Development Aid Should Be Pooled in the EU Budget

In the post-2020 EU Multiannual Financial Framework, the Member States of the European Union should pool their development resources in the EU budget. Joint EU funding would help to overcome the fragmentation of European development aid, while ensuring that all Member States contribute to the EU development according to their gross national income. These are the recommendations of a study on EU development policy conducted by the ZEW – Leibniz Centre for European Economic Research together with the Bertelsmann Stiftung.

The study starts with a close look at the status quo of European development aid, which is currently highly fragmented. The EU and its 28 Member States all act as individual donors, which often results in harmful competition and creates unnecessarily high costs due to the lack of coordination. This state of fragmentation also often prevents EU Member States from having as much an influence as other major donors such as the US or China. What is more, the current system leads some Member States to follow a free rider strategy. Although the whole EU-28 benefits from a more stable situation in, say, African states, contributions to development funding vary widely between the individual Member States – even between those with a similar level of income.

The model proposed by ZEW and the Bertelsmann Stiftung would exploit the advantages of a joint financing approach, while avoiding the disadvantages of excessive centralisation. According to this model, EU development aid would be financed through the EU budget’s own resource system, in which the national contributions are proportional to each country’s economic power. This means that EU countries with the same level of income would bear the same financial burden relative to their size.

The EU can create more added value for all Member States

At the same time, however, EU Member States should continue to be able to contribute their specific expertise when it comes to cooperating with certain target countries. As so-called “lead states”, certain Member States should thus be tasked with designing and implementing EU development programmes in partner states they have a special relation with, such as a common history and/or language.

“Development policy is a good example of a field where the EU can create tremendous added value for all Member States. With the same amount of money, a joint EU budget would cause European development aid to be more influential and effective than the current fragmented system. In addition, pooling resources in the EU budget would create a lot more fairness, as it would prevent single EU countries to engage in the popular free-riding strategy of benefiting from the development efforts made by other Member States,” concludes Professor Friedrich Heinemann, head of the ZEW Research Department “Corporate Taxation and Public Finance” and co-author of the study.