways in which, in the absence of harmonised 
systems, they can reduce transactions costs. The Commission, through increasing recourse to 
budget and sector support, simplified contractual arrangements for international organisations 
and  proposals  to  simplify  its  regulatory  and  legislative  framework  is  progressing  in 
accordance  with  the  obligations  of  the  Paris  Declaration.  Moreover,  current  procedural  and 
legal constraints for EC aid in relation to basket funding and co-financing should no longer 
persist beyond  2006 for the new instruments under the financial perspective 2007-2013 and 
beyond 2007 for the EDF. 

The Commission asks the Council to: 

•  support the establishment of strong monitoring processes by the end of 2006, both 

within the DAC context and at EU level;  

•  support,  the  establishment  of  EC  aid  rules  favouring  co-financing  with  Member 
States and other donors, under the new cooperation instruments of the EC budget 
for the period 2007 – 2013 and under the 10th EDF; 

•  agree  to  further  deepening  its  approach  towards  operational  complementarity, 

through the adoption of principles for an improved division of labour; 

8 

Communication from the Commission“EU aid: delivering more, better and faster” COM(2006) 87. 

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•  agree  on  a  concerted  EU  strategy,  designed  in  a  broader  context,  to  address  a 
scaling-up  of  EU  aid,  embedded  in  the  effectiveness  of  aid  and  the  division  of 
labour; 

•  endorse,  in  2006,  the  deliveries  contained  in  the  Action  Plan  on  EU  Aid 
Effectiveness and its objectives for progressive implementation of those deliveries 
in the field until 2010. 

6. 

COMMITMENT  TO  CREATING  MORE  PREDICTABLE,  LESS  VOLATILE  AID 
MECHANISMS 

For  the  best  performing  developing  countries,  a  rolling  multi-year  framework  and  less 
frequent verification of conditionality are key elements to achieving greater predictability in 
budget support disbursements. However, while a number of MS mentioned budget support as 
their  preferred  aid  instrument,  only  Portugal  and  the  UK  seem  willing  to  move  to  multi-
annual  budget  support  with  a  less  than  annual  review  of  conditionality  in  the  sense 
indicated by the Council Conclusions of May 24, 2005. A technical workshop organised by 
the  Commission  in  February  2006  in  response  to  the  Council’s  invitation  to  elaborate 
proposals  for  a  new  long-term  budget  support  mechanism9  targeting  the  best  performing 
countries also revealed the divergent views among MS. Nevertheless, the MS agreed on the 
importance of ensuring more predictable aid and expressed interest in the ideas put forward 
by  the  Commission  for  a  multi-annual  “MDG  contract”  that  should  focus  on  well 
performing  countries  and  offer  greater  assurances  of  predictable  funding  in  exchange  for 
enhanced  planning,  monitoring  and  performance  by  beneficiaries  with  respect  to  the  MDG. 
The Commission will further analyse this issue, including through informal  working groups 
with experts from interested MS, like-minded donors and relevant international organisations. 

7. 

MITIGATION OF THE IMPACT OF EXOGENOUS SHOCKS 

The EU is well on track in its commitment to support the operationalisation of market-based 
insurance  schemes  to  mitigate  the  negative  effects  of  external  shocks  on  the  economies  of 
developing countries. Through the European Development Fund (EDF), the Commission has 
earmarked  €  25  million  in  support  of  the  Global  Index  Insurance  Facility  (GIIF),  under 
preparation  by  the  WB  during  2005.  The  GIIF  will  include  a  re-insurance  facility  allowing 
insurance coverage for indexable price risks related to weather, disaster and commodities in 
developing  countries  and  is  expected  to  be  operational  by  mid-2006.  In  addition  to  strictly 
commercial  interests,  share-holdership  in  the  GIIF  will  most  likely  include  development 
banks such as the EIB and the German Investment and Development Company (DEG). Active 
participation  by  MS  in  the  International  Task  Force  on  Commodity  Risk  Management 
will be essential to improve the exchange of information on risk management approaches. 

