Europe’s soft power at risk: justifying cooperation funding in an era of geoeconomic rivalry

A depressing era for European development cooperation

2024 has been a rather turbulent year for development cooperation. As pressing conflicts such as the Russian aggression in Ukraine and the conflict in Gaza unfold, funds are being diverted to align with the most urgent priorities. Similarly, the costs of inflation, the aftermath of the energy crisis and the rise in identity politics have affected the course of budgets allocated to development cooperation, as well as the public opinion on the need for its funding.

Although 2022 and 2023 experienced historical records in net official development aid (ODA) outgoing from DAC countries, 2024 is expected to see a significant decline in ODA. The year started with Germany, the world’s second-largest aid donor, announcing spending cuts of around €2bn due to a government budget cut. Following this, France announced a cut of over €700mn, also caused by an overall public budget cut fuelled by the decrease in growth in the French economy. When comparing France’s cut in aid to other sectoral budget cuts, aid gets by far, the largest reduction, i.e., a reduction of 13% from the initial budget. In May, the new Dutch coalition announced a reduction of the cooperation budget effective from 2025, progressively increasing over the years, so that in 2027, the cut will be €2.4bn. And let us not forget the diversion of over €2bn allocated to long-term development cooperation moved to Ukraine’s migration management or the slow but steady decrease in aid budgets from the Nordics.

As the new EU Parliament takes shape and the College of Commissioners is assembled, one can also expect a more aid-averse political landscape shaped by budget reallocations fuelled by the discontent with migration and the focus on identity politics. Based on the EU elections from early June, with the Parliament shifting towards the right and countries such as France, Austria and Italy having a far-right party leading in votes, it is envisaged that EU budget reallocations may occur in the same line as has happened during the first two quarters of 2024.

Meanwhile, a key moment for the future of global cooperation will be discussed in September’s UN Summit of the Future, where heads of states will meet to discuss the post-2030 Agenda on global sustainable development. Similarly, Spain will host the Conference on Financing for Development in 2025, where developing countries expect to see an increased commitment by high-income countries to climate finance.

If one believes development cooperation is relevant and needed for Europe and its partners, it is necessary to justify this policy budget more strategically. Yet, let us not take for granted the need for development cooperation everywhere. Because why does Europe need development cooperation?

Hard cooperation, soft power

The EU member states and Commission cooperation schemes are increasingly interconnected through Team Europe initiatives and the Global Gateway strategy implementation, which is focused on the EU’s geoeconomic priorities. Hence, the bloc wants to direct more private capital investment to strategic projects abroad that serve the EU’s policy objectives. This is done through blended finance schemes and guarantees that serve for de-risking investments by injecting public capital into high-risk projects so that private actors are incentivised to invest.

The EU’s main tool of geoeconomic influence is trade. Investments – although a member state competency – is another key tool for advancing European economic interests worldwide. Hence, it is no surprise that the recent Global Gateway strategy links aid, trade and investments to harmonise and catalyse the EU’s economic and perhaps political influence worldwide.

For instance, it is through the links between cooperation and trade policies that the bloc influences regulation compliance with partners outside the continent. This means in practice, allowing the bloc to implement unpopular trade regulations with partners. For instance, the controversial regulation on deforestation-free trade (EUDR) is buying acceptance with multi-country development cooperation programmes funded by the EU Commission. This regulation serves the EU as a tool for climate diplomacy and as a way to content European consumers, besides acting as a control check on agricultural imports.

Another use of development cooperation is by advancing investment efforts overseas serving the EU’s internal policy objectives. The EU blended finance and guarantees schemes provide a platform for EU public and private investors to invest in big expensive projects that contribute to the delivery of EU policy. A funding platform for renewable hydrogen exports from Chile, a lithium value chain project in Argentina and a solar energy project in Morocco are some examples in which the EU Commission and its member states influence investors to fund EU policy priorities such as the Critical Raw Materials Act and REPowerEU. Future major projects will focus on the Caspian Sea transport corridor and the resource-rich Copperbelt in Southern Africa.

Whether the instrumentalisation of development cooperation is a good strategy for development purposes is another discussion. When funds are destined for projects serving the EU’s economic interest, the most pressing needs of partner countries may not be addressed. That is, if the Global Gateway strategy focuses too narrowly on geoeconomics, the euros invested in grants risk not complying with DAC’s evaluation criteria, which outlines the added value principles for aid and cooperation projects.

Therefore, EU cooperation should address both the geoeconomic interests of the bloc while having a social and sustainable impact in the communities intervened, which in Global Gateway projects mostly comes from the boost of the local economies. In this way, it should be feasible to frame development cooperation as needed by the EU and the partner countries. But, how do politicians and citizens embark on the development train?

Renewed narratives, old tensions

The UN Summit of the Future and the Conference on Financing for Development approach, yet in the Old Continent, it seems that gaining momentum for increased development funding is becoming increasingly challenging. Hence, it will be key to frame and communicate cooperation efforts for what they are nowadays: a central element of the EU’s soft power influence, particularly as they serve as a connecting dot between trade, investment and diplomacy.

Policymakers should be clear about using development cooperation to advance EU economic interests abroad. Development cooperation is never an interest-neutral game, although donor countries have not recognised this in the past. It is time that the EU acknowledges its interests in development cooperation projects, which should help legitimise cooperation funds within the EU and allow for transparency with partner countries.

On a more practical level, the quest for soft power has intensified in the last few decades, as China is looking outward to complement its trade strategy with hard infrastructure investments through the Belt and Road Initiative. Therefore, the EU is left in a position where it has to follow – to some extent – this very same strategy to be able to have stronger influence abroad. Hence, the Global Gateway can be understood as the EU’s strategic punch in this geoeconomics battlefield.

The EU needs to position its cooperation efforts as a unique value-based approach to geoeconomics cooperation, as EU cooperation tends to balance hard infrastructure funds with grants to civil society and smaller projects. Hence, the EU and its member states constitute the only major global actors with a strategy for development cooperation that involves both aid funding and strategic investments. EU citizens need to understand that without cooperation funds, the EU’s global influence can be significantly diminished as other strategic rivals already have a strong presence in partner countries. Diminishing cooperation funds may also influence trade relations, which, together with aid and public diplomacy, constitute the core of the EU’s soft – and perhaps only – power overseas. Hence, the Commission and the European international development sector need to step into the battlefield of the public dialogue to strive. Because what foreign influence would the EU have without its soft power?

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.