international analysis and commentary

The G8 and the EU meet the Arab Spring

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Twenty billion dollars sounds like a lot of money. Well, it is not when you need to rebuild the economies of two middle-income countries, when several multilateral organizations are vying to manage that money, and when not all of the funds are likely to be delivered anyway. Thus, the announcement by G8 countries that they will support the Arab Spring in Egypt and Tunisia is unlikely to have any real impact. Only sustained aid over a number of years could actually help Egyptians and Tunisians to transform their countries.

The $20 billion pledged by the G8 countries is aimed at propping up the democratization process currently taking place. Dubbed the “Deauville Partnership”, funds would come both from G8 countries and from multilateral organizations. However, to begin with, the money promised falls well short of what Egypt and Tunisia would require. The size of the Egyptian economy is $500 billion, while Tunisia’s is $100 billion. And talk from the G8 revealed that funds would be distributed over the next two or three years. If we assume that $10 billion would go to each country in 2011-13, we are looking at Egypt receiving an aid package amounting to 2% of the total size of its economy over the next two years. In the case of Tunisia, the figure would go up to 10%.

To put things into perspective, Greece has received a bailout of $146 billion, or 45% of its GDP (PPP). As for Ireland, $113 billion have been pledged, equivalent to a staggering 65% of the size of its economy. Greece and Ireland “only” need to put their economic house in order, with the option of defaulting on their debt if they cannot. In contrast, Egypt and Tunisia have to rebuild their political systems and transform and boost their economies to reduce the high levels of unemployment that ultimately provoked the Arab Spring.

Even if the amount pledged by the G8 were sufficient, there would still be a problem regarding who should manage and channel the aid. Logically, most should be delivered via multilateral organizations with experience in the region. Thus, ideally, the African Development Bank and the World Bank should be in charge of managing most of the funds. No other multilateral organization has as much expertise in the region.

However, the European Investment Bank, which also has experience in North Africa, and the European Bank for Reconstruction and Development, set up in 1991 to foster the transition of Central and Eastern European and Central Asian countries towards democracy and a market economy, will also provide funds to Egypt and Tunisia. And at least a quarter of the aid is likely to be bilateral. Therefore, four different multilateral organizations and several governmental agencies with different mandates and goals will be working from Cairo and Tunis at the same time. This does not bode well for a coordinated effort to support a democratic transition in North Africa.

Were coordination to be achieved, the aid pledged would still need to be delivered. This is by no means guaranteed. In 2005 the G8 famously agreed to increase aid to developing countries by $50 billion by the year 2010. According to the OECD, G8 countries fell $19 billion short of this target. In the past, similar promises of tens of billions of aid to disaster-stricken areas around the world have not been fulfilled. There is no reason to believe that this time it will be any different, especially given the deficit-reduction programs that almost all G8 countries have implemented.

David Cameron, for example, has already had to defend his decision to pledge aid to Egypt and Tunisia at a time of massive cuts to social services in the UK. So far he has stood firm in his commitment to deliver the funds. Other leaders, facing re-election in the next two years, might decide to spend their governments’ money in propping up their local economies rather than on supporting democratic transition processes overseas.

So can the G8 effectively support the Arab Spring? Yes, it can. And it only needs to turn its head to Central and Eastern Europe to understand how to do it. For the main force behind the transition to democracy and a market economy of countries in the region was the promise of EU membership. Admittedly, this cannot be offered to North African countries. But the revamped Neighborhood Policy recently launched by the EU is a good substitute. The EU could coordinate with the African Development Bank and the World Bank to provide sustained aid to the governments coming out from upcoming elections in Egypt and Tunisia. Funds should be delivered regardless of the outcome of the election and for a period of at least five years. Otherwise, the West in general and the EU in particular would risk being seen not as supporters of democracy, but as supporters of particular political options instead. Aid should be supplemented by a promise of easier access to the EU market and European investment, perhaps even a free trade agreement. This would provide North African countries with incentives to reform, since the economic benefits of doing so would go beyond a limited aid package.

Ultimately, a successful transition to democracy and a market economy depends on the will of the North African people. Many examples from East Asia, Latin America, and Central, Eastern and Southern Europe over the past four decades prove this. But the G8 can provide invaluable help if it is willing to support a sustained and coordinated effort to strengthen the process.