9 

Council Conclusions of 22.11.2005 “Orientation Debate on the Effectiveness of EU External Action” 
(doc. 14821/05 DEVGEN230 RELEX 679). 

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Following  discussions  with  the  ACP  group  on  an  EU-ACP  Natural  Disaster  Facility  the 
Commission  is  now  also  processing  a  financing  proposal  for  capacity  building  in  disaster 
prevention/preparedness  in  the  ACP  regions,  budgeted  at  €12  million  from  the  9th  EDF.  A 
second  phase  will  be  discussed  with  national  and  regional  authorities  in  the  context  of  the 
preparation of the 10th EDF, with the aim of including this matter in Country and Regional 
Strategy Papers, particularly for disaster-prone countries and regions. 

In  the  light  of  other  initiatives  that  have  been  undertaken  in  2005  to  address  the  negative 
effects  of  exogenous  shocks  (including  the  post-tsunami  debt  rescheduling  by  the  Paris 
Club  and  the  Exogenous  Shocks  Facility  by  the  IMF)  and  the  continuation  of  existing 
mechanisms  (FLEX  for  the  ACP  countries),  it  is  increasingly  important  that  the  various 
instruments  should  be  well  coordinated  and  provide  complementary  responses  to  shocks. 
Moreover,  the  international  community  should  ensure  that  responses  are  rapid,  reliable  and 
rooted  in  a  strategy  that  pays  adequate  attention  to  risk  prevention  and  risk  mitigation 
planning. Vulnerability to external shocks may be included as a criterion for the allocation of 
development assistance from the EC and MS while shock management should ensure that any 
additional assistance is counter-cyclical. 

The  Commission  invites  the  Council  to  contribute  to  supporting  the  Global  Index 
Insurance Facility (GIIF) in order to facilitate the access of developing countries to market-
based insurance instruments. 

8. 

COMMITMENT ON UNTYING OF AID 

The majority of MS that are DAC members have fully untied their bilateral aid and 40% of 
the others are considering further opening access to their development assistance beyond their 
current level of untying. 

In addition, more than half of the MS have abolished any conditions linked to the channelling 
of their funds through UN bodies or NGOs, including several new MS. Moreover, a third of 
the MS have established a system of local preferences aimed at creating local capacities and 
reinforcing of local markets. 

In  December  2005,  the  EC  adopted  two  regulations  that  open  access  to  all  EC  external 
assistance.  More  than  two  thirds  of  EC  aid  delivered  through  geographical  or  thematic 
instruments  is  now  to  a  large  extent  untied.  The  remaining  part  of  aid  will  be  untied  to 
developing countries and to all donors as and when they unty their own aid. 

All EU MS have agreed to further extend the scope of the OECD/DAC recommendation on 
aid untying to the LDCs and called for full untying of food aid and food aid transport. In this 
regard  the  Commission  regrets  that  progress  is  still  obstructed  by  negative  commercial 
approaches sponsored by other donors.  

The Commission reiterates its duty to ensure the consistency of the Single Market and its will 
to monitor, in accordance with the Treaty the access of all MS to public procurement in other 
MS, including in the field of development. 

The Commission recommends that the Council should continue its efforts to promote the 
further  untying  of  food  aid  and  food  aid  transport,  in  line  with  the  negotiation  mandate 
adopted in view of the revision of the London Convention. 

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9. 

INTERNATIONAL PUBLIC GOODS (IPG) 

The  commitment  on  IPG  is  linked  to  the  availability  and  content  of  the  final  report  of  the 
Task Force on Global Public Goods. Many MS and the Commission  consider that the Task 
Force has provided a valuable contribution to enhancing the debate and raising awareness of 
International Public Goods, regret the delay in releasing the final report and look forward to 
its  final  availability.  The  Commission  also  notes  that  the  new  ambitious  commitments  for 
development,  in  particular  those  made  by  the  EU  (notably  increased  ODA  volumes  and  the 
“European Consensus on Development”) have been accompanied by a decreasing interest in 
an  IPG  approach,  especially  its  financing  dimension.  Against  this  background  the 
Commission invites the Council to call on the International Task Force on Global Public 
Goods for a prompt release of its final report. 

