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Economic issues of EU development policy

The EU is the most important donor of development aid in the world and is committed to further increase its contributions. But aid alone will not be sufficient to reduce poverty in a sustained way. Policies need to be put in place to overcome shortcomings in governance, trade regimes and geography location, and to make best use of the opportunities arising from globalisation.

As the world’s largest donor of Official Development Aid (ODA), the EU is leading the debate on financing for development. The EU has committed itself to reaching a share of ODA to Gross National Income (GNI) amounting to 0.7% by 2015. In spring each year, the Commission presents an Accountability Report which monitors the implementation of EU commitments on financing for development made in the context of the Monterrey Consensus and the Doha Declaration. Since 2011, this report also includes information on the implementation of EU commitments on fast-start climate finance.

EuropAid Development and Coorperation

Innovative sources of financing

The European Union and its Member States are global leaders in innovative finance for areas such as the financial sector, climate change or development. The Commission regularly informed the debate in the EU by preparing assessments of the potential of innovative sources of financing.

Relieving debt

The European Union and its Member States participate in the debt-relief initiative for the heavily indebted poor countries, the so-called HIPCs. The main objective of this initiative is to bring these countries’ debt burdens to sustainable levels, subject to satisfactory policy performance, so as to ensure that adjustment and reform efforts are not put at risk by continued high debt and debt service burdens. Although the HIPC initiative ended in 2006, countries that were eligible can still benefit from it. The European Union contributed more than €1.6 billion to the HIPC initiative. EU Member States also contributed to the Multilateral Debt Relief Initiative (MDRI) to cancel in full eligible HIPCs’ debt to the World Bank, IMF and African Development Bank.

Globalisation and development

Developing countries have participated in globalisation to varying degrees. Asia and Latin America have increased their shares in global trade and capital flows dramatically since 1980, whereas sub-Saharan Africa shares have fallen. Tariff barriers in developing countries have come down, although non-tariff barriers remain high. FDI inflows remain concentrated on only a few large emerging markets, notably in East Asia and Latin America. Remittances and development aid are important sources of external financing in many developing countries, while the outflows from debt service have decreased. A new trend is also in the increasing South-South flows.

Supporting effective trade

The empirical literature generally supports the view that globalisation tends to be associated with higher growth. However, it also shows that trade is a necessary but not a sufficient condition for growth and development. Economic and social policies, institutions and geography, and public and private investment are important additional factors in determining whether countries are able to fully benefit from trade opportunities. For these reasons, the European Union attaches the highest importance to making sure that countries receiving EU aid have high-quality development plans and are improving their institutions and governance systems. While respecting country ownership, experts in the different Commission departments and Delegations help define and implement country and regional strategies for delivering Community aid.

Climate finance

Advanced economies committed to mobilise USD 30 billion ("fast-start") for the period 2010 – 2012 and USD 100 billion per year by 2020 to enable and support climate relevant action in developing countries. The EU committed to mobilise €7.2 billion of Fast-Start Finance (FSF) and to annually report on its actions. ECFIN services in cooperation with services from other relevant Directorate Generals coordinate the monitoring and reporting of climate finance EU Member States and the European Commission are mobilising.

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