eu development policy: the case of debt relief

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EU DEVELOPMENT POLICY

THE CASE OFDEBTRELIEF

F. Arab

K. Diakidis

T. Krume

C. Tonne

Pigeonhole 501

Date: May 28, 2009

2E Making a European Market

Version: Final Draft

Words: 4953

Supervisor:

N. Kwanjai


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Maastricht University, European Studies Program, BA2.E Making a European Market 2008-2009 Group 9 Team A

1

Outline

Abbreviations...x

1. Introduction1

2. History of the EU Development Policy..13. Debt Relief under the HIPC Initiative34. Economics Behind EU Development Policy..45. Case Study: HIPC in Ghana...9

6. Debt Relief - Shortcomings and Recommendations....12

7. Conclusion138. References15


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Abbreviations

ACP African, Caribbean and Pacific countries

CA Cotonou Agreement

CAP Common Agricultural Policy

EDF European Development Fund

HIPC Heavily-Indebted Poor Countries Initiative

IMF International Monetary Fund

MDGs Millennium Development Goals


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1. Introduction

The European Union regards development as a crucial component in its external

actions. In order to eradicate poverty, which is its main objective, EU development

policy in a broader context is framed in accordance with the United Nations

Millennium Development Goals (MDGs) of 2000 (EC, 2009a).

As most of the EUs member states used to possess former colonies in the

African, Caribbean and Pacific (ACP) area, its foreign aid and development measures

are primarily aimed at assisting economic trade and development of those countries

situated there. Taken policy measures are based on the currently valid Cotonou

Agreement, established in 2000. Alongside this, the EU follows specific programs,

such as the Heavily-Indebted Poor Countries (HIPC) Initiative, which aims to

diminish the external debt of the worlds most indebted and economically

underdeveloped countries to sustainable levels (EC, 2009b). Nevertheless, scholarly

circles repeatedly argue that debt relief does support short-term economic

development but evokes financial dependence in the long run.

In the light of these developments, this paper aims to answer the following

question: To what extent does the EUs debt relief policy enhance economic growth

and development in developing countries? This is asked in order to obtain a clearer

picture of development policy, particularly EU development policy. To answer this

question, this essay will cover both theoretical concepts of development policy and

debt relief, as well as an application of these to a concrete case study. First, it tackles

the general evolution of EU Development Policy and debt relief in particular. Second,

debt relief is analyzed from an economic point of view. Subsequently, the case study

on Ghana, a country that has received debt relief, is entailed in order to widen the

essays analysis from a purely theoretical scope to a more reliable practicalinsight. Finally, this paper evaluates potential disadvantages of debt relief measures

and gives recommendations for future policy actions.

2. History of the EU Development Policy

The EUs development policy can be traced back to the Schuman Declaration of

1950, in which the topic of development assistance to Africa was emphasized as an


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essential objective of the former European Community (EC). The subsequent Treaty

of Rome formally introduced development aid into the ECs framework and

constituted the basis for the creation of the European Development Fund (EDF),

which since then is responsible for coordinating and allocating financial development

assistance (Smith in Cini, 2007, p. 299).

The first legal basis for trade cooperation between the EC and African

countries was created by the 1963 Yaound Convention in Cameroon and the

following second Convention in 1969 after the formers expiration (EC, 2008). The

main emphasis of these Conventions was the cooperation with Sub-Sahara African

states. More precisely, the Yaound Conventions confirmed to respect the national

sovereignty of all participants, thus promoting a partnership of equals (Smith in Cini,

2007, pp. 229-230).

In the following decades, the EC continuously increased its developmental

policy, both with regards to geographical and strategic enlargement. This resulted in

the Lom Convention of 1974, which on a geographical level extended the EC

development assistance from African to also Caribbean and Pacific (ACP) countries.

One of the reasons for this geographical expansion was the accession of the UK (EC,

2009). Because of the UKs colonial history in both the Caribbean, as well as the

Pacific area, EC (or later EEC) developmental aid strategies had to be widened to

countries in these two regions. In structural matters, the following Lom Conventions

mainly focused on trade and political aspects. In addition, it defined three guiding

principles, namely, 1) the abolishment of non-reciprocal trade preferences for the

majority of exports from ACP countries to the EEC; 2) the recognition of equality

between partners, sovereignty, mutual interests and interdependence; 3) the freedom

of every state to possess and make its own policies, in the framework of the

Conventions (EC, 2009). Particularly non-reciprocal trade preferences were regarded

as crucial cause for failed development aid within economic cooperation (ibid.).

