Brexit: The Consequences for the EU’s Political System
The impact of Brexit on EU aid
The different scenarios envisaged under Brexit lead to different consequences for EU development
cooperation. These can be classified in three ways: financial, political and operational.
We understand the financial impact to imply Brexit’s effect on total aid funds (in absolute terms) channelled by each stakeholder (the UK or EU institutions, for instance). The political impact of Brexit refers to the donating influence or reputation of a country, or union.
This can be measured by using the Elcano Global Presence Index and some features of international aid such as:
(1) the share of global aid disbursed by countries or unions;
(2) the positions of countries and unions in donors’ rankings (by volume of disbursements);
(3) their participation in the multilateral systems;
(4) their relative effort, measured by aid as a proportion of their economies; and
(5) the extent of their presence, through ODA, in different regions. We have defined the operational impact as the changes in organisational and managerial aspects of aid that would result from the UK’s exiting the EU, analysing how the
bilateral/multilateral/NGOs proportions in delivering aid would change under the different scenarios set for the post-Brexit UK.
On 23 June 2016, a referendum was held in the United Kingdom (UK) to see whether or not its electorate wanted to stay in the European Union (EU). This represented an important milestone in a relationship that has historically been less easy than that with other member states (MS).
Difficulties had appeared in a wide range of policies, from agriculture to the possibility of a fiscal and banking union (a major agenda issue after the Great Recession). At the time of writing, a clear majority of the British Parliament has supported the triggering of Article 50 of the Treaty of the European Union (TUE) and Prime Minister (PM) May’s Administration appears now to be close to do so.
In a speech delivered on 17 January 2017, PM May re-emphasised the UK’s intention to leave the EU single market whilst still collaborating closely with the EU in key areas such as counter-terrorism and crime. New deals should also be struck in trade as well as regulating the status of British citizens in the EU (and vice versa).
In May’s words, ‘no deal for Britain is better than a bad deal’ (UK Government, 2017). Much of the debate on the Brexit process and its consequences regard movement: human (extra-EU and intra-regional migration policies), capital (banking union, fiscal status, financial secrecy), together with goods and services (a post-Brexit trade arrangement).
In other words, development cooperation is not a major issue in the Brexit debate, and nor is it expected to be in the exit negotiations. The EU is the world’s largest donor, being responsible for more than 50 % of Official Development Assistance (ODA), according to the Organisation for Economic Co-operation and Development (OECD) records.
This European aid effort is the result of bilateral programmes in EU MS as well as their contributions to multilateral organisations and funds. From a European perspective, this is complemented by MS participation in European aid tools (for instance, the European Development Fund (EDF), which is the result of contributions by all MS), established in line with their overall contributions to the European budget on the basis of their individual Gross Domestic Product (GDP).
Accordingly, the EU’s aid budget results from the individual efforts of EU MS, plus aid channelled through common institutions. Among those MS donors, the UK stands as the aid world’s second largest contributor in absolute terms. With a total ODA volume of USD 18.7 billion in 2015, only the United States of America (with an economy six times larger, according to World Bank’s figures) disbursed a higher volume of development assistance that same year (USD 31.08 billion).
The UK is followed by Germany (USD 17.78 billion in 2015), Japan and, in fifth place, another MS, France, which contributes to world aid with a much smaller budget of USD 9.23 billion. In short, the EU is a major donor due largely to the performance of some key EU MS, such as the UK.
As the UK is not only a major individual contributor, but also a major MS in the EU (partly due to its GDP compared with that of other MS), Brexit may mean a huge loss for the EU as a global donor. In any event, the UK’s exiting the EU could have a significant impact in financial, operational and political terms on the EU’s role as leading donor.
Analyses on Brexit implications for aid are scarce. Moreover, those that exist mostly focus on the implications of Brexit for British aid. The impact of Brexit on EU development and humanitarian aid has been largely neglected (with some exceptions – see, for instance, Szent-Ivanyi, 2016; Anderson and Mitchell, 2016a and 2016b; and Anders, 2016). This body of research has focused on the financial implications of the UK’s departure from the EU, with most concluding that Brexit will produce a decrease in UK aid.
Several reasons are cited. Firstly, British GDP and Gross National Income (GNI) could decrease as a result of Brexit and the Great Britain Pound (GBP) could lose some of its value (Barder, 2016; Chonghaile, 2016; Green, 2016; Nazeer, 2016; te Velde et al., 2016).
Secondly, the negative impact of Brexit may result in the need to switch aid spending to cover domestic needs (Barder, 2016; Chonghaile, 2016; Green, 2016; Sow and Sy, 2016).
Thirdly, massive UK aid efforts would have directly resulted from the UK’s membership to the EU (Nazeer, 2016). Conversely, Policy Department, Directorate-General for External Policies 10 according to some works, Brexit could mean a new non-European commitment with global affairs and aid budgets would, therefore, be maintained at the present levels (Chonghaile, 2016; Green, 2016; Sharma, 2016).
Some press articles or think tank analyses also go through the operational repercussions of Brexit such as the difficulties for British charities to keep on working with EU institutions as they have in the recent past, or how the EDF will be reshaped without the UK, one of its major contributors (Chonghaile, 2016; Green, 2016).
In the political domain, for many authors Brexit undoubtedly means a loss of UK influence in various key institutions as well as its general contributions to the European aid debate (Anderson and Mitchell, 2016a; Barder, 2016; Green, 2016; McAvan, 2016; Price, 2016; Scoones, 2016; Szent-Ivanyi, 2016; Watkins, 2016). As for UK relations with partner countries, these might be reshaped with an increase in aid to Commonwealth States among British aid recipients or, alternatively, by deepening ties with least developed countries (LDCs) (Barder, 2016; Price, 2016; te Velde et al., 2016).
The very few analyses that go through the consequences of Brexit for EU aid suggest an eventual retrenchment of EU aid to the borders (Ukraine, the Balkans, North African countries) (Szent-Ivanyi, 2016), or, alternatively, a greater focus on hitherto neglected areas such as Latin America or Asia.
This could result from an increase in pressure from those MS that did not have opportunities to determine the destination of EU funds while the UK was influencing EDF directives (Anders, 2016). The goal of this study is to analyse the eventual impact of Brexit on EU development and humanitarian policies in financial, political and operational terms.
Although we can take for granted that Brexit will happen (article 50 should be triggered by the end of March 2017), the exact timing of such an exit, the new terms and conditions of the relations between the UK and the EU, and the new political guidelines adopted by each party separately are still very much uncertain.
Coping with this uncertainty is the main methodological challenge of this study. In order to deal with such unpredictability, we adopt a series of assumptions on the Brexit process itself, the domestic impact of Brexit, and the EU-27 post-Brexit performance. We also set three alternative scenarios on the behaviour of the UK (in the aid domain) after Brexit. Such scenarios are built on previous Brexit analyses as well as individual interviews conducted with key aid stakeholders both in London and Brussels.
These scenarios not only include a number of variables (the UK aid budget or the way this budget is channelled in regard to the country, sector and tool points of view), but can also bring about distinctive types of behaviour. This leaves the EU with a number of policy options.
This study considers the different post-Brexit scenarios and their combination with policy options which will ultimately determine the type and intensity of post-Brexit collaboration between the UK and the EU in development cooperation. The second section of this report describes our methodology and establishes assumptions. Section three goes through the variables of the study, leading to a description of the scenarios in section four.
