The stand-off in Kiev shows the EU's greatest weakness – and its greatest strength

Our Director Mats Persson writes on his Telegraph blog:

A deal between the EU and Ukraine involving a "deep and comprehensive" free trade area, finally seems to have the hit the wall, after weeks trying to reach an agreement.

Ukrainian president Viktor Yanukovich is now looking increasingly likely to sign a deal to join the Russian backed customs union instead. As the Russian deal is a customs union it is incompatible with Ukraine signing an individual agreement with the EU. Any further negotiations with Ukraine will therefore need to be jointly negotiated with Russia – something unlikely to prove easy.

Kiev (or its President) has chosen Russian over EU integration.

Ukraine is a big country and market, with 45 million people and substantial resources. It’s also a geopolitical hot spot, it looks both east and west, parts speak Ukrainian and are historically linked to existing EU members, Lithuania, Hungary, Austria and Poland. Other parts speak Russian and historically look to Moscow.

There are two ways of looking at this:

The EU’s “soft power” foreign policy – luring countries in by offering them gradual access to or membership of the EU’s zone of stability and trade – has hit its limits. EU enlargement as a foreign policy tool – betting on others voluntarily imitating the EU – worked as long as it could offer a haven to post-dictatorship countries in the Mediterranean and Eastern Europe, but without confronting the geopolitical orbit of hard power. With Ukraine, it has come up against precisely that in the form of Russia. Moscow offered its neighbour a binary choice: us or them. In a region still responding more to the whip than the carrot, the EU’s soft power proved highly limited. No amount of tweeting from constructivist-inclined EU foreign ministers will change that.

However, there’s a second way to look at it. The hundreds of thousands of pro-European protesters taking to Kiev’s streets show that, in fact, EU soft power is alive and well. Or at least, people in the EU’s neighbourhood still have a desire to join the club in some form. Therefore, and paradoxically, the stand-off between the EU and Russia over Ukraine simultaneously illustrates the EU’s greatest weakness and its greatest strength.

One final thought: I very much doubt that the protesters lining Kiev’s streets are voicing their support for the country joining the European Economic and Social Committee, or are particularly keen on plans to ban national flags (such as their own) from packs of meat, enforce quotas in boardrooms or prohibit refillable olive oil jugs in restaurants. They want to join a European club, broadly defined.

Those who press for more EU integration and increasingly want to make the EU an extension of the single currency should be aware that they’re also creating more hurdles for newcomers to join such a club. So far the “widening” of the EU has also led to “deepening”. With countries like Ukraine and Turkey in the game, that simply cannot continue. Scaling back the EU’s rulebook and allowing for differing levels of integration would lower the barrier to entry and therefore allow Europe to continue to use enlargement as a foreign policy tool.

The EU should want Ukraine and Turkey in but this won't happen as long as "ever closer union" is the mantra. A new flexible model of membership is needed. It is also one that may help to some existing members feel more at home in the club.

What the Egyptian crisis tells us about the (in)effectiveness of EU aid

As the crisis in Egypt continues to intensify by the day, European Council President Herman Van Rompuy and Commission President José Manuel Barroso warned in a joint statement yesterday that the EU would "urgently review in the coming days its relations with Egypt" - including the new aid package worth around €5 billion that was pledged to Cairo last year.

EU member states' ambassadors are holding talks today, followed by a meeting of EU foreign ministers on Wednesday. For the moment, though, Egypt's new military-backed government does not seem very impressed by threats coming from Brussels. As Foreign Minister Nabil Fahmy put it,

"I want to determine what is useful and what is not and what aid is being used to pressure Egypt and whether this aid has good intentions and credibility. We are not looking to replace one friend with another but we will look out to the world and continue to establish relations with other countries so we have options."

There is plenty of political posturing in Mr Fahmy's words, but this kind of reaction inevitably raises questions over how the EU has handled its relations with Northern African countries over the past few years, particularly via the European Neighbourhood Policy (ENP). 

In a report we published in May 2011, we stressed how, in the name of 'stability', the EU had consistently increased funding allocations for countries like Egypt and Tunisia, despite the European Commission itself noting limited progress on human rights and democratic reform over the years. In particular, we argued that the Commission's reliance on so-called 'budget support' - whereby EU aid money is given directly to neighbouring countries' governments and then directed towards specific projects by the latter - was clearly problematic, given the lack of transparency on how these funds were used.

The European Court of Auditors recently made a similar criticism in a tough report on EU aid to Egypt, where it suggested that the European Commission had been "too flexible" in assessing whether the Egyptian authorities were actually meeting the conditions for granting 'budget support'. The Court noted that,

"The Commission and EEAS [the EU's diplomatic service headed by Baroness Catherine Ashton] have not been able to manage EU support to improve governance in Egypt effectively. This was partly due to the difficult conditions they have faced in Egypt but also to shortcomings in the way the Commission and EEAS have managed their cooperation with Egypt."

