Europe is cutting development spending, and it's not because of Trump

While the majority of attention is directed at the United States dismantling of its foreign aid apparatus, Europe is going through its own overhaul — one that started long before President Donald Trump took office. Recent rhetoric from the Trump administration telling Europe to defend itself has pushed the continent into budgetary action, but the continent has been rethinking its development strategy for years. In addition to cuts across the board, European development funding is shifting from ODA grant-based programs to investment-focused projects that explicitly benefit European countries and European banks. “[Overseas Development Assistance] is the form our international cooperation took in the 1960s and 50s,” said Rémy Rioux, the CEO of the French Development Agency, or AFD. “What will happen now is just consistent with what the world has become, and we need a new architecture. We need to turn from assistance to investment — sustainable, inclusive investment.” Europe’s development scene has been moving in this direction for at least five years. Experts cite three primary reasons: a contracting economy, security threats along its borders, and a rising tide of anti-establishment nationalist sentiment in its member countries. “This approach among the European development finance initiatives and the big European investment banks has been ongoing for a while,” said Andrew Sherriff, associate director of institutional relations and partnerships at the European Centre for Development Policy Management, a think tank on sustainable development in Europe and Africa. Italy cut its official development assistance, or ODA, budget from $6.6 billion in 2022 to around $6 billion in 2023, then raised it again in 2024 to $6.6 billion. Overall, Italy is far below the United Nations target of 0.7% of gross national income. The Netherlands, which had an ODA budget of $7.4 billion in 2023, plans to cut ODA by around €300 million in 2025, €500 million in 2026, and €2.4 billion in 2027. The cuts are meant to be phased in incrementally over the time period. France’s new finance bill for 2025 includes a $2.2 billion reduction to its main ODA budget line. Overall, aid is projected to fall by 11% next year. The Netherlands and France say that they are allocating this money to social initiatives such as infrastructure and public deficits. Finland announced in April that it would reduce its ODA budget by 25% between 2024 and 2027. Belgium is also planning cuts of 25% to its foreign aid over the next five years. More cuts are expected through 2025 — and some that explicitly address a lack of defense financing. For example, the United Kingdom announced a decrease of ODA from 0.5% of gross national income to 0.3% to help fund a 2.6% increase in defense spending. Switzerland's cuts are in the millions rather than billions, but it still plans a decrease explicitly in favor of its military. It will cut its foreign aid budget by 110 million Swiss francs. Another 321 million Swiss francs will be cut from the 2026-2028 financial plan for bilateral and multilateral development cooperation. The country says the funds will go to the country's military. Germany’s federal budget for this year cuts the budgets of the two aid-granting ministries — the development office, or the BMZ, and the German Federal Foreign Office, or AA — by 8%, or $1.8 billion. Meanwhile, the country just announced a change in its constitution that will allow for increased defense spending. Overall, the European Union and member states are the world’s leading donors — providing 42% of global ODA between 2022-2023. But “I can say with 100% probability that the EU’s development budget will shrink,” said Mikaela Gavas, managing director of the Center on Global Development Europe. The funding that remains will look a whole lot different than it used to. “There’s a shift from the charitable mindset of ODA, towards a more mutual partnership,” said Jean Van Wetter, the managing director of Enabel, Belgian Development Agency. “And a recognition that international development is not just giving money, but it's also trying to get something in return.” The new normal As European countries make this shift, experts and leaders say that there is a need to strike a fine balance between traditional ODA and this new emphasis on defense and engagement with the private sector. Van Wetter said there are ways to uphold the traditional development aims going forward. He said it’s necessary to frame development spending as a small investment with significant returns, comparing it to how cities invest to attract businesses. He noted that there has been no “massive increase” of European private companies investing in Africa — which shows, in his estimation, that the traditional ODA approach is still necessary to de-risk regions. He also recommended creating a narrative that shows how international cooperation directly impacts European security, such as explaining how investing in stability in regions such as the Sahel contributes to Europe's own long-term security. “It's understandable that you need to increase your defense spending, but you should not lose sight of longer-term threats and opportunities,” he said. “It’s extremely difficult to come up with a narrative that makes people understand that investing in national cooperation is also fighting for your own security in Europe.” Rioux echoed this sentiment, adding that development and security are interconnected rather than opposing goals and that “the only credible, sustainable warranty for defense is development.” Rioux