LEVERAGING EU ASSISTANCE FOR US FOREIGN POLICY

UNCLAS SECTION 01 OF 05 BRUSSELS 000791

SIPDIS

SENSITIVE

DEPT FOR S/P KRASNER, S/CRS WONG, A/S EB WAYNE, A/S DRL
LOWENKRON, EUR/ACE ADAMS, EUR/ERA CHASE
PASS USAID FOR A/AID SCHIECK, AA/PPC MENARCHIK, AA/ANE
KUNDER, AA/AFR PIERSON
PASS MCC FOR AMBASSADOR DANILOVICH
PASS TREASURY FOR A/S LOWERY
OECD FOR REID AND CARNER
NSC FOR SIMON AND MCKIBBEN

E.O. 12958: N/A
TAGS: EAID ECON KDEM PREF PREL KMCA EUN UN USEU BRUSSELS
SUBJECT: LEVERAGING EU ASSISTANCE FOR US FOREIGN POLICY
GOALS

REF: BRUSSELS (04) 005521


1. (SBU) SUMMARY: President Bush's historic visit to
Brussels in February 2005 has been followed by increased
US-European cooperation on a range of political and security
issues. An important component of that cooperation is greater
synergy between US and EU approaches to development and
humanitarian assistance in critical parts of the globe. In
the past twelve months, the EU and the US have coordinated
approaches to the next phase of assistance to Afghanistan,
support for the Palestinian territories, election planning
and longer-term development in the DRC, humanitarian aid in
Darfur, and targeted help for elections and capacity building
in Iraq. In addition, the new Development Commissioner has
produced a revamped Development Strategy for the EU, which is
likely to also influence member state practices, promoting a
much harder-edged, results-driven approach to development in
the field. The long-held view of the EU as a checkbook
unattached to clear-cut foreign policy or development goals
and bedeviled by endless pipeline blockages no longer
reflects reality.


2. (SBU) Summary continued. This cable provides an update
on Reftel on how the European Union (European Commission plus
25 member states) are working together, and with the US, in
meeting the challenges around the globe. The 25 member
states have a GDP roughly equal to the United States, but
spend twice as much on development assistance ($43 billion
for the 15 EU member states according to 2004 OECD DAC data).
One fifth of EU assistance is channeled through the European
Commission (EC),making the Commission the third largest
single donor in the world, an important catalyst for the EU
as a whole, and a critical partner in U.S. efforts to
coordinate assistance priorities. The EU Africa Strategy and
EU Consensus On Development agreed in December 2005 provide
the framework for assistance from the EC and member states
for the next decade. The EU, long pre-occupied with
increasing ODA, is now placing more emphasis on aid
effectiveness, policy coherence, reduction in transactions
costs and increased visibility for EU assistance. The
benefits of coordinating with the Commission for US strategic
interests can only increase in the coming years. END SUMMARY.

The Barroso Commission
--------------

3. (U) The European Commission directly manages 7 billion
euros in assistance each year. Three Commissioners share
geographic responsibility for assistance policy: Benita
Ferrero-Waldner, the Commissioner for External Relations and
European Neighbourhood Policy (Middle East,South
Mediterranean, Central Asia, Caucasus, Eurasia, Asia and
Latin America); Louis Michel, the Commissioner for
Development and Humanitarian Assistance (the seventy eight
African, Caribbean and Pacific countries tied to the EU
through the Cotonou Treaty); and Olli Rehn, the Commissioner
for Enlargement (Romania, Bulgaria and the Western Balkans).
Koos Richelle, the Director General of the Directorate
General for Europe Aid Cooperation (DG AIDCO)is responsible
for implementation of assistance policies for all three DGs,
as well as for DG TRADE and DG AGRI. As a former Development
Minister in the Portugese Government, EC President Barroso
retains a particular interest in development issues and has a
Member of his Cabinet designated to ensure internal coherence
on development and trade issues.


