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Amid eurozone crisis, hardest-hit countries’ foreign aid programs muddle through

By Lorenzo Piccio22 October 2012

Irish Prime Minister Enda Kenny and Spanish Prime Minister Mariano Rajoy at the European People’s Party Summit in Brussels. Photo by: European People’s Party / CC BY-NC-SA

In an exclusive interview with Devex, European Commissioner for Development Andris Piebalgs recently made the case that despite the eurozone crisis, the EU and its member states must fulfill their commitment to spend 0.7 percent of their gross national income on official development assistance by 2015.

“Although I am fully aware that we are facing difficult times, cutting aid is not the right answer… We have a duty of solidarity toward countries which have also been affected by the global crisis and toward the most vulnerable people,” said Piebalgs.

Of the 15 EU member states that have individually pledged to achieve the 0.7 percent ODA to GNI ratio by 2015, five count among the countries hardest hit by the eurozone crisis – Italy, Spain, Ireland, Portugal and Greece. In 2011, these five countries - which are commonly referred to as the eurozone periphery - collectively contributed €7.5 billion ($9.8 billion), or 14 percent of total ODA from the 27 member states of the EU. The largest economies in the eurozone periphery, Italy and Spain are also the most significant donors in the group.

Amid unprecedented austerity measures aimed at tackling massive budget deficits, each of the periphery countries are projected to fall far short of the 0.7 percent ODA to GNI target in 2015, according to the European Commission. Among their peers in the EU, Belgium, Denmark, Luxembourg, the Netherlands, Sweden and the United Kingdom are projected to at least meet the 0.7 percent ODA to GNI target three years from now.

“There’s no way [eurozone periphery countries] are going to be meeting their 2015 commitments … The EU may revise those projections downward even further,”  Daniel Coppard, director of research, analysis and evidence at Development Initiatives, asserted to Devex.

Devex analysis reveals that the five Eurozone periphery countries are responding to pressures on their aid budgets in distinctly different directions. Even as they cut aid spending, Italy, Spain and Ireland have taken concrete steps that seem to reaffirm their commitments to development cooperation.  Meanwhile, Portugal’s reorganization of its aid regime could potentially diminish the country’s profile in the donor community. Greece appears to be putting its foreign aid program on the backburner in light of the country’s especially dire fiscal challenges.

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Italy

In November 2011, as the fallout from soaring Italian bond yields toppled Silvio Berlusconi from office, lawmakers turned to technocrat Mario Monti as the next prime minister.  Later that year, Monti unveiled a 33-billion-euro austerity plan of tax hikes, pension reforms and spending cuts.

Berlusconi’s last government began in 2008, coinciding with the early stages of the eurozone crisis. From 2008 to 2010, Italian ODA plummeted by nearly a third from 3.4 billion euros to 2.3 billion euros. In 2011, Italian aid levels did jump to 3.1 billion euros but analysts attribute part of this increase to debt relief contributions. (See chart above.) For 2012, Italian ODA will drop to 1.9 billion euros, based on European Commission projections.

While aid levels are unlikely to return to pre-2008 levels for the foreseeable future, Monti has adopted measures which suggest that development cooperation remains an Italian priority.  Not long after taking office, he named Andrea Riccardi as Italy’s first-ever minister for international cooperation and integration. Previously, the Ministry of Foreign Affairs had managed Italy’s aid programming.

Upon his appointment, Riccardi argued that Italy could not afford to risk its international reputation by reneging on its aid commitments.

“The commitment for social cohesion, national integration and international cooperation are part of my culture and the experience acquired over the years … I am convinced they are crucial elements for a country to regain its strength and come through the crisis,” said Riccardi.

In December 2011, as part of its first austerity package, the Monti government also set in motion plans to reduce Italy’s arrears towards the African Development Bank and other multilateral lenders. From 2008 to 2010, Italy disbursed 74 percent of its gross ODA excluding debt relief through multilateral channels – a share larger than any of its peer donors in the OECD’s Development Assistance Committee. EU aid institutions receive the bulk of Italian ODA disbursed through multilateral channels.

Spain

Just days after Monti assumed office in Italy last November, in Spain, conservative Mariano Rajoy was elected prime minister. Riding on a wave of discontent, Rajoy secured the largest parliamentary majority in nearly three decades. In its latest budget, which was rolled out last month, the Spanish government would slash ministry spending by 8.9 percent next year.

From 2008 to 2011, Spanish ODA levels fell from 4.8 billion euros to 3.1 billion euros – a drop of 35 percent. This year, the Rajoy government is expected to cut Spanish ODA by 44 percent from 2011 levels.

