US embassy cable - 04BRUSSELS5221

UNCLAS SECTION 01 OF 05 BRUSSELS 005221 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR E,EB,EUR/ERA,AF,NEA,PRM,S/CRS 
DEPT PASS MCC FOR MORFORD 
USAID FOR PPC,EGAT,AFR,ANE,GH,EE,LAC 
NSC FOR MCKIBBEN,STRONG,SIMON 
 
E.O. 12958: N/A 
TAGS: EAID, ECON, PREF, PREL, EUN, UN, USEU BRUSSELS 
SUBJECT: ENGAGING THE EU ON DEVELOPMENT ASSISTANCE IN 
2005: THE GLOBAL SCOPE OF U.S.-EU COOPERATION 
 
REF: (A) BRUSSELS 5070 (B) BRUSSELS 4630 
 
1. (SBU) Summary. The 25 EU member states have a GDP roughly 
equal to the United States, but spend twice as much on 
development assistance.  One fifth of EU assistance is 
funneled through the European Commission (EC), making the 
Commission the third largest single donor in the world and an 
important catalyst for other EU funding.  Although EC 
decision-making and budgeting processes are sluggish in 
adapting to changing needs, when we can articulate a 
long-term vision, as we have in Afghanistan and the Balkans, 
for example, the US and the EU can work to each other's 
strengths in structuring our assistance. 
 
2. (SBU) It is striking just how much US and EU development 
and humanitarian assistance priorities coincide.    The 
numbers speak for themselves: 200 million euros/year for 
Afghanistan; 320 million euros to Iraq over the last two 
years, with another 200 million slated for 2005; over 300 
million euros to Sudan/Darfur, and 250 million euros for the 
Palestinians this year (with another 20 million euros already 
set aside to support Gaza engagement). 
 
3. (SBU) As the world's two largest donors, the US and EU 
have enormous scope for cooperation and coordination on our 
respective development assistance programs globally.  As we 
look to address the next phase of challenges in Afghanistan, 
Iraq, and Darfur, or longer-term development in the Middle 
East, Africa, and Eurasia, the force-multiplier opportunities 
are there.  New EU Commissioner President Barroso is also 
much more attuned to development and assistance needs than 
his predecessor was.  Despite the political strains of recent 
years, development cooperation and coordination around the 
globe remains strong as this cable's survey demonstrates and 
critical to achieving our strategic policy objectives. 
(starting at paragraph 12).  End Summary 
 
Putting Assistance in Context 
------------------------ 
 
4. (SBU) The December 2003 European Security Strategy ("A 
Secure Europe in a Better World") closely mirrors the US 
National Security Strategy emphasis on Defense, Diplomacy and 
Development.  The strategy notes that "as a union of 25 
states with over 450 million people producing a quarter of 
the world's Gross National Product (GNP). The European 
Union (EU) is inevitably a global player... (that) should be 
ready to share in the responsibility for global security  and 
in building a better world."  In fact, 2003 net Official 
Development Assistance (ODA) data from the OECD DAC reveal 
the EU member states disbursed $37.139 billion (compared to 
16.254 billion by the United States).  Nearly 
20 percent of EU ODA flows, or over $7 billion annually, are 
channeled through the European Commission.  Clearly, the EU 
and US working together represent the two largest donors 
globally. 
 
Cumbersome Decision-making 
------------------------ 
 
5.  (SBU) Getting internal consensus within the EU on how to 
respond to development needs remains a time-consuming process 
and may well prove even more complex with 25 member states 
than it has been with 15.  However, when we can articulate a 
long-term vision of what we see as the end game, as we have 
in Afghanistan and the Balkans, for example, the US and the 
EU can work to each other's strengths in structuring our 
assistance. 
 
6.  (SBU) Within the EU there are clear patterns of 
Development Ministers' views.  Most Northern Europe 
Development Ministers, with the notable exception of the 
current Dutch Minister, tend to take a more purist approach 
to development assistance.  The UK Development Minister in 
particular lambasts the EC for aid programs which he views as 
not consistent with a poverty reduction focus.  The Southern 
Europe Development Ministers, on the other hand, tend to take 
a quite different approach, consciously linking development 
assistance to foreign policy goals, which leads to a 
perceived skewing of assistance to Latin America based on 
other than development grounds.  The new member states are 
not significant donors, are still on a steep learning curve, 
and have yet to align themselves in one or the other camp. 
 