4. (U) Commissioner Michel has an additional source of
funding for the extensive assistance to Africa, Caribbean and
Pacific countries. The European Development Fund is the main
financial instrument used by the European Commission for
cooperation between the EU and the Group of 78 African,
Caribbean and Pacific states. The financing does not come
from the Community budget, but is derived from five-yearly
"ad hoc" contributions from the Union member states at the
inter-governmental level. The current 9th EDF of euros 13.5
billion consists primarily of grant assistance (some eighty
percent),long-term financing, flexibility to give priority
and incentives to ACP countries' performance, as well as
sanctioning poor results. There is an emphasis on good
governance with specific measures to avoid serious cases of
corruption. Country allocations are no longer automatic and
performance is assessed on the basis of implementation of
institutional reforms, use of resources, project success,
poverty alleviation and sustainable development. The
Investment Facility is currently funded at euros 2.2 billion
and managed as "risk capital" to support private sector
development.

High Representative for CFSP
--------------

5. (U) High Rep Solana coordinates the Common Foreign and
Security Policy but, in stark contrast to the Commission, has
very limited financial resources at his disposal. He is
seeking to increase his resources to euros 160 million in the
2007-13 budget in order to have greater flexibility. Had the
Constitution been agreed and one Foreign Minister been
appointed, that person would have controlled the Commission
resources. Even in the absence of the Constitutional Treaty,
there are moves under way aimed at bringing the Commission,s
resources to bear in support of Member States, political
aims. The yet-to-be agreed Stability Instrument would provide
as much as 500 million euros a year that could be used to
fund programs that would support the Council,s policy aims.
The fate of the Instrument is unclear, as is the price the
Commission will demand in regard to a stronger role in
foreign policy.


6. (SBU) Solana's operational budget, limited as it is,
allows a quick-response mechanism to kick-in in periods of
crisis. This is particularly the case for civilian ESDP
missions in support of negotiated settlements and resolution
of conflicts as we have seen in the EU response to Aceh,
monitoring the settlement of a conflict in a major Muslim
nation; and the Rafah border crossing where the EU deployed
monitors along the Gaza-Egypt border (an area where US
personnel cannot be deployed for security reasons) in support
of Israeli disengagement.

Reforming the European Commission's Assistance
-------------- -

7. (U) The EC began to reform external assistance through the
budgetary process under the Prodi Commission in 2003. They
established the Directorate General for EuropeAid Cooperation
(DG AIDCO) to implement the assistance policies of the
so-called "RELEX Family" of DG ExternalRelations, DG
Development, DG Trade, DG Enlargement, DG Agriculture. They
built up the capacity of the EC Delegations in the field and
over a three year period "deconcentrated" authority to the
field. Heads of Delegation in 77 EC missions around the
world now have the authority to program the funds allocated
for their country programs. Brussels Headquarters engages in
setting the overall allocation, cross-border programming and
monitoring. The technical capacity has been moved to the
field, leaving few experts in Brussels. The EC is
accelerating disbursements and commitments of funds.
Commitments are up 54 per cent and payments are up 52 percent
in 2005 from where they were in 2001.


8. (U) In order to better achieve policy coherence, the
Commission proposed that the 2007-13 Financial Perspectives
(budget) abolish the existing 90 or so funding instruments
which have been built up over the years, each with its own
legal base, and be replaced with six large funding
instruments:(a) humanitarian assistance; (b) macro-economic
financial support; (c) a new European Neighborhood
Partnership Instrument for the 14 countries in the Mashrek,
Maghreb, Palestinian Authority and Eurasia which form the new
Neighborhood; (d) a new Development and Economic Cooperation
Instrument; (e) a Pre-Accession Instrument; and (f) the
Stability Instrument to bridge the gap between humanitarian
assistance and longer term development assistance.


9. (U) The proposals were generally welcomed by the European
Parliament and Council for policy coherence, but then
interest groups became concerned when they couldn't see the
line item in the budget for their issues. The Commission
responded to the concerns by proposing an additional seven
thematic instruments: (a) democracy and human rights; (b)
food security, (c) support for non-state actors; (d) engaging
the industrialized world; (e) energy and environment; (f)
migration and asylum and (g) human and social development.
Conceptually, the EC approach is very similar to the USAID
Policy Framework for Bilateral Foreign Aid in terms of
identifying categories of countries and types of assistance
for which the executive is accountable to the legislative
bodies for results.

