Effects of the Greek Bailout on E.U. Development Aid
DEVELOPMENTS
The financial situation in Greece has become the biggest threat to the process of European economic integration that began more than half a century ago. Greece recently sought and received assistance from the International Monetary Fund (IMF), marking the first time the IMF has bailed out an European Union member state.
As the world's largest donor of international development aid, Europe plays a critical role in global efforts to reduce poverty and achieve universal education, gender equality, and improved health care. Considering that over half of all development aid worldwide comes from Europe, any potential reduction in European aid is likely to have wide-ranging consequences for many living in the world's poorest nations.
The financial crisis in Greece has highlighted internal E.U. divisions and threats to its economic well-being that need to be addressed. Stabilizing Europe's financial system will likely require the diversion of resources from other areas, including global aid. It is therefore imperative for aid recipients in poorer nations to actively pursue alternate methods of funding for their crucial development initiatives should the fall-out from the Greek crisis lead European nations to increasingly direct their limited aid resources to shoring up vulnerable economies much closer to home.
BACKGROUND
The European Commission and E.U. member states combined are the largest single donor in the struggle against global poverty. European nations' commitment to development accounts for over $50 billion in aid per year and accounts for more than half of all official development aid to more than 160 countries, spanning across Africa, the Middle East, Latin America and Asia. The E.U. is also a leading donor of emergency and humanitarian aid through the European Commission Humanitarian Aid Office, which provides food, medical supplies, water purification systems, shelter and other essential items to disaster victims around the world.
The E.U. has played a particularly strong role in the efforts to achieve the Millennium Development Goals (MDGs), a set of eight development targets to be achieved by 2015. These efforts tackle poverty reduction, universal primary education, gender equality, child mortality, maternal health, HIV/AIDS and other communicable diseases and environmental sustainability—while establishing a global partnership for development. Official Development Assistance accounts for approximately 0.35% of Gross National Income within the E.U., which is nearly double the percentage of Gross National Income donated by the United States.
The situation in Greece has already had strong political implications within Europe and it is sure to have financial implications as well, impacting the amount of European aid available for other countries. With a one trillion dollar bailout ear-marked for Greece, budgets across Europe will tighten. The financial crisis has highlighted the constraints of euro membership especially for Greece, Spain, Italy and Portugual. With E.U members unable to devalue their currencies to regain competitiveness, and forced fiscal agreements to control spending, Greece, Spain, Italy and Portugal are facing austerity measures just when their economies need extra spending. By increasing taxes and cutting social programs troubled E.U. countries risk further recession, which is likely to lead to further reduction in development aid.
Since the euro's creation in 1999, no member state has sought support from the I.M.F., and Greece's rescue by an institution better known for saving floundering emerging-market economies stung the pride of many in Europe. Greece's troubles have undermined the common currency it and 15 and other European nations share. The consequences have been not just economic, but political as well. German Chancellor Angela Merkel has paid a particularly heavy political toll domestically for her role in the bailout. It has also raised the ugly specter of growing internal divisions along geographic, historic and cultural lines, as some media and politicians in northern Europe have expressed fear that their E.U. membership would mean that they will have to act as an ongoing financial safety net to southern Mediterranean fellow member states that they accuse of being unable to reign in their spending.
ANALYSIS
With so many challenges on the home-front, the developing world will need to start to look for ways to compensate for likely decreases in international aid coming from European nations. Paying for this costs of the Greek bailout and for the ballooning national deficits across the E.U. will likely lead to painful spending cuts, particularly in areas not constituting essential services to E.U. taxpayers, which unfortunately includes most foreign aid.
The global recession has devastated many rich and poor nations alike, and has pushed an additional 64 million people into extreme poverty in 2010 alone, according to a recent World Bank report. In spite of this, any push for increases in international aid to respond to rising global need will continue to be difficult politically in Europe given the backlash against the Greek bailout, particular given the rise of arguments within individual E.U. members that each country should focus its energies more on its own economic health.
Ironically, the most vulnerable victims of the Greek financial crisis may not even be the Greeks themselves, but instead those in the world's poorest countries whose poverty becomes more desperate exactly as Europe's critically needed aid becomes much less forthcoming. If the fallout from Greece leads to a significant reduction in European development aid that is not replaced by other funding sources, there is a very real possibility that the financial crisis could contribute directly to a humanitarian one.
Matthew Lamm is the Russia/Europe Regional Editor for Foreign Policy Digest.