In 2000, the European Union tried to compensate major shortcomings of the

previous agreements through adopting the Cotonou Agreement (CA) which widened

the scope of EU Development Policy to the promotion of human rights, democratic

principles and the rule of law. This implies a degree of conditionality as countries risk

a repossession of the funds allocated to it by the EU (CA, 2005). As the CA is being

revised every five years, the latest change of 2005 introduced the principle ofconditionally (EC, 2009). It involves a new sanction instrument with which


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development aid can be suspended in cases of breaching the CAs conditions. Thus,

the CA profoundly amended the EU-ACP developmental partnership and constitutes

its current framework of EU external action in this area (Santiso, 2002, p. 16).

In a nutshell, it becomes clear that EU development policy is cross cutting as

economic assistance is linked to issues of human rights and good governance.

Consequently, to the EU, financial assistance is dependent on both above mentioned

areas in order to be able to achieve long-term sustainability within the respective

developing country (EC, 2009).

As the EU development policy aims to achieve the MDGs, including poverty

reduction, debt relief can be regarded as one instrument to accomplish these goals

faster. Therefore, the following section will examine debt relief and the initiative as

such as well the EUs role in it.

3. Debt Relief under the HIPC Initiative

Worldwide, countries are confronted with enormous debt burdens towards various

multilateral and bilateral institutions that they cannot manage. It additionally hinders

their economic growth as well as their fight against poverty. Launched in 1996 andenhanced in 1999, the World Bank and International Monetary Fund (IMF)

established the Heavily-Indebted Poor Countries (HIPC) Initiative, which is a

comprehensive approach to debt reduction (IMF, 2009). It stems from the Lyon G8

summit in France in 1996, where the G8 decided to strengthen joint efforts in the field

of development policy (G8 Information Centre, 1996). By the end of 2007, $51 billion

as debt reduction packages in total were given to eligible countries (IMF, 2009). Thus

the aim of the HIPC initiative is to lower the external debt burden of the poorest and

most indebted countries to sustainable levels (EC, 2009c). The initiative includes

multilateral and bilateral public creditors as well as commercial creditors (ibid.).

The EU has financially supported the program since its beginning in 1996, and

acts as creditor as well as donor (ibid.). As a donor, the EU assists through the

HIPC Trust Fund, run by the World Bank with special focus on the ACP countries

(EC, 2002). In total, 1.6 billion have been given so far, with 934million to the Trust

Fund and 680 million given beyond HIPC. EU debt relief to the Trust Fund is

financed by the EDF (EC, 2009c).


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Currently, 41 countries are entitled for the HIPC, most of them situated in

Sub-Saharan Africa. There are three groups of countries within the HIPC program. 24

countries, among them Ghana, have reached the completion point, thus been given

irrevocable debt relief from the IMF and additional creditors. Eleven countries have

attained the decision point, with several of them already obtaining interim HIPC

Initiative debt relief. Six countries are classified as eligible but have not yet reached

the decision point (IMF, 2009). It furthermore needs to be noted that debt relief is

only granted by the IMF Executive board and the International Development

Association (IDA) under certain conditions. A country eligible for debt relief has to

prove a track record of reform and sound policies through IMF and the IDA

supportedprograms (ibid.); it also has to develop a Poverty Reduction Strategy Paper

(PRSP). Thus, countries being given debt relief support are partly being guided

through the process.

This section gave a brief overview of the HIPC initiative as well as the EUs

role in it. The basis is now set to turn to the economics behind EU development policy

on a broader scale in the following section.

4. Economics Behind EU Development Policy

In order to investigate the impact of debt relief for both the giver and the donor, in this

case the ACP countries and the European Union, it is crucial to define economic

development. Economic growth and development are often confused, because some

people use them as synonymous. But they have distinct differences. Whereas growth

is quantitative and "refers to the increase in an economy's real gross domestic product

(GDP) and income over time" (Ezeala-Harrison, 1996, p. 3), economic development

is much more qualitative in nature. It involves the process through which a country

or region achieves economic growth in addition to structural transformation of its

economy (Ezeala-Harrison, 1996, p. 10). Accordingly, development policies are

aimed not only to improve economic growth, but also to covers humanitarian aspects,

such as to prevent crises.

EU development policy is very controversial, because of the lack of

effectiveness. Although the CA for instance, set out debt relief for HIPC countries, it

is insufficient from an economics perspective. The ACP countries are highlydependent on capital accumulation, because sustainable economic growth in these


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countries can only be fostered by investments and savings. Therefore, this chapter

demonstrates EUs development policy from an economic point of view. Is EU

development aid effective?