The recent events in Egypt add one further element of concern. Despite its generous funding (Egypt was initially allocated approximately €1 billion for the period 2007-13, around 60% of which via 'budget support'), the EU seems to have failed to gain any significant leverage on the Egyptian establishment. Calls to stop the violence have been ignored - and the threat to stop the disbursement of aid has so far been openly snubbed.

This is of course a complex political situation and the circumstances are difficult, but given that the ENP is a very political aid instrument (seen by the EU as a tool to exercise its 'soft power'), it is getting increasingly difficult to see what value it has added in the case of Egypt.

ENP Reform: Better But Still Not Looking At The Bigger Picture

EU Foreign Minister Baroness Catherine Ashton yesterday presented the Commission’s proposals for a revamp of EU aid to post-Communist countries, North Africa and the Middle East under the European Neighbourhood Policy (ENP). This review was certainly due: the recent upheavals in Tunisia, Egypt, Libya and Syria have unmasked several failures in the EU’s current approach, which we looked at in detail in a recent report.

To be fair, the Commission has some sensible ideas for ENP reform (some of which we also recommended), although it steers well clear of several “sensitive” big-picture issues that we think should be addressed as a matter of priority. But let’s start with the encouraging parts of the Commission’s proposals.

As we pointed out, the EU should put greater emphasis on “negative” conditionality when making decisions about funding. Aid must not only be frozen when a major crisis breaks out, such as in Libya. On the contrary, the Commission must make clear that it stands ready to pull the plug if a country fails to make progress on agreed democratic reform and human rights. The Commission states that, from now on, “for countries where reform has not taken place, the EU will reconsider or even reduce funding.” The question remains how this would operate in practice, as it will almost certainly face opposition from member states with vested interests in North Africa and the Middle East, notably France, Italy and Spain.

The Commission also says that “a stronger link” will be established between its annual “Progress Reports” and the amount of money these countries are granted. Again, this looks like a sensible suggestion. We show in our report that, previously, the Commission consistently increased its aid to countries like Egypt and Tunisia despite noting limited or no progress on human rights or democratic reform.

The EU will "suggest to partners that they focus on a limited number of short and medium-term priorities." We noted that the effectiveness of several ENP projects is undermined by the EU’s tendency to "attempt too much." Concentrating on a smaller number of priorities offers a far greater chance of success and, just as importantly, European citizens will find it easier to gauge the EU’s performance.

From our point of view, the most interesting part of yesterday’s communication is the Commission’s commitment to more closely monitoring its use of budget support. It is now pledging to take into account the "overall country situation regarding democracy, accountability, the rule of law and sound financial management." The fact this needed to be spelled out is of course rather shocking but better late than never.

The inappropriate use of budget support is a point we have consistently stressed: providing funding directly to the coffers of regimes, such as those in Tunisia and Egypt, which were clearly corrupt is no way to spend European taxpayers’ money.

However, despite some steps forward, the Commission has once again chosen to remain silent with regard to our suggestion of making EU member states’ contributions to the ENP voluntary. We have consistently argued that voluntary contributions would give an instant boost to the transparency and accountability of EU aid funding.

The Commission’s proposals on trade are also disappointing. Along with the over-used reference to the creation of a “Deep and Comprehensive Free Trade Area” with its neighbours, the Commission also says that “the EU will step up efforts” to conclude ongoing negotiations on the liberalisation of trade in agricultural products. This sounds way too vague and neglects the fact that much of this has to do with EU policies beyond the confines of the ENP. To truly honour this commitment would require a far greater openness to trade and an end to the distorting effects that the Common Agricultural Policy has on developing countries.

And, with their new powers gained under the Lisbon Treaty, MEPs are likely to continue prioritising the interests of European farmers – as they’re currently doing by withholding a free trade agreement on agricultural products with Morocco.

Finally, there's the question of migration. On this point, the Commission looks more than a bit confused. Ashton's report says that the EU will "pursue the process of visa facilitation for selected ENP partners and visa liberalisation for those most advanced." However, only a day earlier, EU Home Affairs Commissioner Cecilia Malmström put forward proposals for a "safeguard clause" allowing for the temporary suspension of the visa-free travel arrangements that the EU has in place with a number of third countries. Added to the current row over the border-free Schengen zone, the EU cannot credibly claim to have a coherent migration policy, which makes Ashton's proposals look like they will only create false hope.

Ultimately, until the EU comes up with a comprehensive strategy, which includes immigration, trade and reforming the CAP, reform of the ENP will remain a detail.