7.  (SBU) The EC's seven-year budget cycle also influences EU 
assistance.  The EC is in a better position to respond to 
long-standing crises than to major new initiatives for which 
they have not planned.  Similarly, while our interests 
largely coincide, in some instances they have different 
priorities -- as we are now seeing with the EU emphasis on 
the Great Lakes crisis.  One important factor to bear in mind 
as we encourage the EC to respond to our priorities is that 
the Community resources are part of a zero sum game.  When 
the EC agrees to fund something of interest to us, it will 
come at the expense of something else we might like them to 
fund. 
 
Institutional Reforms 
------------------------ 
 
8. (SBU) Under the previous Commission, a number of 
institutional reforms were put in place to enable the EC to 
be more agile in its response mechanism.  Those reforms 
included the establishment of a new Directorate General for 
European Aid Cooperation (DG AIDCO) for the implementation of 
development assistance policy, concurrent with a policy of 
"deconcentration" or devolution of staff to the field.  As a 
result, the 80 Delegations in the field managing development 
assistance have been strengthened, and now possess the 
technical and administrative capacity to implement programs 
and pay contractors directly.  Brussels headquarters 
therefore focuses more on policy and coordination, with 
significantly reduced technical capacity here. 
 
9. (SBU) As part of the preparations for the 2007 -2013 
Financial Perspectives, the Commission recently proposed a 
consolidation of funding instruments for external assistance 
from the current 90 "funding instruments" (budget lines) to 
just 6:  (a) an instrument for pre-accession assistance; (b) 
a European Neighborhood and Partnership instrument; (c) a 
Development Cooperation and Economic Cooperation instrument; 
(d) an instrument for stability; (e) an existing instrument 
for humanitarian assistance; and (f) an existing instrument 
for macro financial assistance.  The Commission is also 
seeking significant increases for these external assistance 
instruments. 
 
10. (SBU) The debate on the overall size of the EC's 
development budget will go on all next year.  Based on the 
recent debate over the 2005 budget, however, we saw the EU 
Finance Ministers defying the European Parliament and 
striking a deal on the 2005 budget (the first full-year 
budget for the EU-25) which limits the increase to 5.9% over 
2004.  The total EC budget of euro 106.3 billion (with less 
than 7 percent for foreign assistance) amounted to just over 
1% of GNI.  The six EU member states that are net 
contributors to the budget seek to likewise cap the 2007-13 
budget at 1% of GNI, rather than 1.24% of GNI proposed by the 
Commission. 
 
US-EU Cooperation Spans the Globe 
------------------------ 
 
11. (SBU) Meanwhile, the US and EC coordinate and cooperate 
closely on humanitarian assistance worldwide.  Over the past 
year the cooperation has included Afghanistan, Iraq, Liberia, 
Haiti, Palestinian Territories, Uganda, Sudan (including 
Darfur), Cote d'Ivoire, Colombia, Democratic Republic of 
Congo, Burundi, Ethiopia, Zimbabwe, Angola, Myanmar, 
Chechnya, Yemen, Tajikistan, Cambodia, Sierra Leone and 
assistance to the victims of the Bam earthquake in Iran. 
 
12. (SBU) US-EC Cooperation on key USG strategic priorities: 
 
A.  Afghanistan - From the beginning of the international 
engagement, the EC made a long term commitment to Afghanistan 
by pledging $1 billion over five years at the Tokyo 
Conference.  The European Commission and EU Presidency have 
been active co-chairs of the Donor Group.  The EC has 
exceeded its pledge and been responsive in mobilizing 
resources for police training and the recent elections.  We 
expect that commitment to continue.   The EC welcomes the new 
Afghan counter-narcotics plan and the strong backing the US 
is providing this effort. 
 
B.  Iraq - Despite differences within the EU over the 
approach to Iraq, the EC and EU member states pledged $1.4 
billion of assistance at the October 2003 Madrid Donors' 
Conference.  The EC has fully disbursed the 2003 - 2004 funds 
($320 million) to the World Bank and UN Trust Funds.  Both 
the EC and the EU Presidency have been active participants in 
the Core Donor Group and are now preparing their 2005 package 
of euros 200 million (subject to European Parliament 
approval), with an emphasis on the upcoming elections, 
private sector development, trade, investment, public 
services, jobs, democracy and rule of law.  The major 
challenge facing the EC is how to disburse their program 
without an office in country.  The Commission argues that it 
has no mechanisms to provide protection for their offices, so 
they are attempting to run their program from Amman until 
such time as the security situation will allow them to 
re-locate. 
 