Table 1The vicious circle of poverty1

In order to create new trade-partnership agreements with developing countries,

stability and growth are essential. Ragnar Nurkse, an Estonian-descended economist,

argued for the existence of the so-called vicious circle of poverty. In Table 1 one can

see that, according to him, the most important circular relationships of this kind are

those that afflict the problem of capital formation in economically underdeveloped

countries. The main problem of economic development is accordingly a problem of

capital accumulation. (Nurkse, 1952, pp. 1-3).

The vicious circle of poverty demonstrates his concept, because low income

leads to low savings, which lowers the investments. Because of low investments, there

is less productivity, which will decrease the income, which then leads to low

consumption. Thus, in order to overcome this vicious circle of poverty, the low-

income economies require progress on a broad front, with simultaneous expansion of

1Source: reproduced from The World Bank (2009). Poverty. Retrieved May 5, 2009, from:http://www.worldbank.org/depweb/beyond/beyondbw/begbw_06.pdf
http://www.worldbank.org/depweb/beyond/beyondbw/begbw_06.pdfhttp://www.worldbank.org/depweb/beyond/beyondbw/begbw_06.pdfhttp://www.worldbank.org/depweb/beyond/beyondbw/begbw_06.pdf


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industries that support each other and increase the chances of success (Grant & Brue,

2007, p. 482).

As a result, EU development policy is aimed to break countries out of this

circle. Several instruments are, according to Nurkse, helpful to break them out of the

circle. Firstly, better educational systems increase incomes. Secondly, technological

capabilities improve productivity. Thirdly, direct foreign investments increase the

amount of capital accumulation and finally, financial deepening increases savings.

The main problem, however, is the lack of capital, which is fostered by instability

within the regions. Debt Relief is one instrument of the EU, in terms of development

aid, which should enhance capital accumulation.

Chenery and Strout (1964) came up with the Dual-Gap Model in

macroeconomics, which presents an analysis of low growth concerning savings as

well as foreign exchange limitations. It is based on the Harrod-Domar growth model

and basically claims that investments, public expenditures and exports must equalize

savings, taxes and imports, if a country wants to achieve balanced growth. So, that

means two things for underdeveloped countries. Because they have low incomes, they

do not have marginal propensity to save. Accordingly, because S=I, there is too little

investment to achieve the target growth rate. This is very similar to Nurkses circle of

poverty. Moreover, a negative trade balance decreases the GDP, which will lessen Y

(GDP). Because Y is equal to C+G+I+X-M, a second gap is established. This is called

theDual Gap. In order to fill in these gaps, foreign investments are needed, so that the

savings ration goes up. In addition, foreign aid which can be regard as investment will

also close this gap. The Harrod-Domar formula (g=s/c s=I) provides insight in the

amount of investments needed to outbalance the gap. Thus, the amount of investment

is marginal, because it demonstrates how much to invest, so that Y (GDP) increases.

Thus, the marginal propensity to save has to be increased, so that the savings ratio and

investments rise. As a result, foreign investments are needed, because otherwise

underdeveloped countries will suffer from their current account (trade deficit),

because it will hinder sustainable growth. Khan emphasized the need for aid, because

he argues that within the dual gap formulation, it is also usually the case that aid is

more productive when the foreign exchange constraint rather than the savings gap is

binding (Khan, 1998).


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Table 2Dual Gap Analysis

I + G + X = Y = S + T + M

(I + S) + (GT) = (MX)

(I+S) = Investments + Savings

(GT) = Budget deficit

(MX) = Trade imbalance

I = Investment

G = Public Expenditure

X = Exports

S = Savings

T = Taxes

M = Imports

The dual-gap analysis is a static model in how to calculate growth. However, it

reveals limitations. Turnovsky (2005) argues that one of the main purposes of

directing the foreign aid to public investment is to stimulate private investment and

capital accumulation, which is inherently a dynamic process. This suggests that the

role of foreign aid in the development process can be studied satisfactorily only by

embedding it in a carefully articulated dynamic framework (ibid.). As a result, for

the receiver, foreign aid is essential to break out of the circle of poverty and to close

their gaps. It does not matter whether they receive aid from bilateral, multilateral or

commercial sources, as long as they are able to foster sustainable development.