The fifth section analyses the financial, operational and political implications of Brexit under those different scenarios. Section six covers the different political perspectives for the EU in foreign relations and development issues.
The final section provides various policy options for EU institutions under the different scenarios mentioned above. Setting the scene The aim of this study is to support the work of the European Parliament's Committee on Development in the debate surrounding the UK's withdrawal from the EU.
From a broad perspective, development policies may cover interventions of different kinds (policy dialogue among countries, surveillance of internal and external policies impacting development countries, mobilisation of private investment and lending, etc.).
However, its most visible instrument is international aid, upon which this study is mainly concentrated. Possible impacts of Brexit on EU development and humanitarian policies 11 2.1 Definitions Given the focus of this analysis, we rely on the formal definition of ODA and official assistance, as defined by the Development Assistance Committee (DAC) of the OECD.
Consequently, in order to assess the financial impact on development policies of each possible post-Brexit scenario, we draw on this international body’s statistical sources.
By using DAC data, we analyse information on all the EU’s external aid programmes, including those which are framed under a pre-enlargement or neighbourhood collaboration scheme.
In other words, we take into account all the EU financial instruments targeting non-EU countries, which include the EDF, the Development Cooperation Instrument (DCI), the European Neighbourhood Instrument (ENI), the Partnership Instrument, the European Instrument for Democracy and Human Rights (EIDHR), the Instrument for Stability and Humanitarian Aid (ISHA).
The DAC is also our information source on UK contributions to EU development aid, which are key data in this study, and appear difficult to obtain via EU sources.
As per the previous paragraph, the European Commission (EC) manages several financial instruments that can be grouped in two categories for estimating Member States’ contributions: budgetary funds (the DCI, the ENI, Humanitarian Aid), and extrabudgetary funds (the EDF).
In the case of budgetary instruments, the UK’s contribution can be assessed upon the basis of its overall contribution to the EU multiannual framework, while for the EDF, the UK’s contribution can be found within the internal agreement on EU-African, Caribbean and Pacific Group of States (ACP) Treaty.
Thereafter, in order to show figures upon a yearly basis, annual budgets and calls by the EC for disbursement of the EDF need to be consolidated. In any case, since the EC regularly provides those data to the DAC, which posts them after verification on the OECD statistics webpage, we rely on this source (table 2).
Table 2. Member States contributions to EU aid budgets (net disbursements of ODA flows in millions of US constant dollars, 2011-2015) Country 2011 2012 2013 2014 2015 Germany 2 721.79 2 606.46 2 665.85 2 877.13 2 891.75 France 2 370.32 2 193.83 2 283.55 2 349.38 2 298.39 United Kingdom 2 054.94 1 995.65 2 041.19 1 922.33 2 159.53 Italy 1 901.32 1 598.04 1 618.10 1 661.58 1 695.62 Spain 1 105.30 990.67 1 028.47 1 024.67 1 077.18 Netherlands 677.74 637.88 649.82 647.32 647.69 Belgium 521.26 474.28 498.79 511.26 551.13 Sweden 369.59 349.35 358.19 406.19 491.08 Poland 302.62 296.24 333.15 339.10 352.70 Austria 315.83 293.07 303.30 312.55 315.61 Denmark 272.64 254.60 262.85 272.81 281.06 Finland 218.98 201.92 201.27 196.47 204.10 Greece 232.73 200.39 174.96 181.23 192.07 Portugal 177.14 163.86 158.36 166.75 170.89 Ireland 148.01 133.61 131.44 142.88 163.36 Czech Republic 128.32 115.00 114.11 127.17 125.07 Romania 128.99 104.89 108.79 130.74 115.08 Hungary 84.44 81.43 72.35 92.39 99.72 Slovak Republic 58.70 56.09 59.29 61.08 63.24 Policy Department, Directorate-General for External Policies 12 Lithuania 27.02 27.51 28.83 36.03 38.68 Bulgaria 34.68 31.97 33.96 41.84 38.27 Slovenia 35.51 32.82 33.42 34.26 37.25 Luxembourg 37.08 33.32 38.28 34.48 32.63 Croatia 14.70 35.81 29.05 Latvia 16.91 17.83 18.91 20.14 21.03 Estonia 15.91 11.53 15.89 16.28 16.18 Cyprus 16.65 14.80 15.47 15.60 15.51 Malta 5.69 6.02 6.42 8.36 Total 1 3974.42 12 922.73 13 269.31 13 663.89 14 132.23 Source: https://stats.oecd.org (DAC1); last accessed 9 March 2017.
This study is also aimed at identifying the impact of Brexit in operational and political terms. The former implies changes in the organisational and managerial aspects of aid as a result of the UK’s exiting the EU, whilst the latter refers to possible changes in the influence and reputation of each party not only in specific areas but also on a global scale.
In order to analyse these two kinds of impact we will break aid down into sectors, regions and channels, again using OECD data. The OECD categories are not the same as those used by EU institutions when presenting their own programmes, but they do apply to all donor countries reporting to the DAC and allow comparability, therefore, among donors.
For reasons of simplicity and to facilitate connections between our data and information from EU sources, we introduce certain modifications into those categories, as will be explained in the following paragraphs.
Methodology This study will have to take into account a considerable degree of uncertainty, not only because the Brexit process has yet to be formally initiated, but also because this is an unprecedented process for the EU.
We will, therefore, firstly make explicit assumptions on Brexit itself, its macro-economic impact and the behaviour of the remaining MS. Secondly, we will identify the determinant elements of aid which are likely to vary as a result of the UK’s withdrawal from the EU (variables).
Since those variables might be interrelated, we will proceed by forecasting the sets of values for such variables that will demonstrate internal consistency (scenarios).
Along with the description of each scenario, we will provide some information on its plausibility, as collected from privileged observers through a round of interviews that took place in London and Brussels.
In early January 2017, we held a dozen meetings with analysts and/or members of think tanks (Overseas Development Institute, Centre for Global Development Europe, European Centre for Development Policy Management), Parliamentary representatives (both the House of Lords and the European Parliament), members of the government (the British Department for International Development and the European Commission) and Non-Governmental Organisations’ (NGOs) representatives (Oxfam GB and Belgium, Eurodad).
Once the scenarios have been presented, we will make an assessment of their impact in financial, political and operational terms. As explained above, this assessment is made by drawing on OECD data, and comparing the current volume of ODA with the volume resulting from each likely post-Brexit scenario.
For the sake of simplicity, we have grouped donor countries in OECD statistics under the following classification: (1) the UK; (2) EU institutions; (3) other EU MS; (4) others. When breaking ODA data down according to the above categorisations, we have subtracted from both the UK and other EU MS the share of their aid that is channelled through EU institutions, so that the sum of the four categories matches DAC Possible impacts of Brexit on EU development and humanitarian policies on total aid1 .
Regarding the financial impact, possible effects on sector distribution of aid are also taken into account. For that purpose, we have used a simplified version of the OECD thematic classification of aid (table 3). Table 3. Aid sector classifications Our classification OECD macro-sectors Social aid 100:
Social Infrastructure & Services Economic aid 200: Economic Infrastructure & Services 300: Production Sectors Humanitarian aid 700: Humanitarian Aid 930: Refugees in Donor Countries Macro-financial aid 500: Commodity Aid / General Programme Assistance 600: Action Relating to Debt Others 400: Multi-Sector / Cross-Cutting 910: Administrative Costs of Donors 998: Unallocated / Unspecified To develop an understanding of Brexit’s political impact on aid, we forecast changes in distribution across geographic regions.