10. 

REFORM OF THE INTERNATIONAL FINANCIAL INSTITUTIONS 

The  vast  majority  of  MS  are  in  favour  of  more  systematic  joint  statements  by  EU  MS 
representatives  on  the  Governing  Boards  of  IFIs  and  of  a  more  formal  coordination 
mechanism among EU MS for WB issues of strategic importance to the EU.  

By  presenting  joint  statements  as  often  as  possible,  the  EU  will  increase  its  visibility  and 
influence  in  the  IFIs,  in  line  with  the  ‘European  Consensus  on  Development’  and  the  EU 
strategy  for  Africa.  The  Commission  has  created  an  inter-service  network  to  support  this 
process. 

MS also expressed general satisfaction with the improved informal EU coordination between 
the EU Executive Directors of the IMF and the WB in Washington; this has taken form of 
regular coordination meetings in which the Commission actively participates. Whereas the 
Economic and Financial Committee (EFC) established a special sub-committee to coordinate 
the  EU  position  on  IMF  and  related  issues  (SCIMF),  there  is  no  such  formal  coordination 
mechanism for WB issues. The annual visits of the EU Executive Directors from the WB to 
the  EU  institutions  have  a  catalytic  effect  on  cooperation.  Similar  mechanisms  should  be 
developed  to  improve  EU  coherence  among  the  Executive  Directors  from  Regional 
Development  Banks,  where  collective  EU  shareholding  is  significant,  such  as  the  African 
Development  Bank,  the  Asian  Development  Bank  and  the  Inter-American  Development 
Bank.  The  Commission  will  soon  organise  a  visit  of  EU  Executive  Directors  of  Regional 
Development Banks to the European institutions. 

The Commission invites the Council to: 

•  support  the  creation  of  an  informal  coordination  mechanism  between 
European  Executive  Directors  from  the  Regional  Development  Banks,  in 
association with the Commission, where collective EU shareholding is significant, 
similar to the existing practice in the World Bank; 

•  ensuring  that  EU  coordination  meetings,  with  participation  of  Commission 
representatives, take place systematically prior to important decisions to be taken 
by the Boards of the IFIs, in which EU shareholding is significant. 

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•  promote 

increased  transparency  between  Executive  Directors  and 

the 
Commission,  by  transmitting  as  a  first  step,  timely  and  regularly,  the  Board 
documents of IMF, WB and regional development banks to the Commission. 

11. 

TRADE AND DEVELOPMENT 

Following  the  Council  of  May  2005  the  EU  further  deepened  its  commitments  concerning 
Trade-Related Assistance (TRA). At the G8 Summit Commission President Barroso pledged 
to increase EC aid for trade to €1 billion p.a. In December 2005 the Council10 agreed that MS 
will  strive  to  collectively  increase  their  TRA  to  €1  billion  p.a.  by  2010.  The  combined  EU 
contribution should thus reach €2 billion. The MS and EC also pledged to provide adequate 
and  predictable  funding  of  an  enhanced  and  strengthened  Integrated  Framework  (IF), 
€10 million has been earmarked as EC contribution to the enhanced IF. The Commission is 
ready to examine possibilities for pooling MS and EC funds to enhance the effectiveness of 
TRA,  and  will  review,  in  future  editions  of  this report,  the delivery  of  the Commission and 
MS on these commitments.  

Following the WTO Ministerial Declaration in Hong Kong an Aid for Trade Task Force will 
be  set  up,  in  which  the  Commission  intends  to  work  to  firmly  sustain  the  “aid  for  trade” 
agenda, in coordination with the MS and using established channels. 

