The Future Of European Development Finance

Climate change, migration flows, security - growing challenges like these are calling for new responses from EU development policy. Achieving the Sustainable Development Goals (SDGs) by 2030 will in itself require additional financial resources of up to USD 2.5 trillion every year in middle- and low-income countries. Although the European Union (EU) and its Member States are already the biggest donors worldwide, the amount of public funds available is not enough to reach the SDGs. In their search for solutions, therefore, state and non-state actors are focusing squarely on linking public- and private-sector funding. Faced with ambitious climate targets and China's growing involvement in development finance, the current debate on the EU's future external financing is centred around reforming the institutional architecture. Such reforms are intended to boost green energy and employment in the partner countries and communicate a coherent European model of socioeconomic development to the outside world. While all actors agree that the EU's external financing architecture should be simpler, more visible and more efficient (European Commission, 2018), views on how this could actually be achieved vary widely. This led the Council of the EU to task a high-level Wise Persons Group with formulating various scenarios for creating an EU Development Bank. EU development financing is plagued by conflicting national and supranational interests and often sees institutional concerns prioritised over matters of content. Against this backdrop, we argue that institutional and content-related interests need to be better aligned if development financing is to be made more efficient and more sustainable. In particular, a reformed architecture for the EU's external financing has to do more to reconcile European sustainability and development goals with the needs of partners. Measuring impact against uniform standards will both help to achieve overarching objectives and convey a successful European development model. Given the importance of private capital for development finance, a reformed financial architecture should also consider the interests and rationales of the private sector. However, this will only be a winning formula if social, environmental and human rights standards do not take a back seat.

The workshop, organised at the request of the Committee on Development (DEVE) on 7 February 2022, provided a brainstorming platform for an exchange of views between Members of the committee, invited experts and various stakeholders, on the future of European Financial Architecture for Development (EFAD). It examined the state of play and the decisions made by the Council to pursue the ‘status quo +’ option, as well as other alternative options and scenarios, such as the establishment of a European Climate and Sustainable Development Bank. It provided recommendations on the best way forward, including on the roles of the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and EU Member States’ development finance institutions, also in the context of the ‘Team Europe’ approach and the implementation of the NDICI-Global Europe regulation. The workshop was accompanied by written briefings by external experts, feeding into the drafting process of the committee’s own-initiative report on the subject-matter. Two panels corresponding to the thematic focus of the experts’ briefings were held as follows: Panel 1: ‘Evaluation of the state of play of the European Financial Architecture for Development’ and Panel 2: ‘The roles of the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and EU Member States’ development finance institutions’. This report compiles the briefings, and a summary of the debate.

Negotiations are underway to agree the details of the European Union budget for the period of 2007 to 2013 (known as the Financial Perspective), covering the newly enlarged EU of 25 member states. Further enlargement is likely, with Bulgaria and Romania due to join in 2007 and the possible accession of Croatia and Turkey being considered. The Committee's report considers a range of issues in relation to the current budget debate, including the merits of the Commission's proposals within the framework of recent and future EU enlargement; the Common Agricultural Policy; Structural and Cohesion Funds; the Lisbon Agenda; other spending categories; the functioning of the 'Own Resources' and a EU tax; UK abatement and the Commission's proposal for a Generalised Corrective Mechanism. Conclusions reached include support for the UK Government's insistence that the UK rebate is non-negotiable, given the inadequate reforms of the CAP; however, if real reform of the budget was offered, then the UK Government should be prepared to negotiate. Structural funds should be focused on the 10 new member states, as well as the two applicant countries of Romania and Bulgaria, with the phasing out of EU regional development funds for all 'old' member states with the exception of Greece and Portugal.

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