In a bid to maximize a significantly diminished development cooperation budget, the Rajoy government has pledged to bolster Spain’s efforts to achieve greater aid effectiveness. In line with the recommendations of the OECD-DAC, Foreign Minister José Manuel García-Margallo told lawmakers in February that planned reductions to Spanish ODA will be complemented by efforts to rationalize the country’s aid program through geographical and sectoral concentration.  In Latin America – the priority region for Spanish development cooperation – severe cuts have been slated for aid programs in middle-income countries including Argentina, Brazil, Chile, Colombia and Mexico.

In February, Margallo also announced that Spain would resume its contributions to the Global Fund to Fight AIDS, Tuberculosis and Malaria, GAVI Alliance and Global Agriculture and Food Security Program. Spain is a founding member of GAFSP, a multilateral mechanism designed to assist in the implementation of aid pledges made by the G20 countries in 2009.

Ireland

In March 2011, Enda Kenny was elected Taoiseach or prime minister in a general election that saw the worst-ever defeat of a sitting government. Kenny’s 2012 budget contained 2.2 billion euros in spending reductions.

From 2008 to 2011, Irish ODA dropped by 29 percent from 921 million euros to 650 million euros. For 2012, according to government figures, Ireland’s aid spending will dip further to 639 million euros.

On the backs of robust ODA growth earlier in the decade, in 2010, Ireland placed among seven countries that met the interim 0.51 percent ODA to GNI target shared by 15 EU member states. While all eurozone periphery countries had pledged to meet the interim target, only Ireland managed to keep this commitment.

Ireland’s increasingly recognized leadership on aid effectiveness also distinguishes Dublin from its peer donors. In the just-released 2012 Commitment to Development Index, the Center for Global Development ranked the Irish aid program sixth of 27 donors, ahead of the United Kingdom. According to CGDEV, Irish development cooperation’s strong focus on poor, well-governed recipients, as well as its untied aid policy count as some of its key strengths.

Zuzana Sladkova, coordinator of CONCORD’s AidWatch initiative, told Devex that Ireland’s long tradition of providing ODA as well as strong public backing have helped strengthen the Irish aid program. A recent public opinion poll found that four-fifths of Irish citizens believe that it is important for Ireland to meet its pledge of spending 0.7 percent of GNI on ODA by 2015. In a joint statement with U.K. Prime Minister David Cameron earlier this year, Kenny reaffirmed Dublin’s commitment to achieving the 0.7 percent target, albeit without a clear timetable for achieving this goal.

Portugal

In June 2011, a center-right coalition led by Prime Minister Pedro Passos Coelho assumed power in Portugal. In its latest budget, Lisbon has announced spending cuts worth 2.7 billion euros next year.

Late in 2011, Passos Coelho’s government revealed plans to merge the Portuguese Development Agency, or IPAD, with Instituto Camões, the country’s language promotion institute. Under the purview of the Ministry of Foreign Affairs, IPAD had previously overseen Portuguese aid programs.  IPAD’s merger with Instituto Camões was completed this year.

According to CONCORD, Lisbon’s consolidation of development cooperation and language promotion activities under one roof has fomented apprehension and confusion among many stakeholders in the Portuguese aid community. The merger of IPAD with Instituto Camões could also arguably diminish Portuguese aid’s global profile. OECD-DAC’s 2010 peer review of Portuguese aid noted that IPAD had achieved “clear progress” in improving overall co-ordination of the country’s development cooperation activities.

From 2008 to 2011, Portuguese ODA had risen by 12 percent from 430 million euros to 481 million euros. Among the Eurozone periphery countries, only Portugal’s aid spending increased over that period. Following the merger of IPAD with Instituto Camões, it remains to be seen whether this trend will hold. For 2012, the Portuguese government estimates that its ODA will stand at 471 million euros.

Greece

Following a second round of parliamentary elections, in June of this year, a three-party coalition led by conservative Antonis Samaras formed a new Greek government. In keeping with the coalition’s pledge to honor Greece’s bailout commitments, Prime Minister Samaras’ latest budget calls for 13.5 billion euros of austerity measures over the next two years.

From 2008 to 2011, Greece’s ODA levels plummeted by 51 percent, a trend that is almost certain to continue as fiscal challenges remain front and center in Athens. The already significant share (78 percent) of Greek ODA coursed through its assessed contributions to EU aid institutions may grow as the country’s budgetary woes impede its ability to directly manage aid programming.

In August 2012, Samaras ordered a suspension of public funding for Greek nongovernmental organizations. Greece is also yet to publish a 2011-15 strategy for its aid program. Both developments suggest that the Greek government may be putting foreign assistance on the backburner.

About the author

Piccio
Lorenzo Piccio

Lorenzo is a Devex senior analyst based in Manila. Our resident budget cruncher, Lorenzo spearheads Devex's in-depth reporting and analysis on global development finance and policy. He attended Wesleyan University in Connecticut on the Freeman Asian Scholarship, earning degrees in Government and Social Studies.


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