The evaluation of EU coordination on TRA of 2005-06 concludes that the EU Informal Trade 
and Development Expert  Group  remains the main tool  at headquarter level for coordination 
between the Commission and the MS. Other key findings include: headquarters exchange of 
information  is  mostly  from  the  Commission  to  the  MS  and  not  vice  versa;  in-country 
coordination is a very ad hoc process, which has succeeded in avoiding duplication, but is yet 
to  mature  into  a  common  strategic  response  to  TRA  needs;  some  MS  contribute  to  shaping 
multilateral initiatives, but there is no joint EU strategy on such initiatives.  

Against this background the Commission invites the Council to: 

•  implement  the  conclusions  on  “Aid  for  Trade”,  in  particular  by  effective  and 
timely delivery by MS on TRA aid volume targets by 2010; work towards more 
effective  and  increased  trade-related  infrastructure  activity;  support  an  enhanced 
IF; and provide credible assistance to facilitate trade adjustment; 

•  contribute  to  improved  mainstreaming  of  trade  into  poverty  reduction  and 
development strategies; use trade needs assessments systematically and, as far as 
possible, jointly for the programming of TRA; 

•  further  improve  EU  coordination  efforts  at  headquarters  and  field  level;  at 
headquarters level the Informal Trade and Development Expert Group should be 
more systematically used to share information and best practices; at field level the 
enhanced IF or, where applicable, trade needs assessments should include a strong 
coordination  mechanism;  and  provide  timely  and  full  information  on  TRA 
commitments to the Doha Data Base. 

10 

“Aid for Trade” Council Document 15579/05 DEVGEN 250 RELEX 748 of 09.12.2005. 

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12. 

CONCLUSIONS 

Following the extraordinary efforts undertaken by the EU in 2005 to contribute to a positive 
outcome of the UN Summit by setting new and ambitious commitments and by strengthening 
the  EU  framework  through  the  European  Consensus  on  Development  and  the  EU-Africa 
strategy,  the  delivery  on  these  promises  has  now  taken  off.  The  EU,  albeit  with  some 
difficulties, gives signs to be prepared to meet  its intermediate ODA targets 2006. Working 
towards the 2010 targets will require supplementary efforts and credible action supported by 
public  opinion.  Communication  on  EU  development  activity  should  be  strengthened.  Some 
MS  are  introducing  innovative  sources  of  financing,  whereas  the  Multilateral  Debt  Relief 
Initiative  responds  to  the  EU’s  concern  pertaining  to  debt  sustainability  of  poor  countries. 
Concrete deliverables on aid effectiveness must now be agreed, e.g. the joint EU framework 
for country strategies11 and the Action Plan. 

11 

“Increasing the impact of EU aid: a common framework for drafting country strategy papers and joint 
multiannual  programming”  COM(2006) 88;  “EU  Aid:  Delivering  more,  better  and 
faster” 
COM(2006) 87. 

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ANNEX 

SUMMARY OF REVISED EU COMMITMENTS 

ON FINANCING FOR DEVELOPMENT AND AID EFFECTIVENESS OF 2005 

Extract  from  the  Council  Conclusions  on  the  Millennium  Development  Goals  of 
24 May 2005,  including  references  to  the  Council  Conclusions  on  the  International 
Conference  on  Financing  for  Development  of  14  March  2002,  complemented  by  the 
Councils Conclusions of 9 December 2005 on Aid for Trade 

1. 

ODA 

1.1  Increased ODA volumes beyond 2006: “Increased ODA is urgently needed to achieve 
the  MDGs.  In  the  context  of  reaching  the  existing  commitment  to  attain  the  internationally 
agreed ODA target of 0,7 % ODA/GNI, the EU notes with satisfaction that its Member States 
are on track to achieve the 0.39% target in 2006 for ODA volumes contained in the Barcelona 
commitments. At present, four out of the five countries, which exceed the UN target for ODA 
of 0,7%, of GNI are member states of the European Union. Five others have committed to a 
timetable to reach this target. While reaffirming its determination to reach these targets, the 
EU agrees to a new collective EU target of 0,56 % ODA/GNI by 2010, that would result in 
additional annual € 20bn ODA by that time. 

i. 

ii. 

iii. 

