Is Europe entering an era of aid austerity?

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In the wake of the U.S. debt deal which, by all accounts, will result in significant cuts to American overseas assistance spending, many are wondering to what extent the foreign aid austerity contagion will spread. Most eyes are now on Europe which is undeniably beaten and battered coming out of the first wave of the global economic recession and could actually be the driving force into another downturn. A Washington Post article recently summarized the Eurozone’s political economy, saying “Confidence in the health of the region’s banks is falling, economic growth is slowing, and governments are so hamstrung with debt they will have little room to respond with new stimulus or other programs.” In an official paper, the Institute of International Finance has called Europe’s future challenges “intractable.”

In search of ways to contain these major fiscal challenges, governments across the world, including those in Europe, are re-evaluating their official development assistance commitments. The Organization for Economic Cooperation and Development is already predicting only 2 percent annual ODA growth from 2011 to 2013, down considerably from the average 8 percent growth over the course of the last three years. The combined share of bilateral aid from the OECD Development Assistance Committee – a forum comprised of the world’s major donor countries – is projected to increase at an even slower rate of 1.3 percent per year. Fifteen of the 23 DAC countries are European.

Defined as government spending on bilateral development partnerships or contributions to multilateral donor organizations, ODA commitments are typically set and tracked as a percentage of a country’s Gross National Income (GNI). In order to achieve the Millennium Development Goals, the 2005 Paris Declaration on Aid Effectiveness reasserted developed countries’ commitments to set aside 0.7 percent GNI for ODA.

In today’s tough financial times, the target appears to be moving further away, if not slipping entirely out of reach, for much of Europe. France, Germany, Italy, and Spain failed to meet OECD agreements to reach ODA levels of 0.56 percent of GNI by 2010. Budgetary constraints have forced Italy and Spain, in particular, to make drastic cuts to foreign aid spending. Economic pressures led to France cutting its donations to U.N. humanitarian agencies and the International Committee of the Red Cross by €55.1 million ($77.9 million) in 2011, representing a 21 percent decrease from the previous year.

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About the author

  • Troilo pete%2520head

    Pete Troilo

    As director of global advisory and analysis, Pete manages all Devex research and analysis operations worldwide and monitors key trends in the global development business. Prior to joining Devex, Pete was a political and security risk consultant with a focus on Southeast Asia. He has also advised the U.S. government on foreign policy and led projects for the Asian Development Bank and International Finance Corp.