Governance
--------------

10. (SBU) After much debate with member states, the EC is
launching a Governance Facility as part of its proposed
European Neighbourhood Partnership Instrument. The concept is
similar to the Millennium Challenge Corporation approach in
rewarding performance, the notion that incentives are more
important than assistance, and the importance of the process
being transparent. The Commission is in the process of
negotiating bilateral Action Plans with each of the ENPI
partners. Seven Action Plans are agreed and five more are in
process. The Action Plans have benchmarks on political
reform, which if achieved will entitle the beneficiaries to a
"reform premium" to be spent on mutually agreed upon
investments in any sector. Thus, the EU will reward good
performance against reform benchmarks. The Commission has
proposed 10 to 15% of total funding for the ENPI be allocated
for the Governance Facility. They will start with a small
pilot effort of euros 50 million in 2006 for the countries in
the Middle East eligible for MEDA funds, likely Jordan and
Morocco.


11. (U) In a parallel fashion, the EU Strategy for Africa
foresees the launching of a governance initiative in support
of the African Peer Review Mechanism and to support the
efforts of the countries concerned in implementing the
reforms identified by those reviews.

Democracy Promotion
--------------

12. (SBU) In 2005, the U.S.-EU Senior Level Group (co-chaired
on the U.S. side by U/S Burns and U/S Shiner) launched a
dialogue on democracy promotion efforts in the dictatorships
of Belarus, Zimbabwe, Iran, Uzbekistan and Myanmar (Burma).
Expert level discussions have broadened the agenda to include
transitional regimes in Egypt, Yemen, Ethiopia, Georgia, and
Krygystan. The EC is more comfortable engaging with us on
this dialogue than the member states are and during the last
US-EU Task Force the EU said they preferred to use the
existing U.S.-EU Troika consultations for the dialogue and
filter the countries to be discussed through certain
criteria. The EC has a number of tools in its tool kit which
are proving particularly effective and contribute to their
aspirations for greater visibility. Most notable are the
Election Observer Missions managed and funded by the EC and
led by a Member of the European Parliament hand picked by the
Commissioner responsible for that geographic region.

Fragile States: Key Priorities
--------------

13. (U) The Commission, Council Secretariat and European
Parliament Development Committee and Foreign Affairs
Committee share a sense of concern for fragile states and see
the bulk of EU assistance going to those countries, whether
for poverty reduction or to address underlying causes of
terrorism. Fragile states and regional instability are key
security threats identified by the 2003 European Security
Strategy. There is tremendous scope for deepening and
broadening the dialogue on fragile states, particularly in
Africa where the EU retains deep commitments in the Great
Lakes region, West Africa and Horn of Africa, as well as
Sudan and Liberia where we already enjoy excellent
cooperation. While there is no real constituency for Asia in
the European Parliament, and budgets have historically ended
up skewed to other regions, there is increasing interest in
dialogue and cooperation in South Asia particularly
Bangladesh, Nepal and Sri Lanka.

Examples: Fragile and Strategic States
--------------

14. (U) Afghanistan: The Commission has remained a committed
partner in Afghanistan. The EC has exceeded its original
pledge of $1 billion for the Bonn Process and are now
negotiating with the European Parliament and Council for the
2007-13 budget. The EC has had the same Head of Delegation
in Kabul for four years and were the first Delegation given
authority from Brussels to make decisions locally. As part of
the 2006 budget, the EC is looking at the possibility of
providing up to euros 10 million for small EU member states
to launch PRTs in Afghanistan.


15. (U) Iraq: The Commission has come a long way in its
relations with Iraq. They have pledged and disbursed most of
the EC pledge of euros 530 million through the IRFFI World
Bank and UN Trust Funds. They have funded the Iraqi
elections, assisted with the drafting of the Constitution and
are now negotiating a bilateral Trade and Cooperation
Agreement. At the political level, the EU meets regularly
with Iraqi leaders, invites them to Brussels and has senior
EU officials travel periodically to Baghdad. Efforts are
under way to open an EC Delegation in Baghdad. In addition
to their bilateral efforts, the Member States are
contributing technical experts to the EU Rule of Law mission
EUJUSTLEX, which trains Iraqi prosecutors, judges and prison
officials.