Member States, which have not yet reached a level of 0,51 % ODA/GNI, undertake 
to  reach  ,  within  their  respective  budget  allocation  processes,  that  level  by  2010, 
while those that are already above that level undertake to sustain their efforts; 

Member  States,  which  have  joined  the  EU  after  2002,  and  that  have  not  reached  a 
level  of  0,17  %  ODA/GNI,  will  strive  to  increase  their  ODA  to  reach,  within  their 
respective  budget  allocation  processes,  that  level  by  2010,  while  those  that  are 
already above that level undertake to sustain their efforts; 

Member States undertake to achieve the 0.7% ODA/ GNI target by 2015 whilst those 
which  have  achieved  that  target  commit  themselves  to  remain  above  that  target; 
Member States which joined the EU after 2002 will strive to increase by 2015 their 
ODQ/GNI to 0.33%.” 

Focus  on  Africa:  “The  EU  will  increase  its  financial  assistance  for  Sub-Saharan 
1.2 
Africa and will provide collectively at least 50% of the agreed increase of ODA resources to 
the  continent  while  fully  respecting  individual  Member  States  priorities’  in  development 
assistance.” 

1.3  ODA target 2006 (Council conclusions of March 14, 2002): “…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  …  within  their  respective  budget  allocation 
processes, …., 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.” 

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2. INNOVATIVE SOURCES OF FINANCING 

“The Council will continue to consider the most promising options for innovative sources of 
financing  for  development,  in  order  to  increase  the  resources  available  in  a  sustainable  and 
predictable way. It notes the intention of some Member States to introduce a solidarity levy 
on airline tickets”. 

3. DEBT 

“The EU remains committed to finding solutions, in cooperation with International Financial 
Institutions,  to  unsustainable  debt  burdens,  and  is  committed  to  full  implementation  of  the 
enhanced  HIPC  initiative.  It  will  be  vital  to  agree  on  the  scope  and  modalities  for  further 
multilateral debt relief in order to secure the long term debt sustainability on a case by case 
approach. 

The EU will continue and enhance efforts to restore and maintain debt sustainability, based on 
a case by case approach, including 

(a)  exploring  possibilities  for  mechanisms  for  temporary  suspension  of  debt  servicing  for 
developing countries affected by exogenous shocks, 

(b) specific measures for post conflict countries with external arrears which, therefore, have 
not yet met the criteria of the HIPC initiative.” 

4. AID EFFECTIVENESS 

“The EU will continue and enhance efforts to restore and maintain debt sustainability, based 
on a case by case approach, including 

(a)  exploring  possibilities  for  mechanisms  for  temporary  suspension  of  debt  servicing  for 
developing countries affected by exogenous shocks. 

(b) specific measures for post conflict countries with external arrears which, therefore, have 
not yet met the criteria of the HIPC initiative. 

the  Paris  High  Level  Forum 

In  preparation  of 
the  Council  has  adopted,  on 
22 of November 2004,  a  comprehensive  EU  response  with  the  report  on  ‘Advancing 
coordination,  harmonisation  and  alignment’.  The  EU  will  ensure  implementation  of  the 
concrete  recommendations  contained  therein,  including  a  more  effective  framework  for 
development assistance at the EU level and division of labour and complementarity at country 
level in the context of joint, multi-annual programming based on the partner country’s poverty 
reduction strategies. 

The  EU  is  fully  committed  to  a  timely  implementation  and  monitoring  of  the  Paris 
Declaration on Aid Effectiveness including setting monitorable targets for 2010 and of the EU 
specific commitments adopted at the Paris Forum.” 