C.  Sudan - The EU shares our concerns over the horrific 
humanitarian disaster in Darfur, and has mobilized euros 
326.5 million of assistance, including support for the 
African Union peacekeeping efforts.  New Development 
Commissioner Louis Michel made his first foreign trip to 
Khartoum and Darfur November 25 - 27.  We expect continued 
strong support from the EC, as well as the EU Foreign 
Ministers and Development Ministers, in efforts to resolve 
the humanitarian crisis, and to produce a North-South peace 
agreement which will unleash significant development 
resources.  The US and EU already are in close policy 
coordination on Sudan. 
 
D.  Palestinian Authority - This year assistance to the 
Palestinians from the EC budget is set at around 250 million 
euros, including a package for the West Bank and Gaza for 
124.25 million euros. The assistance has two objectives: 
addressing urgent needs and contributing to the creation of a 
viable and democratic Palestinian state.  The EC is 
contributing 65 million euros to the Public Financial 
Management Reform Trust Fund established by the World Bank at 
the request of the Palestinian Authority with backing from 
the international donor community to continue improving 
management of public finances and the viability of 
Palestinian Authority institutions.  Following a recent 
request of the Council to the Commission to consider 
developing concrete measures to make a success of the 
disengagement from Gaza, a reserve for an amount of 20 
million euros has been set aside. This will be defined in due 
course subject to developments on the ground.  In addition, 
some 3 million euros have been set aside to support civil 
society initiatives in East Jerusalem with a view to 
strengthening institutions that are working on the 
improvement of living conditions in the area. This total 
package comes on top of around 128 million euros already 
earmarked through the following programs: 89 million euros 
through the United Nations Relief and Works Agency for 
Palestine Refugees in the Near East (UNRWA), (of which 8 
million euros from ECHO), 29 million euros for humanitarian 
aid through ECHO, around 10 million euros for food aid /food 
security through the World Food Program and NGOs and for the 
European Initiative for Democracy and Human Rights 
(EIDHR). 
 
E.  Liberia - At the February Donors' Conference in NY, the 
EC pledged $125 million for reconstruction and $75 million 
for humanitarian assistance.  Both the EC and Dutch EU 
Presidency report ongoing concerns with donor coordination in 
Monrovia. These concerns are discussed Ref A. 
 
F.   Haiti - The EC was the single largest donor of budget 
support at the July Donors' Conference in Washington. 
Ongoing violence in the country is affecting the EC's ability 
to disburse funds in a timely fashion.  The EC also has funds 
reserved for rehabilitation programs which are now under way. 
 They are also moving ahead with a justice reform program 
which they consider a priority.  The EC plans to contribute 
euros 10 million for the elections if they take place. 
 
G.  Ethiopia  - The EC and EU member states are actively 
engaged in the G8 Famine Initiative in Ethiopia where we are 
jointly assisting the GOE get on an economic growth path, 
which will liberalize markets and get agricultural growth 
above 6% within the next three to four years.  The initiative 
includes a multi-donor sector wide program supporting a 
"productive safety net" which will stabilize rural incomes of 
the chronically food vulnerable and build productive assets 
of rural communities. 
 
H.  Georgia - The Donors' Conference in Brussels saw a robust 
EC commitment of over 125 million euros of EC funds to 
Georgia over the period 2004-2006.  Taken together with 
humanitarian and other assistance, total European Community 
aid to Georgia for 2004-2006 amounts to 137 million euros. 
The EU broadened the European Neighborhood and Partnership 
policy to embrace Georgia in addition to the 14 other 
countries and Palestinian Authority which form the EU's new 
neighborhood. 
 
I.  Sri Lanka - The EC remains a strong donor Co-Chair having 
joined the US, the Norwegians and the Japanese in urging in 
the strongest possible terms a rapid resumption of the peace 
negotiations so that Sri Lanka can benefit from the 
generosity of the international community.  The EC has asked 
for the next Co-Chair meeting to be scheduled. 
J.  Broader Middle East and Mediterranean - Donor 
coordination on assistance programs in USAID presence 
countries with the EC and EU member state bilateral programs 
is already quite strong.  Recent instructions from State and 
Brussels to respective field missions in the region to meet 
on a quarterly basis should identify additional areas of 
potential cooperation and coordination on messages of support 
for reform agenda.  We were pleased to see the EC 
demonstrating leadership on the Forum for the Future by 
convening a technical level dialogue among key donors 
supporting the Literacy initiative.  The EC has indicated 
they would welcome follow up to the series of DVCs held in 
March -April in preparation for the drafting of the US-EU 
Summit statement on BMEM, particularly in the areas of 
vocational education and training for the labor market, small 
and medium enterprise development, support for independent 
media, support for youth, etc. 
 