The giver, however, has a different perspective on development aid. For the giving

countries efficiency and the success of aid is crucial, because development aid is very

controversial among EU member states So, the question arises in how far aid, debt

relief specifically, is an effective instrument to promote growth & sustainable

development and reduce poverty? According to the implications of the dual-gap

analysis and the vicious circle of poverty, the gain in overall welfare should be vast.

However, the reality shows that foreign aid is ineffective. Alesina and Dollar (2005)

highlight the fact that development policies have no significant influence on the

recipients macroeconomic policies and their growth (ibid.). Furthermore, G.W.

Gunning argues also for wasted aid, meaning that if a country does not have

admittance to capital markets, it is often for reasons, which would make aid

ineffective. Thus, aid can be often insufficient. Nonetheless, he also mentions aid can

be effective after shocks (2005, p. 22). Thus, although aid is effective under certain

circumstances, it is often wasted.

One reason for the ineffectiveness of aid is the poor performance of the

bureaucracies of the receiving countries(Alesina & Dollar, 2000, p. 55). In addition,


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Alisina & Dollar argue that the receiver does not get aid because of characteristics of

maintaining democratic and/or open values, but rather on a colonial basis. These

characteristics are essential for sustainable growth, because stability and good

governance is needed (Epstein, Gent, 2009). Alesina & Dollar (2005) claim that the

pattern of flows of foreign aid is inadequate. They argue that the allocation of

bilateral aid across recipient countries provides evidence as to why it is not more

effective in promoting growth and poverty reduction (p. 55).

Table 3Foreign Aid & Development Distribution2

Table 3 demonstrates clearly that the reasons for distributing foreign aid are rather

colonial ties instead of the necessity of stability through democratic values. But

because stability is an important factor for foreign investments and capital

accumulation, new firms will not enter the market or make investments in that

country. As a result, development policies are not efficient, because of bad judgments,

bad infrastructure and misallocation of savings (see Alesina & Dollar, Gunning). They

still have positive effects on growth and sustainable development in stable countries

with good governance (see Epstein & Gent, 2009).

To conclude, the receiver benefits from foreign aid in terms of foreign

investment and savings, as well as, decreasing poverty. Receiving countries cannot

have sustainable growth without foreign aid. Therefore, it is needed to increase the

2Source: reproduced from Alesina & Dollar (2000) p. 42.


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total welfare of the underdeveloped country. But because of instability and incorrect

allocation of policies, it is ineffective. So if aid should work as a solution to market

imperfections, development policies have to be more conditional, fungible and

implemented in stable and open countries. As a result, the CA introduced the principle

of conditionality, demonstrating that the EU is aware of the fact that false allocation

of resources does not help countries out of poverty. The following section now turns

at a concrete case study to analyze EU development policy regarding Ghana in

general and the HIPC initiative in particular.

5. Case Study: HIPC in Ghana

After having covered both theoretical concepts of development policy and debt relief,

it is now appropriate to turn to a real world example in order to realistically illustrate

the outlined concepts. In order to do so successfully this section provides a case study

on Ghana. This case study mainly pursues the goal of establi shing whether the EUs

debt relief policy has really helped Ghana enhance economic growth and development

or not. Evidence for this case shall be brought forward in terms of concrete facts and

figures as well as a broad socioeconomic analysis, serving to provide a general

overview.

Economic analysis quickly reveals what a high economic potential Ghana

possesses. Despite this fact, Ghanas unfavourable economic structure has remained

the same for decades. Up until 1983 barely any successful efforts were made to move

away from the sole exportation of primary products such as cocoa, bauxite, timber as

well as gold (European Commission, 2006). As it is generally known, high

dependency on primary, mostly unprocessed, products may be very harmful to the

economy as the terms of trade are constantly worsening for unprocessed raw/primary

products. However, since 1983 Ghana has been devoted to change this situation by

means of committing to strict economic reform projects. With the support of

international donors Ghana has been able to curb economic growth between 1991 and

2002 by 4.2 percent per annum (European Commission, 2006).

As part of Ghanas initiative to revive economic growth in 2002 it applied for

the HIPC programme. The main thought behind doing so was to free itself from the

enormous fiscal burden which accumulated together with external foreign debt.


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Accumulating interest rates and only minimal effective government revenue made it

almost impossible for Ghana to invest in education, infrastructure and health care

(IMF, 2005). Before reaching the HIPC completion point in 2004, Ghana went

through massive restructuring of its administration, practices and more. The debt

relief has been steadily provided ever since 2004 and will continue to be provided for

decades to come. Present calculations for 2004-2011 show that as part of the HIPC

programme approximately $215 million USD of debt will be relieved each year

(European Commission, 2006).