Still dodging the question: The Commission Responds To Our Aid Report (Part 2)

As promised, here is Part 2, which focusses on the Commission's second response to our two-part series on EU aid - this time our report looking specifically at the EU's approach in North Africa and the Middle East, the follow up to our briefing on the EU external aid budget taken as a whole.

In our previous post we noted that the Commission completely failed to engage with the main recommendation in our earlier report - that national contributions to aid funding should be made voluntary - and suggested why it chose to dodge the question. But in this post we'll take up some of the more detailed points raised by the Commission's two responses, which you can read in full here and here.

Firstly, there's the issue of 'budget support'. Over the last ten years, the EU has been increasingly relying on delivering its aid in the form of 'budget support', meaning that the money is transferred directly to the treasuries of recipient countries, rather than being committed for individual projects. Budget support can be either 'general' or 'sector-specific'. In 2009, 35% of the money allocated via the EU's Neighbourhood Policy (ENP) was in the form of sector budget support.

The Commission says in its response to our aid report that it "provides budget support only to certain governments in the developing world that meet minimum conditions of governance and good administration."

However, the Commission then fails to explain how Ben Ali’s Tunisia and Mubarak’s Egypt – where people took to the streets to protest against these regimes’ autocratic and corrupt rule – were able to fulfil the Commission’s criteria on transparency, democracy and good governance, given that in 2009 alone they were allocated €61.3 million and €107.7 million respectively in direct budget support funding by the EU.

The Commission writes:

“It goes without saying that in a number of countries…the EU has often felt frustrated by the lack of political reforms, stifling of civil society, and violation of human rights or dominance of the state…However, the serious shortcomings of a government do not justify isolating a population, punishing its youth and leaving it only in the hands of despots or dictators.”

But this still does not explain the Commission's history of dealing directly with illegitimate regimes via budget support, rather interacting with civil society groups.

To be fair, the Commission insists that it “has funded civil society to a large extent,” for example via the European Instrument for Democracy and Human Rights (EIDHR). However, we can’t help noting that €141 million to develop 14 projects in the EU’s Southern neighbourhood between 2007-2010 is dwarfed by the direct support to now discredited regimes in the area. The Commission's Annual Action Programmes show that, over the same period, a total €394 million in the form of budget support was committed to Egypt alone.

Secondly, the Commission has defended its financial and auditing controls, saying, in particular, that:

"In order to achieve clarity about the outcomes of aid in a certain country or in a particular sector like health or education, the European Commission contracts a higher level evaluation to carry out an examination across a number of projects and programmes."

However, the Commission’s response to our report on EU aid to North Africa and the Middle East shows something went very badly wrong in the evaluation of a €40 million project in the Occupied Palestinian Territories. Between 2006 and 2007, the Commission allocated €40 million to pay for power sold to local electricity companies operating in the area, with the aim of ensuring Palestinians received uninterrupted power supplies. In our report, we cite from an independent evaluation of the EU’s MEDA II funding programme for Mediterranean countries carried out by a network of European audit firms - an evaluation contracted by the Commission.

The evaluation raises two important concerns. Firstly, the auditors write, “We do not have the documentation to record disbursements” - in other words, the auditors had no idea where the cash went. Secondly, they note that

“by providing meta-level support, in the form of payment of invoices for power sold to the local electricity companies, the European Commission is not directly engaging in issues of who pays what for their electricity at a retail/consumer level. Funds generated at that level could be used to subsidise any element of the operations in West Bank and Gaza, including activities which might further destabilise the area.”

The Commission is now dismissing this evaluation, saying that a separate international audit firm “was able to confirm that all claims submitted for payment were eligible.” Extraordinarily, the Commission goes on to explain that

“The evaluators [the ones we quote in our report] were given access to the Commission's financial records system for contracts in the external relations field. It is therefore difficult to say why they could not find this data which was available for them…The comments quoted in the report were made by independent evaluators based on incomplete information.”

But here's the thing, the Commission actually signed off the evaluation, saying that it provided “credible and substantiated findings and conclusions”. The Commission is contradicting itself in so many ways that it's almost an achievement. What's clear is that this example inspires little confidence in the auditing and monitoring systems that the Commission claims are at the heart of its efforts to "identify the results of its aid".

Another issue we raise in both our reports concerns a €10 million grant given to the Italian Interior Ministry to train Libyan 'law enforcement authorities' and prepare them better to tackle illegal migration to Italy and other Southern EU member states. The project's expected results included: "Special units trained/able to gather intelligence information by debriefing the illegal migrants detected"; and "technical equipment provided to improve the operational capacity of the relevant Libyan agencies in charge of border and migration management, search and rescue operations, investigation."

The Commission argues that "retrospectively this spending was particularly pertinent given the current situation in the Southern borders of the EU." We're suprised the Commission is willing to defend training Gaddafi's 'authorities' for any purpose - especially given Gaddafi's resort to effectively blackmailing the EU on migration issues.