also advocated moving from traditional ODA to sustainable, inclusive investment focused on quality and local needs — and emphasized relying on national and local institutions, rather than external top-down approaches. This, he said, can increase the middle class in these countries and lead to market-based growth. The cost to low-income countries However, the current changes could have the most profound effect on least-developed countries, or LDCs, countries that are facing extreme debt, and climate programs. Experts said that aid from European member states will prioritize guarantees over grants and focus on projects that can show a return on investment. Previous reporting by Devex has found that aid to LDCs is trending way down. But this is also not new: Between 1990 and 2022, the share of the EU’s ODA going to LDCs dropped from 52% to 19%, according to data from the Organisation for Economic Co-operation and Development. But to Rioux, that debt is necessary. “The world needs sustainable debt,” he said. “No country has ever developed with credits.” However, experts said that this approach is not the answer when it comes to countries that are in debt distress. “Guarantees are not appropriate for those very high risk unstable environments,” said Gavas. “And especially for those countries whose debt situation means they can’t access any sort of lending.” Trading climate finance for defense In February, U.S. Vice President J.D. Vance stood up at the world’s leading defense conference — the Munich Security Conference — and told Europe that it needs to “step up in a big way to provide for its own defense,” Vance said at the conference. Experts are particularly worried about the impact this could have on climate change funding as countries shift funding away from development aid. Military spending has long hampered climate finance efforts. “Climate finance, which is very much tied to development aid as well, has already been reduced in exchange for military spending,” said Nick Buxton, a researcher and communications expert for the Transnational Institute, an international research and advocacy institute. “We've seen that going back some years. So there was always this threat.” In 2022, when Russia invaded Ukraine, several countries suspended or shifted climate funding to develop a military support package for Ukraine. The U.K. announced it would shift funding from its climate budget to a £1 billion ($1.2 billion) military support package for Ukraine. Norway stopped all development aid, including climate aid, until it could get a sense of the impact of the war, and the Netherlands cut its own climate funds to pay for an increase in military spending. Now, Buxton said, the recent U.K. decision to reduce the aid budget in favor of military spending is continuing the trend. But he is worried that trading climate finance for military spending will only make Europe more vulnerable. “The likelihood of Russia invading France is highly debatable,” he said. “But the likelihood of a climate crisis is not debatable. The threat of climate change is being downplayed for much more perceived threats, and the answer to that would actually exacerbate the climate crisis.” Researchers found that global militaries and arms industries make up 5.5% of total greenhouse gas emissions. By comparison, aviation is responsible for around 2%. But others are more optimistic that climate change-associated technologies and decarbonizations have entrenched themselves in the global marketplace. Rioux said that decarbonization has entered the private sector in a way that will make it possible to integrate in this new development framework. “Nobody said we will stop investing in the fight against climate change,” said Rioux. “Think about the private sector, the financial system, the geopolitical competition between powers, about their comparative advantage. This now includes climate change.” Rioux added that the idea is not to trade out climate finance for defense or to overrule a sense of European cooperation. “I don’t have the feeling that the idea is to stop cooperation and development and to totally turn to defense,” he said. “We'll try to strike a different balance.” What comes next? As individual European countries make their budget announcements throughout the year, the European Union budget discussions for 2028-2034 are set to begin this year, with the commission’s proposal due in June. The proposal will set the goalposts for ensuing discussions between member states and the council. Last week, Devex reported that the European Commission will not fill the gaps left by the U.S. decision to terminate 83% of its U.S. Agency for International Development foreign assistance programs. “I think it’s very, very likely that there will be a major cut to EU development cooperation,” said Gavas. “The focus has already shifted.” In addition to bilateral funding, there could also be a drop in multilateral funding, said Gavas. Funds such as the International Development Association, or IDA, which is widely seen to be the best instrument for getting funding to LDCs, is also likely to see a drop in the future, she added. Van Wetter has a slightly more hopeful outlook on the situation, however. “One of the beauties of the European Union is that it's still a constellation of 27 member states,” he said. “Europe could quickly move back its strategy towards more of an international cooperation agenda. So the good news is that it's not fixed, and it's not a trend that cannot change.” Update, March 27, 2025: This article has been updated to clarify the aid cuts made by the French and Dutch governments.