Why are billions being cut from European aid budgets?

Over the last few years, many of the largest donors in Europe have made cuts to their aid budgets. First it was the United Kingdom. Now Germany and France have followed suit. Some of the Nordic countries — traditionally among the most generous of donors — are getting in on the act. Even the European Union is reallocating money away from aid. But what’s going on? Why is this happening? It comes down to a combination of economics, politics, and geography, according to panelists at last week’s Devex Pro event: Why are European donors slashing their aid budgets? “It’s a variety of factors,” said one of the speakers, Mikaela Gavas, managing director for Europe at the Center for Global Development, a think tank focused on the world of aid. “First and foremost economics — huge fiscal constraints, growing budget deficits in Europe. But this I think is all exacerbated by hard defense spending, and military and economic support for Ukraine, in particular.” Panelists also highlighted that more and more aid is being spent within Europe’s borders and does not reach other countries. Tanya Cox, director of CONCORD, a confederation of European development NGOs, said that a major factor was a rise in spending on refugees. The number of displaced people around the world has more than doubled since the start of the COVID-19 pandemic, with particularly high costs from Ukrainian refugees. Many of the costs of hosting a refugee for their first year in a donor country can be counted as official development assistance, and in 2022 and 2023, costs rose above $30 billion — close to 15% of all ODA in both years — with most of that money spent in Europe. “When there is a wave of refugees coming to Europe, aid budgets seem to increase, but that is because member states allocate what we call in-donor refugee costs as aid,” Cox said. “This is actually money that never reaches their partner countries. It doesn't leave Europe. When [European donors] can no longer report quite so much for in-donor refugee costs, we generally see the aid budgets go down. This is what we're seeing, according to our calculations.” Stephan Klingebiel, head of the inter- and transnational cooperation research program at the German Institute of Development and Sustainability, or IDOS, a German think tank, said countries were also reducing spending in line with the waning contributions of their peers. While the Development Assistance Committee of the Organisation for Economic Co-operation and Development has set a target that 0.7% of gross national income is spent as ODA, only a handful of countries are reaching this target. Klingebiel said many Germans looked at other countries and asked: “Is Germany overdoing our aid contributions?” The 10 countries spending the highest percentage of GNI on ODA are all northern European nations — and all spent at least 0.5% of GNI on ODA in 2023. Due to high levels of spending on refugee costs, Germany reached 0.84% last year — the only member of the Group of Seven leading economies to pass the 0.7% target. In contrast, the United States spent just 0.24% of GNI on ODA, and even this is a significant increase on previous years. Klingebiel said Germans were looking at this low level of contribution and asking why they were spending so much more proportionally. Klingebiel said that populist leaders had highlighted not just that Germany was paying more, but also that low- and middle-income countries were comparatively doing better than in previous years. “In Germany, there is one very well-known project,” he said. “I think almost everybody knows it: bike lanes for Lima in Peru. And this is an illustration for the most important right-wing party in Germany to illustrate, look, we can't afford to have our own bike lanes in Germany, but we are constructing them in Lima. And is it really something we should do?” Meanwhile, Cox said, the European Union itself is not cutting funding — it cannot, because EU budgets are set years in advance. But money is being allocated away from global development and toward other causes, such as preventing migration. She said the EU Directorate-General for International Partnerships — the union’s main aid agency — is increasingly looking at aid as a geopolitical tool to counter the influence of China and Russia. She said the EU is increasingly adopting a “great game” mentality. “The European Commission launched what it calls a “Global Gateway” initiative,” she said. “It has certain priority areas for investment which are in infrastructure and energy and transport and digital. And according to what we hear … the Global Gateway will be the sum total of the international cooperation that the EU might be envisaging. “We definitely have a lot of concerns about that. It totally changes the mindset in which international cooperation is carried out. It is extremely clear that EU aid budgets are being used to support economic interests — EU economic interests. It is no longer the case that the well-being of people and partner countries is being prioritized,” she said. “I think we could say that development cooperation, the traditional development cooperation as we used to know it, is dead.” Panelists highlighted another problem with aid budgets: Not only is the top level of funding falling, but the demands are growing. Significant funding has been allocated to Ukraine, while money is also being spent on tackling migration, addressing a climate crisis, and responding to humanitarian crises around the world. They also raised concerns that aid budgets represented a relatively small amount of total spending, and that other, more significant flows of capital, were also falling, while the risk of debt distress in low- and middle-income countries is gradually increasing. Panelists also said there was the potential for further cuts in future years — in other countries, as well as those where cuts have already been seen. “I think we need to be concerned,” Klingebiel said. “This will not go away.” In order to combat this, it may be the time for a change of approach, Cox suggested. “So far, we've always tried to take very much a softly-softly, let’s exchange, let's discuss approach,” she said. “But we haven't felt that has had an awful lot of influence over the last few years. So this is why we're pushing back a bit more strongly now.”