The country breakdown of the DAC is grouped into continents and regions within each continent. In line with the table below, we use DAC data at sub-continental level and aggregate them into three groups which are close to the traditional trans-continental regions defined by the EU for aid management purposes. These classifications will be used to support our study’s political impact analysis (table 4) 2 .
Table 4. Aid – geographical classifications Our classification OECD sub-continental regions Region A (neighbourhood and candidate countries) Europe Middle East Africa, North of Sahara Region B (African, Caribbean and Pacific Group of States) Africa, regional Africa, South of Sahara Oceania North & Central America Region C (others) America, regional South America Asia, regional Far East Asia South & Central Asia Developing countries
In this political assessment, we have also estimated changes in donor rankings with regard to the distance from the 0.7 % ODA/GNI target, and the weight of each donor in the multilateral system. 1 ODA data in absolute terms have been obtained from the OECD DAC online database on ‘Total Flows by Donor’ (DAC1), net disbursements, and are expressed in USD at current prices. See https://stats.oecd.org (last accessed on 9 February 2017). 2 Estimations on ODA breakdowns for each donor are based upon the OECD DAC online data base on.
Flows based on individual projects’ (CRS). See https://stats.oecd.org (last accessed 9 February 2017). Since the total amounts in this database do not match the DAC1 database, we apply the percentages obtained for each donor to the total aid amounts obtained from the DAC1 data base in order to consolidate our estimations on changes in global aid distribution by sectors, countries and channels.
Policy Department, Directorate-General for External Policies 14 Our operational analyses will be supported by a simplified version of the channel breakdown provided in DAC statistics (table 5). Table 5.
Aid – channels classifications Our classification OECD channels Bilateral Public Sector Multilateral Multilateral Organisations Non-state actors NGOs & Civil Society Public-Private Partnerships (PPP) Other.
To be defined For a broader impact analysis, as with political impact, we also rely on the Elcano Global Presence Index (elaborated by the Elcano Royal Institute) as a tool for measuring the UK and the EU’s global presence in the event of Brexit, with particular emphasis on repercussions in the development cooperation variable of such an index. Global presence can be defined as the extent to which countries are ‘out there’ and not, therefore, a measure of power or influence at regional or global level.
Countries recording high levels of global presence are not necessarily exerting power or leading the global agenda (and, actually, the case of the EU could be a good example for illustrating this difference).
However, global presence is linked to those concepts of power or influence: countries with global presence might not necessarily be leading but, in general terms, countries leading regionally or globally do record significant levels of global presence.
Such global presence can be classified in three ways: economic (exports of primary goods, energy, manufactures or services as well as direct investments abroad), military (troops internationally deployed, military capacity for such deployment) and soft (tourism, migration, education, science, culture, sports, technology, information and development cooperation).
This Index is updated annually and calculated for 90 countries together with the EU (as if it were a single political union). 2.3 Assumptions Analysing the eventual implications of Brexit on EU aid policies is very much a forecasting exercise and hence the need to build different scenarios.
Moreover, in order to work with a finite number of scenarios, these can be framed in a series of assumptions (table 6). Table 6. Assumptions of the study 1. The UK will leave the EU 2. The EU-28 will keep their financial commitments until 2020 3. The UK GNI and the GBP remain stable 4. EU GNI, the euro and other EU currencies remain stable 5.
Aid of the other 27 MS will not be affected by Brexit 2.3.1 Assumption #1: The UK will leave the EU At the time of writing, PM May had received the support of the Houses of Parliament and is expected to trigger Article 50 TEU before the end of March 2017.
There still remains some speculation about the type of control to be exerted by the Houses of Parliament on the UK Government during the negotiations, but the leave decision is now past the point of reconsideration or validation.
Possible impacts of Brexit on EU development and humanitarian policies 15 Article 50 establishes the mechanism that should be followed by an MS wanting to leave the Union, and relies exclusively on the exiting state’s triggering the process.
However, EU institutions have been pressing the UK to take the necessary steps to comply with the referendum. Moreover, the political declarations of PM May (‘Brexit means Brexit’) reinforce the UK’s decision to withdraw from the Union.
In any case, the aim of our study (to assess the possible impact of Brexit on aid), implies taking this first assumption as read. 2.3.2 Assumption #2: The EU-28 will keep their financial commitments until 2020 Regardless of negotiations between the two parties and the exact timing of Brexit, in the short term the UK’s financial commitments with the EU will be maintained under existing arrangements.
This probably means that UK aid via EU institutions will continue to be channelled in accordance with the agreement for the Multiannual Financial Framework (MFF) during the 2014-2020 period (Price, 2016).
This assumption is supported by estimations from British Parliamentary lawyers, who consider that at least 2 000 pieces of secondary legislation will be needed to carry out the legal break with the EU. The time needed for such activity would make it very difficult for the UK to achieve an effective departure from the EU before 2020.
Moreover, policy interventions have already been launched for the period until 2020, which depend on financial contributions from the UK, equivalent to 12.5 % of total contributions. EU institutions will consequently very likely prefer to discount the UK’s involvement with effect from the next programming cycle starting in 2021, especially when such commitments have been formalised in national indicative programmes vis-à-vis third countries.
Although Brexit could become effective immediately before or after next European Parliament elections in May or June 2019, it is likely, therefore, that financial commitments would be extended a few more months.
In the case of the EDF, where the UK accounts for 15 % of resources, its withdrawal before 2020 cannot be regarded as feasible, because contributions to the ACP-EU cooperation are underpinned by a binding system which includes joint institutions and its own international legal basis, the Cotonou Agreement.
This agreement, does not forecast the withdrawal of a party (for instance, an EU MS) as a consequence of its withdrawal from the Treaty on European Union.
This assumption refers not only to the total aid budget, but also to its allocation across countries, sectors and channels. The EU has already implemented financial instruments, thematic programmes and national indicative plans which run until 2020, and we assume that they will not change significantly.
This means that even if the UK loses its influence in EU development policy, aid would be re-shaped only with effect from the new programming cycle starting in 2021.
This assumption is an intended simplification of the way aid is committed and disbursed, as the implementation of the multiannual framework usually goes several years beyond its timeline, especially in the case of the EDF, and the difference between multiannual frameworks is, therefore, not clear-cut.
This simplification is motivated by the purpose of the study, which is to assess the shape of aid policies in the new political context of an EU-27.
Consequently, we do not focus on the possible transitional clauses that might affect a certain amount of EU aid committed during the 2014-2020 period by the EU-28, and implemented in the following programming cycle by the EU-27. 2.3.3 Assumption #3: The UK GNI and the GBP remain stable Financial markets are usually very sensitive to political changes and so it was in the case of the Brexit referendum, which led to financial turmoil that affected a number of financial and monetary assets linked to the British economy.
For the purposes of this study, the performance of two economic variables is particularly relevant: the value of the national currency (the GBP) and the volume of the UK’s gross national income (GNI). National aid commitments in OECD countries are established as a percentage of domestic GNI.
Identical aid efforts can lead to very different volumes of aid (denominated in USD, euros or the domestic currencies Policy Department, Directorate-General for External Policies 16 of partner countries) if there is a simultaneous variation in the local currency (appreciation/depreciation) or the GNI (increase/fall).
A number of international organisations regularly update forecasts of national GDPs. Assuming that the UK’s GNI will behave similarly to its GDP, we can rely on the International Monetary Fund’s (IMF) predictions on UK GDP for 2020 in order to gauge whether or not we should expect strong disruption in the volume of British GNI following Brexit.