K.  Broadening and deepening our coordination and cooperation 
in Africa - the EU Development Ministers recently called for 
a renewed focus on Africa as part of the effort to prepare 
for the MDG 5 Stocktaking event next September.  New 
Commissioner for Development Louis Michel has made it clear 
Africa will be his focus, given his long and abiding interest 
in the continent.  The US and EC already enjoy excellent 
cooperation on a range of issues in Africa, and it behooves 
us to actively engage in broadening and deepening those 
efforts including elections, agricultural technology, food 
security, economic growth.  In 2003 the EC also introduced 
the Africa Peace Facility (APF), funded out of European 
Development Funds at the 250 million euro level for three 
years to respond to emerging security needs linked to 
development.  This instrument was established in record time, 
demonstrating that where there is internal EU consensus they 
can move quickly to deliver.  The APF has been critical to 
mobilizing peacekeeping efforts in Darfur. 
 
L.  Cyprus - The EU is in the process of securing a Euros 259 
million aid and trade package to end the isolation of the 
Turkish Cypriot community.  Given Cyprus' member state status 
in the EU, this has proven more complex than originally 
envisioned.  The EC has asked for consultations to ensure the 
respective efforts the EC and USG will fund are complementary 
and mutually reinforcing. 
 
M.  DPRK - The EC shares US concerns over monitoring of 
humanitarian assistance in North Korea.  Ref B provides 
further details 
 
N.  Food Security - Over the past two years we have made 
notable progress in our dialogue with the EC on food security 
and there is now a greater understanding of how each donor 
uses food aid when assisting countries to get on an economic 
growth path, as in the case of Ethiopia.  The EC remains 
skeptical about US food aid policies in the abstract. 
However, in the context of the Darfur humanitarian crisis, 
the EC encouraged EU member states to increase their food aid 
contributions.  The dialogue needs to be maintained with each 
donor playing to its strengths -- US food, EC cash to buy 
locally or regionally.  We also need to continue to work 
together on the economic impact of local purchase and needs 
assessments as this is the principal means upon which more 
credible response plans can be developed. 
 
O.  HIV/AIDS - The EU has made its support for The Global 
Fund to Fight AIDS, Tuberculosis and Malaria (GFTAM) the 
principle vehicle for contributions from the EC and EU member 
states, pledging $1.5 billion as of June 2004.  EU member 
states also fund bilateral assistance programs for HIV/AIDS 
in many countries.  In Europe the perception is the USG is 
more focused on our bilateral PEPFAR initiative than on our 
support for the multilateral GFATM, despite US chairmanship 
of the GFATM.   Early engagement at Cabinet level with the EU 
in the new year on this issue would be helpful.  The last 
such visit to Brussels was carried out by HHS Secretary 
Thompson in 2003. 
 
P. Water  - The EC and EU member states are heavily engaged 
in water projects globally and recently initiated an EU Water 
Facility funded at the euro 1 billion level.   Opportunities 
for greater US-EU coordination exist, but would require a 
joint STATE-USAID team to come to Brussels for serious 
discussions. 
 
Conclusion 
------------------------ 
 
13. (SBU) As the world's two largest donors, the US and EU 
have enormous scope for cooperation and coordination on our 
respective development assistance programs globally.   While 
the focus of the donor community for the coming year will be 
in preparing for the September 2005 Millennium Development 
Goals Stocktaking event, we will continue to have numerous 
opportunities through the US-EU task forces and US -EU Senior 
Level Coordination Group (SLCG) Dialogue, US -EU Troika 
experts level consultations on Africa (COAFR), the Middle 
East (COMEM), South East Europe (COSEE), the Western Balkans 
(COWEB), Eastern Europe (COEST), Latin America (COLAT), and 
Asia (COASI), as well as the Humanitarian Assistance 
Strategic Partnership dialogue and other informal or ad hoc 
discussions to engage our interlocutors in the new Commission. 
 
MCKINLEY 
 
YY 
PRIORITY NSC WASHDC 
PRIORITY SECSTATE WASHDC 
 
Y 
 
DEPT FOR E 
EB 
EUR/ERA 
AF 
NEA 
PRM 
S/CRS: USAID FOR PPC 
EGAT 
AFR 
ANE 
GH 
DCHA 
EE 
LAC: PASS MCC FOR MORFORD: NSC FOR MCKIBBEN 
STRONG 
SIMON 
 
Y 
UNCLASSIFIED 
 
SIPDIS