Also on Libya, the Commission says "contrary to what is stated in the Open Europe report, the EU has never 'opened' an association agreement with Libya." In fact, we said, "in 2008, the EU opened negotiations on a possible association agreement with Libya" and we make it very clear that talks were suspended. The point is that the talks were opened as late as 2008.

The Commission also fails to come up with an adequate defence of why it chooses to fund so many cultural projects and initiatives in Mediterranean countries whose added value remains, according to us and the Netherlands' Europe Minister, dubious. In the response to our aid report, we read that “cultural and creative industries, as well as cultural tourism, create jobs and economic growth on an important scale.” This may be true, but then the Commission should at least try to explain how this applies to, for example, the €22,500 for a Europe Day Concert or the €9,500 German folk band concert, both in Jordan - in addition to a range of other projects promoting European culture.

Finally, we note that, as was the case with our earlier aid report, the Commission has decided not to engage with some of the key suggestions we make, including: making aid to Mediterranean countries voluntary and granting the EU’s Southern neighbours full market access, which would involve lifting tariff quotas on agricultural products and scrapping the EU’s complex rules of origin.

A real shame that once again the Commission has chosen to avoid the real issues in this hugely important area. Instead, it opted for a response riddled with contradictons and inconsistencies - which largely served to vindicate our conclusions rather than refute them.

As much as we like being vindicated, we would prefer if the Commission instead engaged in a grown-up discussion about how we can better target EU aid. Everyone would gain from that, not least the world's poor.

The EU and the Mediterranean: Good Neighbours?

As a follow-up to our much discussed report on the EU's external aid policy, on Sunday we published a new briefing looking at the effectiveness of EU assistance to North Africa and the Middle East. The EU's funding effort towards its Southern neighbours has so far been remarkable: more than €13 billion committed between 1995 and 2013. Not exactly peanuts.

Hence, in the light of recent events across the area, a few questions arise. Couldn't the EU have achieved more in return in terms of democratic reforms and political stability in the Mediterranean region? Was all of EU money well spent? What have the real benefits been for these countries?

In our briefing, we suggest some possible answers. First of all, in its relations with Mediterranean countries, the EU has privileged political stability over democracy, by developing close ties with autocratic regimes such as Egypt and Tunisia, and sometimes providing them with direct aid funding. The Commission has consistently increased its funding commitments to these countries despite noting limited or no progress in terms of democratic reforms and human rights in its own policy assessments.

This links to one of the EU's most frequent mistakes: adopting a 'one-size-fits-all approach' - the European Neighbourhood Policy in this specific case - for groups of countries which have very little in common. In fact, unlike former Soviet states, countries in North Africa and the Middle East have no chance whatsoever of joining the EU in future. Therefore, in the absence of the 'golden carrot' of EU membership, they have little or no incentive to go beyond those superficial reforms sufficient to persuade the Commission to keep its funding tap open.

This is something that has started to dawn on top EU officials. At the end of February, EU Enlargement Commissioner Štefan Füle told MEPs,

Many of us fell prey to the assumption that authoritarian regimes were a guarantee of stability in the [Mediterranean] region. This was not even Realpolitik. It was, at best, short-termism – and the kind of short-termism that makes the long term ever more difficult to build.

Similarly, in an op-ed published by several European papers yesterday, European Council President Herman Van Rompuy admitted,

In the past, we haven’t always respected our own values by giving priority to the interest in regional stability and even accepting regimes which weren’t democratic in order to counter the risk of fanatic dictatorships.

Neither have closer relations with the EU helped to boost Mediterranean countries' prosperity via increased trade. On the contrary, the EU's Southern neighbours have seen their annual trade deficit with the EU soar from €530 million in 2006 to €20.4 billion in 2010. In addition, Mediterranean countries still have to face tariff quotas on their exports of agricultural products to the EU and - with the exception of Tunisia, Algeria and Morocco - remain subject to the EU's over-complicated system of 'rules of origin'.

There are also examples of poor monitoring. €40m was handed out in the Palestinian territories in 2006 and 2007 with no “documentation to record disbursements”, according to an audit by ADE, a Belgian consultancy hired by the Commission. “We simply don’t know where the funds went to because there was no evidence of how they were spent,” said Tanguy de Biolley, a director of ADE, to the Sunday Times.

Making aid to Mediterranean countries voluntary, removing barriers to trade and adopting strategies tailored to each one of the EU's partners could all help boost the effectiveness of the EU's Neighbourhood Policy in the Mediterranean and ensure that European taxpayers get better value for their money.

It is good to see the likes of Van Rompuy and Füle willing to admit there are problems, but what is really needed is a thorough debate about what role the EU should play in development funding. Tinkering with existing policies won't solve the deep-seated confusions and contradictions present in the EU's approach.