The IMF has predicted that the British economy will grow by 1.8 % in 2016, followed by a further 1.1 % increase in 2017 and variations of between 1.7 % and 1.9 % in the following years and until 2020. Moreover, this trend is in line with predictions by the European Commission, the United Nations, the OECD and the World Bank.
In short, Brexit might not cause a significant variation in British GDP. For simplicity, we also assume, therefore, that British GNI will remain unchanged. By mid-January 2017, Trading Economics calculations forecast that by 2020 GBP value will be 73.45 % of its current value (decreasing from GBP 1.25 to 0.98 against the US dollar), in line with the recent trend of the value of the British currency.
This 27 % loss would certainly affect the financial, operational and even political implications of Brexit for development cooperation. However, there is likely to be a large margin for error in this forecast given the climate of high uncertainty.
The future GBP value depends on a great number of unknown factors (a potential trade deal between Trump’s US and May’s UK or the effective access of British goods and services into the EU market, to cite but two).
Given this uncertainty, we maintain GBP value as constant for our calculations of impact in financial, operational and political terms. Moreover, this same source forecasts a similar loss of value for the euro. The balance between these two currencies may, therefore, remain stable. 2.3.4 Assumption #4:
The EU GNI, the euro and other EU currencies remain stable As with the GBP and the UK’s GNI, relevant variations in the euro exchange rate and/or the EU GNI would lead to significant fluctuations in the volume of EU aid funds to be channelled to partner countries.
Regarding the euro, Trading Economics predicts a significant loss in value during the next 3 years. At the time of this report, one euro is valued at USD 1.08 and would be traded, according to this source, for USD 0.83 by 2020: a 30 % value loss over the 3-year period. However, we consider that there are too many economic and political uncertainties pending on the future value of both currencies.
The Trump Administration has only recently come to power and the details of its economic plans are still to be defined. On the European side, there are upcoming general elections in two key countries which could affect the future of the Union and its currency (both Germany and France).
Given this high level of uncertainty, in line with our decision on the GBP we will keep the euro’s value constant. This does not mean that we are predicting that the euro will sustain a constant value, but rather that we take this as an exogenous variable in our study. Some EU MS are not part of the euro zone and their currencies might suffer variations.
These variations will be very much in line with those of the euro (as in most of these cases the value of the currency is actually pegged to that of the euro). In any case, applying the same logic as to the GBP and the euro, again for the sake of simplicity we assume that those currencies will continue to record the current value.
Similarly, we also consider that the EU’s GNI will remain constant, given that according to predictions economic growth rates will vary between no less than 1 % and no more than 2 % until 2020. 2.3.5 Assumption#5:
Aid of the other 27 MS will not be affected by Brexit There might be a Brexit effect on bilateral aid and non-EU multilateral programmes involving the other 27 MS. On the one hand, some MS could read Brexit as an opportunity to fill the void left by the UK as an outstanding leader in development issues within the EU. If so, these MS would probably increase their bilateral and multilateral aid commitments.
Possible impacts of Brexit on EU development and humanitarian policies 17 On the other hand, these or other MS, traditionally less involved in development cooperation issues within the EU, could see Brexit as providing an opportunity to reinforce a more nationalistic discourse when it comes to aid and as a result cut their budgets.
These different possibilities in regard to the 27 MS’ behaviour will be taken into account when analysing the EU’s response (in terms of aid budget variations and its international allocation). The EU aid budget is the sum of pre-fixed contributions from each EU MS.
Accordingly, as a result of different political behaviours on their part following Brexit, the EU budget itself might be altered. However, bilateral and non-EU multilateral aid from the rest of the 27 MS is not under scrutiny in this study.
For the sake of simplicity, such behaviour will be treated as exogenous and we assume, therefore, that non-EU aid from MS will remain unchanged3 . 3 What does Brexit mean for aid? Having made a number of assumptions on the Brexit process and its overall impact, this study must still consider different options for certain variables which might have different political, financial and operational consequences for aid.
For instance, in order to assess the financial impact of Brexit on global aid budgets, in addition to assumptions about future British currency and GNI changes, the study must still consider the variability of the UK’s ODA/GNI commitment, which might depend on a new vision of its global role4 . 3.1
The context: UK domestic political situation and perspectives on the Brexit process Various analyses read the outcome of the Brexit referendum and subsequent political process as symptomatic of a more inward-oriented UK that may lessen the intensity of its international links in all domains.
This social and political trend, currently manifesting itself in a number of Western societies (from the US to Poland), is seen by many as having resulted from a poorly managed process of globalisation, which may have resulted in very few winners and a good number of losers among the middle-class in Western countries (a phenomenon that the 2008 crisis exacerbated and the establishment ignored).
A recovery in the well-being and status of those losers calls, therefore, for a slowing down of the globalisation process and a reduction of ties with the outside world. Furthermore, civil society organisations’ representatives interviewed in London for this study indicated that the Brexit movement is now targeting the UK’s 0.7 % ring-fenced commitment.
According to these sources, this campaign not only counts on the same media which campaigned for the leave vote, but also has a similar narrative. It questions the efficiency of ambitious and complex initiatives led by international elites, it makes claims for British money to be returned to Britain, and it denounces an accountability gap created by laws which reduce ordinary control by Westminster (Bush, 2017).
From a different point of view, Brexit would imply a mere rejection of the EU integration process along with its political and institutional mechanisms. The cause of this rejection may lie in the idea that British national interests can be cultivated through close international relations established outside the European sphere and norms.
If this is so, the UK might want to demonstrate that it is leaving the EU but not the whole world by intensifying non-European external links.
Aid might be among those (Green, 2016). The idea of an even more global UK and a more liberalised nation is central to May’s discourse on Brexit. Indeed, her speech at Lancaster House on 17 January 2017 was made under the slogan ‘A Global Britain’.
For more details on this issue, see Anderson and Mitchell (2016b). 4 As per table 2, expressed in constant prices, such contributions account for over USD 2 billion yearly and represent in 2015 15.28 % of all Member Sates contributions.
In the following tables, expressed in current prices, we use this percentage to estimate the EU aid budget resulting from the withdrawal of UK contributions to EU budgets. Policy Department, Directorate-General for External Policies 18 .
As borne out in our interviews, these kinds of messages from the Cabinet have been interpreted as an indication of continued involvement in global issues by most British civil servants, who still consider as valid the UK’s political guidelines on aid issued by the government in recent years.
Many of the questions about the impact of Brexit on aid relate to the close connection through EU institutional architecture of aid budgets in the UK, the second largest donor, and the European Commission, the third largest donor.
However, as the EU does not have a common development policy, these connections are rather soft, because they depend upon voluntary coordination activities.
This means that those connections can also exist after Brexit and indeed they already exist between the EU institutions and other European states such as Switzerland and Norway.
These are European Free Trade Association (EFTA) countries which are part of the single market and collaborate closely with the EU in many policy areas.
The UK is very unlikely to become an EFTA country, as this would entail the acceptance of conditions rejected by the Brexit campaign (large economic contributions, authority of the European Court of Justice, and free movement of people), but there might still be different degrees of economic integration supported by different institutional architectures.
Furthermore, PM May has given assurances that although Britain will leave the EU’s single market, the greatest possible access will be sought through an ambitious free trade agreement having certain elements in common with a single market agreement.