16. (U) Sudan: The Commission has provided euros 196 million
of humanitarian assistance (including food security) and is
now implementing the first phase of development assistance
activities for the 2005 -07 period for which euros 318
million are available. The EC has provided euros 162 million
through its Africa Peace Facility to support AMIS and is
exploring the possibility of a further euros 50 million
contribution.


17. (SBU) Broader Middle East and North Africa: the
Commission has made significant strides in working with us on
the reform agenda over the past 18 months. They are active
participants in the Forum for the Future, made a euro 1
million contribution for the Fund For the Future and are
encouraging an EIB contribution to the Foundation For the
Future. As one senior Commission official explained, our
procurement procedures and the complexity of engagement with
the member states and European Parliament have led to our
"distinct, but complementary" approach the region. He went
on to describe the US and EC as "like two elephants in the
region, we need to pull in the same direction, but we don't
necessarily need to be tied at the ankles." There is now
clear consensus within the EC that incentives for reform are
more important than the assistance itself. As a reminder,
the EC spends over euros 2 billion per year in the Middle
East and North Africa through the Euro Mediterranean
Partnership/Barcelona Process.


18. (U) Haiti: the Commission hosted the Haiti Donors'
Meeting in Brussels in November to ensure donor support for
the transition to an elected government. Under the Interim
Cooperation Agreement, the EC is providing euros 294 million,
including critical budget support to the GOHto meet IMF
requirements. The EC provided an additional euros 18 million
to fund the EU Election Observer Mission for the elections.


19. (U) Palestinian territories: The Commission has been and
remains the biggest funder for the Palestinian Authority
since the Oslo Accords, providing some euros 500 million per
annum. Through the MEPP and Quartet we have ensured close
coordination and cooperation on assistance. We are now
entering into a more challenging period as we seek to align
our messages and assistance in light of the recent elections
and the likely Hamas-led government. There are two ESDP
(security)operations currently under way in the Palestinian
Territories (a Border Assistance Mission in Rafah, and a
Police Training Mission headquartered in Ramallah). It is not
yet clear whether either will continue under a Hamas-led
government.


20. (U) DRCongo: The DRC is at the top of the EU's list of
priorities. The Commission has committed 750 million euros
for humanitarian activities since the beginning of the
transition, including a pledge for 38 million euros this
year. Some euros 388 million are allocated under EDF for
development activities. The EU Foreign Ministers have
pledged to respond favorably to a DPKO request for the
deployment of EU troops to provide contingency support to
MONUC before and after the elections. The nature and extent
of that support has not yet been determined.

Achilles' Heel of the EC
--------------

21. (SBU) While the EC is moving in the right direction in
its reform of external assistance, they still face a major
obstacle as their internal regulations are too restrictive
and don't encourage risk taking. In acknowledging this fact,
a Member of Commissioner Ferrero-Waldner's Cabinet said the
forced resignation of the Santer Commission over allegations
of corruption had the same psychological impact on the
European Commission as "9/11" had on US thinking. The
pendulum immediately swung to the extreme -- with the
objective having become ensuring the accountability of funds.
When a senior official such as the Director General of
Europe Aid signs funding allocations he incurs personal
liability, not institutional liability as he would as a Dutch
Development Ministry official.
US and EC Both Seeking Foreign Aid Reform
--------------

22. (SBU) Conclusion: The European Commission and US are
both seeking to reform their foreign aid in order to provide
greater policy coherence and accountability for results from
taxpayer resources. We are coming from different starting
points, but find ourselves in much the same place in terms of
broad goals. Building on our already close policy
coordination with the Council Secretariat, we can achieve
concrete results on the ground by working more closely with
the European Commission. We recommend the Department regional
Bureaus, new USAID leadership, MCC and S/CRS look to
expanding the dialogue with the European Commission on our
critical priorities for assistance.

GRAY


.