In order for Ghana to reach the HIPC completion point it had to overcome

many obstacles, including poverty reduction, macroeconomic performance and public

expenditure management. All of which have been, according to Mrs. Alphecca

Muttardy, the IMF Resident Representative in Ghana, overall satisfactory (IMF,

2005). Furthermore, she states that In particular, Ghana has enjoyed relatively strong

economic growth with significant reduction in the rate of inflation in the past three

years. In general Ghana has managed to construct and keep a sufficiently good

record with regards to implementing Ghana Poverty Reduction Strategy (GPRS),

while at the same time improving its public expenditure management system. This

entire process of setting conditions, observing and assessing has made sure that Ghana

will be able to act under the right measures when receiving debt relief through the

Multilateral Debt Relief Initiative (IMF, 2005). Ghana has established a strict plan

outlining what will be done with the funds made available though the aforementioned

initiative. Up high on its priority list is the investment in health programmes,

education as well as improving infrastructure in rural areas (BBC News, 2002).

However, as with almost any plan envisaged on paper, there are problems in

real life and variables unaccounted for, which in turn inevitably results in losers. First

and foremost the trading agreements from all sides want (in the long-run) one thing

from Ghana (and other ACP countries): their removal of trade barriers. This removal

of trade barriers has proven to be an obstacle to the fight against poverty. Oftentimes

trade barriers are not removed on both sides, meaning: Ghana complies but the EU

keeps up barriers to trade and occasionally practices dumping, thereby completely

destroying local markets. Adjei Henaku, the Executive Secretary of the Ghana

Farmers Association, put it like this: It is extremely difficult to figure out how

the dumping of cheap poultry parts-like legs, wings, necks - that have no marketsin the EU anyway, could be permitted in the name of free trade that is supposed to


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promote competitiveness (GAWU, 2004, p. 6). Another example is provided by the

EUs export restriction on Ghanaian cocoa using the chocolate directive. Considering

that cocoa is Ghanas main export product to the EU, the restriction is quite

devastating. Furthermore, bananas are prone to extremely strict regulations on size,

weight, colour and shape. Due to this barrier banana exports from Ghana to the EU

are severely restricted. Making matters worse is the fact that the banana farms in

Ghana employ a large part of the poorer segment of the population, which means that

the poor will become even poorer which in turn further worsens the already less

than optimal Gini coefficient (GAWU, 2004, p. 5).

With regards to shortcomings and recommendations, it should be mentioned

that one sided removal of Ghanaian trade barriers will in the long-run only benefit the

European Union, which upholds its trade barriers and engages in the dumping of

goods in such markets. It is generally known that dumping destroys local markets by

means of providing certain agricultural products below the price of local farmers. This

way local farmers as well as business are forced out of business due to the fact that

they are unable to compete at such low prices. The main source of dumping has been

identified to be the Common Agricultural Policy (CAP) which the European Union

has been upholding for decades. Thus, while the EU is on one hand trying its best to

eradicate poverty by means of trade and aid, it is on the other hand an obstacle to

itself due to policies such as the CAP.

As a recommendation the trade barriers should be mutually removed and trade

shall flow in both directions rather than being one-sided. This is the only way for

Ghana to start being competitive on an international level. If the massive dumping in

Ghana comes to an end, farmers will be able to make an economic profit, which in

return enables them to further invest into land and machinery as well as labour. As

consequence Ghanaian farmers become more efficient and competitive on an

international scale, further increasing profits. As mentioned previously, in order to

escape the poverty cycle the accumulation of saving is crucial, as savings are

positively related to investment. In other words, an increase in savings will increase

investment due to the fact that there is spare currency now, not needed for life

sustaining purchases such as food. On a larger scale, investment then benefits locals

by means of the multiplier and accelerator effect. Closely related to this topic is the

Dual Gap Analysis, which basically states that low income gives rise to a lowerpropensity to save. Hence, a lack of saving will result in a lack of investment, which


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would have been urgently needed to achieve the target growth rate and development.

Investment curbs employment, increases the GDP and improves amongst many other

things the local infrastructure.

Thus having applied the theoretical framework to the actual situation, the

outcome in Ghana reveals there is still room for improvement. However, it is not

constructive to shut such otherwise well-intended initiatives off, it is rather important

to base future efforts on previous experience and learn from mistakes. The following

section will come back to the bigger picture of EU development aid, outlining certain

shortcomings and recommendations based on the findings of this paper.