She has also advocated a strategic partnership between the EU and the UK, but at the same time declared that the possibility of leaving the Union without a deal on how to trade and cooperate after Brexit must also be considered.
We understand the financial impact to imply Brexit’s effect on total aid funds (in absolute terms) channelled by each stakeholder (the UK or EU institutions, for instance). The political impact of Brexit refers to the donating influence or reputation of a country, or union.
This can be measured by using the Elcano Global Presence Index and some features of international aid such as:
(1) the share of global aid disbursed by countries or unions;
(2) the positions of countries and unions in donors’ rankings (by volume of disbursements);
(3) their participation in the multilateral systems;
(4) their relative effort, measured by aid as a proportion of their economies; and
(5) the extent of their presence, through ODA, in different regions. We have defined the operational impact as the changes in organisational and managerial aspects of aid that would result from the UK’s exiting the EU, analysing how the
bilateral/multilateral/NGOs proportions in delivering aid would change under the different scenarios set for the post-Brexit UK.
On 23 June 2016, a referendum was held in the United Kingdom (UK) to see whether or not its electorate wanted to stay in the European Union (EU). This represented an important milestone in a relationship that has historically been less easy than that with other member states (MS).
Difficulties had appeared in a wide range of policies, from agriculture to the possibility of a fiscal and banking union (a major agenda issue after the Great Recession). At the time of writing, a clear majority of the British Parliament has supported the triggering of Article 50 of the Treaty of the European Union (TUE) and Prime Minister (PM) May’s Administration appears now to be close to do so.
In a speech delivered on 17 January 2017, PM May re-emphasised the UK’s intention to leave the EU single market whilst still collaborating closely with the EU in key areas such as counter-terrorism and crime. New deals should also be struck in trade as well as regulating the status of British citizens in the EU (and vice versa).
In May’s words, ‘no deal for Britain is better than a bad deal’ (UK Government, 2017). Much of the debate on the Brexit process and its consequences regard movement: human (extra-EU and intra-regional migration policies), capital (banking union, fiscal status, financial secrecy), together with goods and services (a post-Brexit trade arrangement).
In other words, development cooperation is not a major issue in the Brexit debate, and nor is it expected to be in the exit negotiations. The EU is the world’s largest donor, being responsible for more than 50 % of Official Development Assistance (ODA), according to the Organisation for Economic Co-operation and Development (OECD) records.
This European aid effort is the result of bilateral programmes in EU MS as well as their contributions to multilateral organisations and funds. From a European perspective, this is complemented by MS participation in European aid tools (for instance, the European Development Fund (EDF), which is the result of contributions by all MS), established in line with their overall contributions to the European budget on the basis of their individual Gross Domestic Product (GDP).
Accordingly, the EU’s aid budget results from the individual efforts of EU MS, plus aid channelled through common institutions. Among those MS donors, the UK stands as the aid world’s second largest contributor in absolute terms. With a total ODA volume of USD 18.7 billion in 2015, only the United States of America (with an economy six times larger, according to World Bank’s figures) disbursed a higher volume of development assistance that same year (USD 31.08 billion).
The UK is followed by Germany (USD 17.78 billion in 2015), Japan and, in fifth place, another MS, France, which contributes to world aid with a much smaller budget of USD 9.23 billion. In short, the EU is a major donor due largely to the performance of some key EU MS, such as the UK.
As the UK is not only a major individual contributor, but also a major MS in the EU (partly due to its GDP compared with that of other MS), Brexit may mean a huge loss for the EU as a global donor. In any event, the UK’s exiting the EU could have a significant impact in financial, operational and political terms on the EU’s role as leading donor.
Analyses on Brexit implications for aid are scarce. Moreover, those that exist mostly focus on the implications of Brexit for British aid. The impact of Brexit on EU development and humanitarian aid has been largely neglected (with some exceptions – see, for instance, Szent-Ivanyi, 2016; Anderson and Mitchell, 2016a and 2016b; and Anders, 2016). This body of research has focused on the financial implications of the UK’s departure from the EU, with most concluding that Brexit will produce a decrease in UK aid.
Several reasons are cited. Firstly, British GDP and Gross National Income (GNI) could decrease as a result of Brexit and the Great Britain Pound (GBP) could lose some of its value (Barder, 2016; Chonghaile, 2016; Green, 2016; Nazeer, 2016; te Velde et al., 2016).
Secondly, the negative impact of Brexit may result in the need to switch aid spending to cover domestic needs (Barder, 2016; Chonghaile, 2016; Green, 2016; Sow and Sy, 2016).
Thirdly, massive UK aid efforts would have directly resulted from the UK’s membership to the EU (Nazeer, 2016). Conversely, Policy Department, Directorate-General for External Policies 10 according to some works, Brexit could mean a new non-European commitment with global affairs and aid budgets would, therefore, be maintained at the present levels (Chonghaile, 2016; Green, 2016; Sharma, 2016).
Some press articles or think tank analyses also go through the operational repercussions of Brexit such as the difficulties for British charities to keep on working with EU institutions as they have in the recent past, or how the EDF will be reshaped without the UK, one of its major contributors (Chonghaile, 2016; Green, 2016).
In the political domain, for many authors Brexit undoubtedly means a loss of UK influence in various key institutions as well as its general contributions to the European aid debate (Anderson and Mitchell, 2016a; Barder, 2016; Green, 2016; McAvan, 2016; Price, 2016; Scoones, 2016; Szent-Ivanyi, 2016; Watkins, 2016). As for UK relations with partner countries, these might be reshaped with an increase in aid to Commonwealth States among British aid recipients or, alternatively, by deepening ties with least developed countries (LDCs) (Barder, 2016; Price, 2016; te Velde et al., 2016).
The very few analyses that go through the consequences of Brexit for EU aid suggest an eventual retrenchment of EU aid to the borders (Ukraine, the Balkans, North African countries) (Szent-Ivanyi, 2016), or, alternatively, a greater focus on hitherto neglected areas such as Latin America or Asia.
This could result from an increase in pressure from those MS that did not have opportunities to determine the destination of EU funds while the UK was influencing EDF directives (Anders, 2016). The goal of this study is to analyse the eventual impact of Brexit on EU development and humanitarian policies in financial, political and operational terms.
Although we can take for granted that Brexit will happen (article 50 should be triggered by the end of March 2017), the exact timing of such an exit, the new terms and conditions of the relations between the UK and the EU, and the new political guidelines adopted by each party separately are still very much uncertain.
Coping with this uncertainty is the main methodological challenge of this study. In order to deal with such unpredictability, we adopt a series of assumptions on the Brexit process itself, the domestic impact of Brexit, and the EU-27 post-Brexit performance. We also set three alternative scenarios on the behaviour of the UK (in the aid domain) after Brexit. Such scenarios are built on previous Brexit analyses as well as individual interviews conducted with key aid stakeholders both in London and Brussels.
These scenarios not only include a number of variables (the UK aid budget or the way this budget is channelled in regard to the country, sector and tool points of view), but can also bring about distinctive types of behaviour. This leaves the EU with a number of policy options.
This study considers the different post-Brexit scenarios and their combination with policy options which will ultimately determine the type and intensity of post-Brexit collaboration between the UK and the EU in development cooperation. The second section of this report describes our methodology and establishes assumptions. Section three goes through the variables of the study, leading to a description of the scenarios in section four.
The fifth section analyses the financial, operational and political implications of Brexit under those different scenarios. Section six covers the different political perspectives for the EU in foreign relations and development issues.