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5. MORE PREDICTABLE, LESS VOLATILE AID MECHANISMS 

“In  order  to  better  respond  to  the  need  for  stable  resources  and  in  view  of  the  expected 
increases  in  ODA  flows,  the  EU  will  develop  new,  more  predictable  and  less  volatile  aid 
mechanisms.  Such  mechanisms  could  consist  in  the  provision  of  a  minimum  level  of 
budgetary aid secured in a medium term perspective and linked to policy performance in the 
partner countries in particular in relation to the commitment towards achieving the MDGs in 
national poverty reduction strategies.” 

6. EXOGENOUS SHOCKS 

“In  order  to  mitigate  the  impact  of  exogenous  shocks,  including  price  vulnerability,  on 
developing countries economies, the EU will support the operationalisation of market based 
insurance schemes and explore possibilities for temporary suspension of debt servicing on a 
case by case basis. Further, the EU will strengthen and improve access to existing financing 
mechanisms such as those provided for in the Cotonou Agreement (FLEX) to give short term 
cover against the impact of such shocks on countries’ revenue.” 

7.UNTYING OF AID 

“Addressing the challenge of untying of aid by adopting as soon as possible, on the basis of 
the Commission’s proposal, a regulation on the access to EC external assistance; the EU will 
support  ongoing  debates  at  the  international  level  on  further  untying  of  aid  beyond  existing 
OECD/DAC recommendations.” 

8. INTERNATIONAL PUBLIC GOODS (IPGS) 

“Examining,  on  the  basis  of  the  report  of  the  Task  Force  on  Global  Public  Goods,  the 
possibilities  to  establish  by  2006  an  Action  Plan  at  EU  level  on  the  provision  of  priority 
International  Public  Goods  (IPGs)  and  agreeing  to  examine  the  financing  modalities  of  the 
IPGs.” 

9. REFORM OF THE INTERNATIONAL FINANCIAL SYSTEM 

9.1  Conclusions  of  May  24,  2005:  “Promoting  a  joint  European  position  on  enhancing  the 
voice of developing and transition countries and further improving the quality of existing EU 
coordination in the IFIs.“ 

9.2 Conclusions of March 14, 2002: “To influence the reform of the International Financial 
System by combating abuses of financial globalisation, 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”. 

10. TRADE AND DEVELOPMENT 

10.1 Conclusions of May 24, 2005: “…the EU commits to further improving and better co-
ordinating  trade-related  assistance  programmes  and  –  in  view  of  possible  trade  integration 
costs  faced  by  developing  countries  -  providing  additional  support  for  trade  adjustment  and 
integration into the global economy. It therefore agrees that the different options set out in the 
Communication for improved and increased aid, including that of an international mechanism 

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for  trade  adjustment  and  capacity  building,  be  pursued  further  within  the  EU  and  with  the 
international community.” 

“The  EU  will  continue  to  provide  support  to  developing  countries  to  enable  them  to  seize 
trading  opportunities,  in  particular  by  assisting  them  in  integrating  trade  into  their  national 
development strategies and securing the necessary domestic reform.” 

10.2  Conclusions  of  December  9,  2005:  Integrated  Framework  (IF):  “On 
the 
understanding that the enhancement of the IF needs to address fully its existing weaknesses, 
the EU resolves that, within available budgets and with other donors, it will provide resources 
to enable the enhanced IF to be adequately and predictably funded. Some Member States may 
alternatively decide to provide aid for the same purpose through other channels.” 

Trade-Related  Assistance:  “Within  their  commitments  to  future  increases  in  development 
assistance, member States will strive to increase the EU’s collective spending on trade-related 
assistance  (as  so  defined),  in  response  to  needs  prioritised  in  partner  country  poverty 
reduction strategies or development plans, with a view to reaching a figure of € 1 billion per 
year by 2010, inclusive of spending on the enhance Integrated Framework. This would bring 
the contribution of the EU as w whole, including the Community contribution, to € 2 billion 
per year by 2010.” 

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