World Affairs
Palestine - How much does Europe help the Palestinians?
Published 12 July 2004
The European Union, worried about extremism and violence on its southern borders, has long seen peace in the Middle East as a strategic priority. In 1980, EU leaders broke new ground by voicing strong support for the creation of an independent and viable Palestinian state. Since then, political backing for Palestinian self-determination has gone hand in hand with EU aid to the Palestinian territories.
Taken together, the European Commission and individual EU governments are the largest providers of financial and technical assistance to the Palestinian Authority, representing more than 50 per cent of all international financing for the West Bank and the Gaza strip since 1994. The European Commission, the EU's executive agency, has spent 1.8bn (£1.2bn) in the territories since 1994. It is estimated that bilateral assistance to the Palestinians by EU member states amounted to 2.5bn (£1.7bn) during the same period.
The money from the European Union covers humanitarian relief in general. More controversially, it is also used to build the institutions and infrastructure that will be needed by a future Palestinian state. Recent EU aid has focused on bolstering the PA's efforts at reforming itself.
The EU provides relief through Echo, its humanitarian aid office. Echo's activities in Gaza and the West Bank have increased since the start of the second intifada, with the agency providing assistance and food aid worth 200m in total (£134m) over the past four years.
The European Investment Bank - the EU's long-term lending arm - has joined with EU governments and the Commission to help finance big Palestinian infrastructure projects, including Gaza Airport, the Palestinian Broadcasting Corporation and Gaza port. According to EU estimates, about 24m (£16m) worth of projects financed by the EU and its member states has been damaged by the Israeli army in successive operations in the West Bank and Gaza.
But by far the most important - and most controversial - element of EU aid to the Palestinians has been the provision of 246m (£164m) in non-targeted direct budgetary assistance to the PA from June 2001 to the end of 2002. The Commission paid out the sum in monthly instalments of 10m (£6.7m) to the PA as part of an international effort to help the Palestinian administration after Israel's unilateral decision to freeze all monthly tax transfers to the occupied territories.
The money helped prevent the collapse of the Palestinian administration by allowing the PA to continue paying public-service salaries and to fulfil its crucial role in education and health. Each tranche of EU aid was monitored carefully by the International Monetary Fund to ensure that the money reached its target. Israel, however, has alleged that EU aid has been used to finance Palestinian suicide bombers, a charge vehemently denied by the European Commission. A special European Parliamentary investigation into the Israeli allegations, as well as an inquiry by the EU's anti-fraud office, Olaf, produced no proof to uphold Israel's claims.
The EU pressed the PA to set up a single treasury account that centralised the entire PA budget in one fund under the authority of the minister of finance. A Palestinian Investment Fund was established in 2002 to bring PA investment and commercial operations under centralised control. More transparent and accountable budget management practices, as well as a more efficient auditing system, were introduced.
Once Israel resumed its regular tax transfers - using the single treasury account set up by the EU - Europe restructured its aid. In April 2003 it introduced a new Reform Support Instrument worth 80m (£53m) to help the PA pay off its arrears to small enterprises and to the social services. An additional 10m was earmarked for technical assistance to help implement public-finance reforms.
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