The final section provides various policy options for EU institutions under the different scenarios mentioned above. Setting the scene The aim of this study is to support the work of the European Parliament's Committee on Development in the debate surrounding the UK's withdrawal from the EU.
From a broad perspective, development policies may cover interventions of different kinds (policy dialogue among countries, surveillance of internal and external policies impacting development countries, mobilisation of private investment and lending, etc.).
However, its most visible instrument is international aid, upon which this study is mainly concentrated. Possible impacts of Brexit on EU development and humanitarian policies 11 2.1 Definitions Given the focus of this analysis, we rely on the formal definition of ODA and official assistance, as defined by the Development Assistance Committee (DAC) of the OECD.
Consequently, in order to assess the financial impact on development policies of each possible post-Brexit scenario, we draw on this international body’s statistical sources.
By using DAC data, we analyse information on all the EU’s external aid programmes, including those which are framed under a pre-enlargement or neighbourhood collaboration scheme.
In other words, we take into account all the EU financial instruments targeting non-EU countries, which include the EDF, the Development Cooperation Instrument (DCI), the European Neighbourhood Instrument (ENI), the Partnership Instrument, the European Instrument for Democracy and Human Rights (EIDHR), the Instrument for Stability and Humanitarian Aid (ISHA).
The DAC is also our information source on UK contributions to EU development aid, which are key data in this study, and appear difficult to obtain via EU sources.
As per the previous paragraph, the European Commission (EC) manages several financial instruments that can be grouped in two categories for estimating Member States’ contributions: budgetary funds (the DCI, the ENI, Humanitarian Aid), and extrabudgetary funds (the EDF).
In the case of budgetary instruments, the UK’s contribution can be assessed upon the basis of its overall contribution to the EU multiannual framework, while for the EDF, the UK’s contribution can be found within the internal agreement on EU-African, Caribbean and Pacific Group of States (ACP) Treaty.
Thereafter, in order to show figures upon a yearly basis, annual budgets and calls by the EC for disbursement of the EDF need to be consolidated. In any case, since the EC regularly provides those data to the DAC, which posts them after verification on the OECD statistics webpage, we rely on this source (table 2).
Table 2. Member States contributions to EU aid budgets (net disbursements of ODA flows in millions of US constant dollars, 2011-2015) Country 2011 2012 2013 2014 2015 Germany 2 721.79 2 606.46 2 665.85 2 877.13 2 891.75 France 2 370.32 2 193.83 2 283.55 2 349.38 2 298.39 United Kingdom 2 054.94 1 995.65 2 041.19 1 922.33 2 159.53 Italy 1 901.32 1 598.04 1 618.10 1 661.58 1 695.62 Spain 1 105.30 990.67 1 028.47 1 024.67 1 077.18 Netherlands 677.74 637.88 649.82 647.32 647.69 Belgium 521.26 474.28 498.79 511.26 551.13 Sweden 369.59 349.35 358.19 406.19 491.08 Poland 302.62 296.24 333.15 339.10 352.70 Austria 315.83 293.07 303.30 312.55 315.61 Denmark 272.64 254.60 262.85 272.81 281.06 Finland 218.98 201.92 201.27 196.47 204.10 Greece 232.73 200.39 174.96 181.23 192.07 Portugal 177.14 163.86 158.36 166.75 170.89 Ireland 148.01 133.61 131.44 142.88 163.36 Czech Republic 128.32 115.00 114.11 127.17 125.07 Romania 128.99 104.89 108.79 130.74 115.08 Hungary 84.44 81.43 72.35 92.39 99.72 Slovak Republic 58.70 56.09 59.29 61.08 63.24 Policy Department, Directorate-General for External Policies 12 Lithuania 27.02 27.51 28.83 36.03 38.68 Bulgaria 34.68 31.97 33.96 41.84 38.27 Slovenia 35.51 32.82 33.42 34.26 37.25 Luxembourg 37.08 33.32 38.28 34.48 32.63 Croatia 14.70 35.81 29.05 Latvia 16.91 17.83 18.91 20.14 21.03 Estonia 15.91 11.53 15.89 16.28 16.18 Cyprus 16.65 14.80 15.47 15.60 15.51 Malta 5.69 6.02 6.42 8.36 Total 1 3974.42 12 922.73 13 269.31 13 663.89 14 132.23 Source: https://stats.oecd.org (DAC1); last accessed 9 March 2017.
This study is also aimed at identifying the impact of Brexit in operational and political terms. The former implies changes in the organisational and managerial aspects of aid as a result of the UK’s exiting the EU, whilst the latter refers to possible changes in the influence and reputation of each party not only in specific areas but also on a global scale.
In order to analyse these two kinds of impact we will break aid down into sectors, regions and channels, again using OECD data. The OECD categories are not the same as those used by EU institutions when presenting their own programmes, but they do apply to all donor countries reporting to the DAC and allow comparability, therefore, among donors.
For reasons of simplicity and to facilitate connections between our data and information from EU sources, we introduce certain modifications into those categories, as will be explained in the following paragraphs.
Methodology This study will have to take into account a considerable degree of uncertainty, not only because the Brexit process has yet to be formally initiated, but also because this is an unprecedented process for the EU.
We will, therefore, firstly make explicit assumptions on Brexit itself, its macro-economic impact and the behaviour of the remaining MS. Secondly, we will identify the determinant elements of aid which are likely to vary as a result of the UK’s withdrawal from the EU (variables).
Since those variables might be interrelated, we will proceed by forecasting the sets of values for such variables that will demonstrate internal consistency (scenarios).
Along with the description of each scenario, we will provide some information on its plausibility, as collected from privileged observers through a round of interviews that took place in London and Brussels.
In early January 2017, we held a dozen meetings with analysts and/or members of think tanks (Overseas Development Institute, Centre for Global Development Europe, European Centre for Development Policy Management), Parliamentary representatives (both the House of Lords and the European Parliament), members of the government (the British Department for International Development and the European Commission) and Non-Governmental Organisations’ (NGOs) representatives (Oxfam GB and Belgium, Eurodad).
Once the scenarios have been presented, we will make an assessment of their impact in financial, political and operational terms. As explained above, this assessment is made by drawing on OECD data, and comparing the current volume of ODA with the volume resulting from each likely post-Brexit scenario.
For the sake of simplicity, we have grouped donor countries in OECD statistics under the following classification: (1) the UK; (2) EU institutions; (3) other EU MS; (4) others. When breaking ODA data down according to the above categorisations, we have subtracted from both the UK and other EU MS the share of their aid that is channelled through EU institutions, so that the sum of the four categories matches DAC Possible impacts of Brexit on EU development and humanitarian policies on total aid1 .
Regarding the financial impact, possible effects on sector distribution of aid are also taken into account. For that purpose, we have used a simplified version of the OECD thematic classification of aid (table 3). Table 3. Aid sector classifications Our classification OECD macro-sectors Social aid 100:
Social Infrastructure & Services Economic aid 200: Economic Infrastructure & Services 300: Production Sectors Humanitarian aid 700: Humanitarian Aid 930: Refugees in Donor Countries Macro-financial aid 500: Commodity Aid / General Programme Assistance 600: Action Relating to Debt Others 400: Multi-Sector / Cross-Cutting 910: Administrative Costs of Donors 998: Unallocated / Unspecified To develop an understanding of Brexit’s political impact on aid, we forecast changes in distribution across geographic regions.