6. Debt Relief - Shortcomings and Recommendations

Having illustrated the EUs development policy and especially debt relief measures

in ACP countries a critical assessment of their effectiveness remains to be given. On

the basis of the illustrated economic theory behind debt relief measures, several

shortcomings become visible. As has been illustrated in a previous section debt relief

measures are highly controversial regarding the dependency between receiver and

donor states as regards to economic growth.As previously stated, the European Unions foreign policy tries to drag

underdeveloped countries out of the vicious circle of poverty. Hence, it attempts to

increase the amount of capital within these countries in order increase income,

savings, investments and finally consumption. So why do the Unions development

measures and debt relief in particular often remain unsuccessful?

One major reason is the EUs exclusive focus on economic growth. As

previously illustrated foreign aid often creates colonial-like ties between the donor-

and receiver states and therewith makes the latter highly dependent on foreign

investments and resultant capital accumulation. As a result, a dependency in the form

of colonial ties between the donor and receiver states is created. Allesina and Dollar

argue that these colonial-like ties lead to an insufficient promotion of democratic

values and their institutionalization in the receiving countries (Allesina&Dollar,

2005). Often these countries governments mal-invest the given capital into measures

that do not enhance economic growth. Hence, the vicious circle of poverty cannot be


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overcome and foreign aid becomes ineffective, being wasted aid (Gunning, 2005, p.

22).

In order to decrease the dependency between the donor and receiver states, the

EU should increase the focus on good governance and stability in the aid-receiving

countries. Sustainable and independent growth can at best be achieved through

foreign investors allocation their forms in these countries. In case foreign investors

feel their investments to be threatened by political instability, they will retract their

investments and reallocate respective firms into a saver environment

(Alesina&Dollar, 2005). As a result, development policy should focus more on

promoting political stability within underdeveloped countries. With this critical

reflection in mind, the paper now turns to its concluding section evaluating the

analyzed in its entirety.

7. Conclusion

The paper set out to answer the following question: To what extent does the EUs

debt relief policy enhance economic growth and development in developing

countries? To answer this question the paper looked at both theoretical concepts ofdevelopment policy and debt relief as well as at a concrete case study of Ghana.

As has been shown, the EU development policy intends to help developing

countries to break out of the vicious circle of poverty, through multiple measures

including debt relief. Yet, what has become visible is that EU development policy is

often ineffective as it does not seem to have a significant positive effect on the

recipients macroeconomic policy and growth. For one, this seems to be due to an

incorrect allocation of resources, such as through insufficient bureaucratic institutions

in the receiving countries. For two, it has been argued that EU often directs its

development aid rather to countries with colonial ties and thereby often disregards

political stability, such as democracy and human rights compliance.

In the case of Ghana it was shown that while Ghana has indeed enjoyed an

upheaval of economic growth in the framework of the HIPC initiative, EU

development policy action towards Ghana remains largely controversial. While

supporting the HIPC in Ghana, trade barriers for Ghanaian imports into the EU

remain thereby dramatically weaken Ghanas export ability. In addition, EU dumping


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practices do not enhance economic growth but rather destroy it as local farmer cannot

compete with these low prices. This stands in direct conflict to the aim of the HIPC

Initiative, which tries to help countries to break out of the vicious circle of poverty.

EU development policy is thus very ambiguous, trying to heal in one part, while at the

same time seriously injuring another. In how far the EU fosters economic growth and

development, through measures such as debt relief, can thus not per se be stated. Yet

the great ambiguity of EU development policy towards developing countries in

general certainly becomes visible.

There are certain limitations that need to be stated. Due to the limited scope of

the paper, it could only outline certain aspects of EU development policy and action

and could also only touch upon certain theoretical outlooks on the topic. Thus, the

paper could by no means achieve a holistic picture of EU development policy.

Second, the analyzed data might have had certain limitations during its conduction,

thereby distorting the outcome. Furthermore, the paper had to rely on reports as well

as secondary sources, as a first-hand investigation was not possible due to a limited

availability of resources and time. Also, due to the limited scope of the paper, it could

not touch upon the interrelatedness between economic fields and others such as the

political and social areas. Further country-specific research is needed here.

The economic perspective on development aid is crucial. Yet, it is only one

part of the bigger picture. Political, cultural and social perspectives certainly also play

an influential role regarding the welfare situation of a specific country. Thus, a

holistic approach to the improvement of the welfare situation of an economically

troubled country is needed. More so, the cooperation between the country aiding and

the country aided needs to be based on principles of respect, equality and mutually

benevolent attitudes on all levels. It must be ambiguous-free.


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