EU development finance can play a stronger and better role, say CSOs

CEE Bankwatch Network, Concord, Counter Balance and Eurodad submitted a set of recommendations to the High Level Group of Wise Persons on the European financial architecture for development. Below is a summary of the main points. The full version is available here.

Over the last few decades, the European financial architecture for development has undergone significant changes, and development finance is currently a central piece in the EU’s development policies’ toolbox. In a time of scarce resources allocated to development purposes a serious assessment of how EU development finance can play a stronger and better role in contributing to the well-being and equitable development of people and territories outside of Europe is necessary. Our key messages are the following:

1. Enhancing and improving the development impacts of EU development finance should be the core objective of the Wise Persons Group’s recommendations

2. The rise of blended finance mechanisms especially in the context of the EU External Investment Plan raises growing concerns among civil society

While private finance has a role to play for development, it cannot be a substitute for the shortfalls in public expenditure, including in infrastructure. The mixed track record of blended finance in terms of development and financial additionality, as well as their potential to exacerbate inequalities and debt, is a serious concern. This does not mean that subsidizing the private sector is to be banned, but this should not be a goal in itself, and be done carefully and consciously when public alternatives are not available, and for certain types of projects and contexts. In this regard, the EU should not give a blank cheque to development banks to access EU guarantees.

3. There is little rationale to the set-up of an EU Development Bank, as the reform of current institutions and instruments should be a top priority for the EU

We think that financial and human resources at EU level should rather be devoted to the re-calibration and reform of already existing institutions and instruments, rather than setting up a new institution. There are important avenues for reforms at the level of the EIB, EBRD and for the EU External Investment Plan and its successor under the next EU budget. Enhancing complementarity between these institutions and instruments should be an objective. But if the EU is not able to make existing institutions more transparent and accountable, with stronger environmental, social and Human Rights standards at its core, it is doubtful that it would manage to set up a model new development bank.

4. Fundamental reforms are needed in already existing financial institutions: the EIB and the EBRD

Because of the problems identified at the EIB and EBRD (e.g. the gap between standards and their actual enforcement or continuous support to fossil fuels), a serious rethink of their development mandate is necessary, together with reforms to make both banks genuine climate leaders, more democratic and transparent institutions, prioritizing Human Rights and strengthening due diligence and control over investments.