The country breakdown of the DAC is grouped into continents and regions within each continent. In line with the table below, we use DAC data at sub-continental level and aggregate them into three groups which are close to the traditional trans-continental regions defined by the EU for aid management purposes. These classifications will be used to support our study’s political impact analysis (table 4) 2 .
Table 4. Aid – geographical classifications Our classification OECD sub-continental regions Region A (neighbourhood and candidate countries) Europe Middle East Africa, North of Sahara Region B (African, Caribbean and Pacific Group of States) Africa, regional Africa, South of Sahara Oceania North & Central America Region C (others) America, regional South America Asia, regional Far East Asia South & Central Asia Developing countries
In this political assessment, we have also estimated changes in donor rankings with regard to the distance from the 0.7 % ODA/GNI target, and the weight of each donor in the multilateral system. 1 ODA data in absolute terms have been obtained from the OECD DAC online database on ‘Total Flows by Donor’ (DAC1), net disbursements, and are expressed in USD at current prices. See https://stats.oecd.org (last accessed on 9 February 2017). 2 Estimations on ODA breakdowns for each donor are based upon the OECD DAC online data base on.
Flows based on individual projects’ (CRS). See https://stats.oecd.org (last accessed 9 February 2017). Since the total amounts in this database do not match the DAC1 database, we apply the percentages obtained for each donor to the total aid amounts obtained from the DAC1 data base in order to consolidate our estimations on changes in global aid distribution by sectors, countries and channels.
Policy Department, Directorate-General for External Policies 14 Our operational analyses will be supported by a simplified version of the channel breakdown provided in DAC statistics (table 5). Table 5.
Aid – channels classifications Our classification OECD channels Bilateral Public Sector Multilateral Multilateral Organisations Non-state actors NGOs & Civil Society Public-Private Partnerships (PPP) Other.
To be defined For a broader impact analysis, as with political impact, we also rely on the Elcano Global Presence Index (elaborated by the Elcano Royal Institute) as a tool for measuring the UK and the EU’s global presence in the event of Brexit, with particular emphasis on repercussions in the development cooperation variable of such an index. Global presence can be defined as the extent to which countries are ‘out there’ and not, therefore, a measure of power or influence at regional or global level.
Countries recording high levels of global presence are not necessarily exerting power or leading the global agenda (and, actually, the case of the EU could be a good example for illustrating this difference).
However, global presence is linked to those concepts of power or influence: countries with global presence might not necessarily be leading but, in general terms, countries leading regionally or globally do record significant levels of global presence.
Such global presence can be classified in three ways: economic (exports of primary goods, energy, manufactures or services as well as direct investments abroad), military (troops internationally deployed, military capacity for such deployment) and soft (tourism, migration, education, science, culture, sports, technology, information and development cooperation).
This Index is updated annually and calculated for 90 countries together with the EU (as if it were a single political union). 2.3 Assumptions Analysing the eventual implications of Brexit on EU aid policies is very much a forecasting exercise and hence the need to build different scenarios.
Moreover, in order to work with a finite number of scenarios, these can be framed in a series of assumptions (table 6). Table 6. Assumptions of the study 1. The UK will leave the EU 2. The EU-28 will keep their financial commitments until 2020 3. The UK GNI and the GBP remain stable 4. EU GNI, the euro and other EU currencies remain stable 5.
Aid of the other 27 MS will not be affected by Brexit 2.3.1 Assumption #1: The UK will leave the EU At the time of writing, PM May had received the support of the Houses of Parliament and is expected to trigger Article 50 TEU before the end of March 2017.
There still remains some speculation about the type of control to be exerted by the Houses of Parliament on the UK Government during the negotiations, but the leave decision is now past the point of reconsideration or validation.
Possible impacts of Brexit on EU development and humanitarian policies 15 Article 50 establishes the mechanism that should be followed by an MS wanting to leave the Union, and relies exclusively on the exiting state’s triggering the process.
However, EU institutions have been pressing the UK to take the necessary steps to comply with the referendum. Moreover, the political declarations of PM May (‘Brexit means Brexit’) reinforce the UK’s decision to withdraw from the Union.
In any case, the aim of our study (to assess the possible impact of Brexit on aid), implies taking this first assumption as read. 2.3.2 Assumption #2: The EU-28 will keep their financial commitments until 2020 Regardless of negotiations between the two parties and the exact timing of Brexit, in the short term the UK’s financial commitments with the EU will be maintained under existing arrangements.
This probably means that UK aid via EU institutions will continue to be channelled in accordance with the agreement for the Multiannual Financial Framework (MFF) during the 2014-2020 period (Price, 2016).
This assumption is supported by estimations from British Parliamentary lawyers, who consider that at least 2 000 pieces of secondary legislation will be needed to carry out the legal break with the EU. The time needed for such activity would make it very difficult for the UK to achieve an effective departure from the EU before 2020.
Moreover, policy interventions have already been launched for the period until 2020, which depend on financial contributions from the UK, equivalent to 12.5 % of total contributions. EU institutions will consequently very likely prefer to discount the UK’s involvement with effect from the next programming cycle starting in 2021, especially when such commitments have been formalised in national indicative programmes vis-à-vis third countries.
Although Brexit could become effective immediately before or after next European Parliament elections in May or June 2019, it is likely, therefore, that financial commitments would be extended a few more months.
In the case of the EDF, where the UK accounts for 15 % of resources, its withdrawal before 2020 cannot be regarded as feasible, because contributions to the ACP-EU cooperation are underpinned by a binding system which includes joint institutions and its own international legal basis, the Cotonou Agreement.
This agreement, does not forecast the withdrawal of a party (for instance, an EU MS) as a consequence of its withdrawal from the Treaty on European Union.
This assumption refers not only to the total aid budget, but also to its allocation across countries, sectors and channels. The EU has already implemented financial instruments, thematic programmes and national indicative plans which run until 2020, and we assume that they will not change significantly.
This means that even if the UK loses its influence in EU development policy, aid would be re-shaped only with effect from the new programming cycle starting in 2021.
This assumption is an intended simplification of the way aid is committed and disbursed, as the implementation of the multiannual framework usually goes several years beyond its timeline, especially in the case of the EDF, and the difference between multiannual frameworks is, therefore, not clear-cut.
This simplification is motivated by the purpose of the study, which is to assess the shape of aid policies in the new political context of an EU-27.
Consequently, we do not focus on the possible transitional clauses that might affect a certain amount of EU aid committed during the 2014-2020 period by the EU-28, and implemented in the following programming cycle by the EU-27. 2.3.3 Assumption #3: The UK GNI and the GBP remain stable Financial markets are usually very sensitive to political changes and so it was in the case of the Brexit referendum, which led to financial turmoil that affected a number of financial and monetary assets linked to the British economy.
For the purposes of this study, the performance of two economic variables is particularly relevant: the value of the national currency (the GBP) and the volume of the UK’s gross national income (GNI). National aid commitments in OECD countries are established as a percentage of domestic GNI.
Identical aid efforts can lead to very different volumes of aid (denominated in USD, euros or the domestic currencies Policy Department, Directorate-General for External Policies 16 of partner countries) if there is a simultaneous variation in the local currency (appreciation/depreciation) or the GNI (increase/fall).
A number of international organisations regularly update forecasts of national GDPs. Assuming that the UK’s GNI will behave similarly to its GDP, we can rely on the International Monetary Fund’s (IMF) predictions on UK GDP for 2020 in order to gauge whether or not we should expect strong disruption in the volume of British GNI following Brexit.
The IMF has predicted that the British economy will grow by 1.8 % in 2016, followed by a further 1.1 % increase in 2017 and variations of between 1.7 % and 1.9 % in the following years and until 2020. Moreover, this trend is in line with predictions by the European Commission, the United Nations, the OECD and the World Bank.
In short, Brexit might not cause a significant variation in British GDP. For simplicity, we also assume, therefore, that British GNI will remain unchanged. By mid-January 2017, Trading Economics calculations forecast that by 2020 GBP value will be 73.45 % of its current value (decreasing from GBP 1.25 to 0.98 against the US dollar), in line with the recent trend of the value of the British currency.
This 27 % loss would certainly affect the financial, operational and even political implications of Brexit for development cooperation. However, there is likely to be a large margin for error in this forecast given the climate of high uncertainty.
The future GBP value depends on a great number of unknown factors (a potential trade deal between Trump’s US and May’s UK or the effective access of British goods and services into the EU market, to cite but two).
Given this uncertainty, we maintain GBP value as constant for our calculations of impact in financial, operational and political terms. Moreover, this same source forecasts a similar loss of value for the euro. The balance between these two currencies may, therefore, remain stable. 2.3.4 Assumption #4:
The EU GNI, the euro and other EU currencies remain stable As with the GBP and the UK’s GNI, relevant variations in the euro exchange rate and/or the EU GNI would lead to significant fluctuations in the volume of EU aid funds to be channelled to partner countries.
Regarding the euro, Trading Economics predicts a significant loss in value during the next 3 years. At the time of this report, one euro is valued at USD 1.08 and would be traded, according to this source, for USD 0.83 by 2020: a 30 % value loss over the 3-year period. However, we consider that there are too many economic and political uncertainties pending on the future value of both currencies.
The Trump Administration has only recently come to power and the details of its economic plans are still to be defined. On the European side, there are upcoming general elections in two key countries which could affect the future of the Union and its currency (both Germany and France).
Given this high level of uncertainty, in line with our decision on the GBP we will keep the euro’s value constant. This does not mean that we are predicting that the euro will sustain a constant value, but rather that we take this as an exogenous variable in our study. Some EU MS are not part of the euro zone and their currencies might suffer variations.
These variations will be very much in line with those of the euro (as in most of these cases the value of the currency is actually pegged to that of the euro). In any case, applying the same logic as to the GBP and the euro, again for the sake of simplicity we assume that those currencies will continue to record the current value.
Similarly, we also consider that the EU’s GNI will remain constant, given that according to predictions economic growth rates will vary between no less than 1 % and no more than 2 % until 2020. 2.3.5 Assumption#5:
Aid of the other 27 MS will not be affected by Brexit There might be a Brexit effect on bilateral aid and non-EU multilateral programmes involving the other 27 MS. On the one hand, some MS could read Brexit as an opportunity to fill the void left by the UK as an outstanding leader in development issues within the EU. If so, these MS would probably increase their bilateral and multilateral aid commitments.
Possible impacts of Brexit on EU development and humanitarian policies 17 On the other hand, these or other MS, traditionally less involved in development cooperation issues within the EU, could see Brexit as providing an opportunity to reinforce a more nationalistic discourse when it comes to aid and as a result cut their budgets.
These different possibilities in regard to the 27 MS’ behaviour will be taken into account when analysing the EU’s response (in terms of aid budget variations and its international allocation). The EU aid budget is the sum of pre-fixed contributions from each EU MS.
Accordingly, as a result of different political behaviours on their part following Brexit, the EU budget itself might be altered. However, bilateral and non-EU multilateral aid from the rest of the 27 MS is not under scrutiny in this study.
For the sake of simplicity, such behaviour will be treated as exogenous and we assume, therefore, that non-EU aid from MS will remain unchanged3 . 3 What does Brexit mean for aid? Having made a number of assumptions on the Brexit process and its overall impact, this study must still consider different options for certain variables which might have different political, financial and operational consequences for aid.
For instance, in order to assess the financial impact of Brexit on global aid budgets, in addition to assumptions about future British currency and GNI changes, the study must still consider the variability of the UK’s ODA/GNI commitment, which might depend on a new vision of its global role4 . 3.1
The context: UK domestic political situation and perspectives on the Brexit process Various analyses read the outcome of the Brexit referendum and subsequent political process as symptomatic of a more inward-oriented UK that may lessen the intensity of its international links in all domains.
This social and political trend, currently manifesting itself in a number of Western societies (from the US to Poland), is seen by many as having resulted from a poorly managed process of globalisation, which may have resulted in very few winners and a good number of losers among the middle-class in Western countries (a phenomenon that the 2008 crisis exacerbated and the establishment ignored).
A recovery in the well-being and status of those losers calls, therefore, for a slowing down of the globalisation process and a reduction of ties with the outside world. Furthermore, civil society organisations’ representatives interviewed in London for this study indicated that the Brexit movement is now targeting the UK’s 0.7 % ring-fenced commitment.
According to these sources, this campaign not only counts on the same media which campaigned for the leave vote, but also has a similar narrative. It questions the efficiency of ambitious and complex initiatives led by international elites, it makes claims for British money to be returned to Britain, and it denounces an accountability gap created by laws which reduce ordinary control by Westminster (Bush, 2017).
From a different point of view, Brexit would imply a mere rejection of the EU integration process along with its political and institutional mechanisms. The cause of this rejection may lie in the idea that British national interests can be cultivated through close international relations established outside the European sphere and norms.
If this is so, the UK might want to demonstrate that it is leaving the EU but not the whole world by intensifying non-European external links.
Aid might be among those (Green, 2016). The idea of an even more global UK and a more liberalised nation is central to May’s discourse on Brexit. Indeed, her speech at Lancaster House on 17 January 2017 was made under the slogan ‘A Global Britain’.
For more details on this issue, see Anderson and Mitchell (2016b). 4 As per table 2, expressed in constant prices, such contributions account for over USD 2 billion yearly and represent in 2015 15.28 % of all Member Sates contributions.
In the following tables, expressed in current prices, we use this percentage to estimate the EU aid budget resulting from the withdrawal of UK contributions to EU budgets. Policy Department, Directorate-General for External Policies 18 .
As borne out in our interviews, these kinds of messages from the Cabinet have been interpreted as an indication of continued involvement in global issues by most British civil servants, who still consider as valid the UK’s political guidelines on aid issued by the government in recent years.
Many of the questions about the impact of Brexit on aid relate to the close connection through EU institutional architecture of aid budgets in the UK, the second largest donor, and the European Commission, the third largest donor.
However, as the EU does not have a common development policy, these connections are rather soft, because they depend upon voluntary coordination activities.
This means that those connections can also exist after Brexit and indeed they already exist between the EU institutions and other European states such as Switzerland and Norway.
These are European Free Trade Association (EFTA) countries which are part of the single market and collaborate closely with the EU in many policy areas.
The UK is very unlikely to become an EFTA country, as this would entail the acceptance of conditions rejected by the Brexit campaign (large economic contributions, authority of the European Court of Justice, and free movement of people), but there might still be different degrees of economic integration supported by different institutional architectures.
Furthermore, PM May has given assurances that although Britain will leave the EU’s single market, the greatest possible access will be sought through an ambitious free trade agreement having certain elements in common with a single market agreement.
She has also advocated a strategic partnership between the EU and the UK, but at the same time declared that the possibility of leaving the Union without a deal on how to trade and cooperate after Brexit must also be considered.
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