Joint Memorandum submitted by Trocaire and Broederlijk Delen

'The EU's financial assistance to the oPt:

Can PEGASE correct the shortcomings of the TIM?

1. Summary of the main points

This paper discusses the financial assistance given by the European Union (EU) to the oPt in relation to its wider policy objectives in the region. It addresses the effectiveness of the new PEGASE mechanism in light of the experiences with the Temporary International Mechanism (TIM) and the EU's aid efforts in general.

The EU defies its own policies

- In suspending direct aid to the Palestinian government, the EU defied its long-term objectives. Donors abandoned their primary goal of Palestinian state-building and focused on short-term goals.

- The suspension of budget aid reversed the progress the EU made in institution building and reforms. The EU took the political decision to follow the line of the strongest partner in the Quartet, the United States.

The long-term impact of a temporary mechanism

- When setting up a parallel structure, the EU did not sufficiently ramify the consequences. The temporary freeze of Palestinian state-building was not compatible with its major political aim in the region: the realisation of the two-state solution.

- The international donor community turned away from long-term development and abandoned the goal of planning and budgeting. The suspension of direct aid and the subsequent shift back to humanitarian aid moved the donors away from the development agenda.

- The TIM did not address Israel's obligation as an occupying power but mitigated the effects of Israel's abuse of power, manifested through its refusal to implement the Agreement on Movement and Access and the violations of its financial obligations.

- The suspension of direct aid was perceived by the Palestinians a sanction. Furthermore, by contributing to the disruption of public administration, the EU has undermined the respect for IHL.

Can PEGASE repair the mistakes of the TIM?

- The donors are responsible for this two-year standstill in Palestinian development. The PRDP has to be seen in the context of renewed international commitments and is highly donor-driven.

- The donors' optimism with regard to undoing the damage via PEGASE may be misguided.

A) The EU insufficiently addressed the internal Palestinian crisis. PEGASE cannot guarantee long-term stability as long as the internal crisis remains unresolved.

B) The EU continues payments for fuel through PEGASE, acknowledging that they are subject to Israeli restrictions, possibly giving legal effect to a measure of collective punishment.

Aid to the oPt: contributing to the two-state solution?

- Over the last two years, donors' increasingly tended to adapt their assistance to suit their political agenda. This tendency to link aid to donors' political preferences has led to the establishment of the TIM that undid a lot of the EU's achievements on the field.

- If the EU does not address the Palestinian political crisis and reverse the isolation of the Gaza Strip, this might also threaten the implementation of PEGASE.

- Today we are seeing the tragic outcome of the donors' refusal to pursue a rights' based approach to development. The EU wants to be an effective player in an environment of disrespect for basic rules.

- The EU can only succeed in advancing Palestinian development if it consistently respects its own international law obligations and requires Israel not to obstruct a lawful European engagement.

2. Brief introduction on the author

Broederlijk Delen (BD) is a Belgian development organisation. BD has been highly committed to Palestinian development, both through the support of partners on the field and through northern advocacy.

Brigitte Herremans, BD's Policy Officer on the Middle East, is the primary author of this document.

Trócaire is the international development agency of the Catholic Church in Northern Ireland and the Republic of Ireland. Trócaire works in conjunction with Broederlijk Delen as part of the European network of Catholic development organisations, CIDSE.

BD and Trócaire work with Israeli and Palestinian partners in a rights based approach to promoting a just and peaceful solution of the Israeli-Palestinian conflict.

3. Recommendations to members of the committee

The issues of the effectiveness of the TIM and the perspectives of PEGASE have to be discussed in the wider framework of the international community's massive aid effort in which the EU takes the lead. It is crucial that the members of the International Committee of the House of Commons address the European institutions and members states and raise the following issues:

- The danger of an open-ended Palestinian aid-dependency, in case the international donor community does not succeed in linking its aid effort to a durable political process;

- The importance of the rights' based approach to development assistance and the consequences of donors' practice to pour in funds while conducting relations with Israel in violation of domestic and European law obligations;

- The need for the EU to bridge the gap between its declarative policy and its operational policy in the region;

- The acute problem of the consequences of the blockade against the Gaza Strip and the danger of giving legal effect to Israel's restrictions on the delivery of fuel.

The EU's financial assistance to the oPt:

Can PEGASE correct the shortcomings of the TIM?

As development NGOs[1] with partners in both the occupied Palestinian territories (oPt) and Israel, we are dedicated to Palestinian development. For several years, we have followed the developments on the field from up close. We have witnessed how the significant growth in international aid has failed to reverse Palestinian de-development. This paper discusses the financial assistance given by the European Union (EU) to the oPt in relation to its wider policy objectives in the region. It addresses the effectiveness of the new PEGASE mechanism in light of the experiences with the Temporary International Mechanism (TIM) and the EU's aid efforts in general. The conclusions indicate ways to correct the lack of coherence between the donors' assistance and their political objectives.

4. The EU defies its own policies

The Council of the European Union suspended its direct aid to the Palestinian Authority (PA) on 9 April 2006, as a response to the formation of a Hamas led government in March. This was a shift away from the EU's aid efforts in the region. Since the start of the peace process in 1993 the EU, both the Commission and the member states, has been the biggest donor to the Palestinians. European assistance to the oPt is related to its Mediterranean policy. Its primary objective was state-building: the construction of infrastructure, the development of institutions and public affairs. Even when faced with the failure of the peace process at the end of the 1990s and growing de-development, the EU held on to its objective of state-building and did not question its massive aid efforts. However, Israel's unlawful use of force, especially since the outbreak of the Intifada in 2000, has forced the donors to increasingly focus on emergency aid. In 2000, the ratio of development to emergency assistance was 7:1, while in 2002 this ratio was reversed to 5:1 in favour of humanitarian assistance.[2]

The EU did question its assistance to the oPt when Hamas came to power and refused to respect the conditions of the Quartet: renunciation of violence, recognition of the state of Israel and acknowledgement of the previous PLO-Israel agreements. According to the Council, it had no other choice than to suspend direct aid to the newly established government. However, the European Commission did want to address the needs of the population and wanted to provide basic services while circumventing the executive. Against opposition of the United States, it created the TIM in June 2006 to provide direct and indirect assistance. Through this mechanism, costs of services that would normally fall under the responsibilities of a ruling authority, such as medical care, allowances and the provision of basic services and supplies, such as electricity and fuel, have been paid by the EU.

In view of the political constraints it was faced with, the Commission has indisputably succeeded in setting up a secure and relatively efficient system to meet the most urgent needs of the Palestinian population. As EU officials reason, compared to 2005, the EU increased its aid in 2006 by 26% to 700 million. In view of the EU's decision to maintain its suspension of direct aid as long as Hamas refuses to comply with the demands of the Quartet, the TIM was its only alternative to provide basic services. The problem was that the EU refused to consider the negative impact that the TIM would have. Furthermore, it extended the TIM, which originally had a time horizon of three months, several times and overstretched its original scope to include among others, allowances to PA officials.

After the formation of a unity government in March 2007, the EU refused to restart direct aid to the PA. However, it did so after the establishment of an interim government under Prime Minister Salam Fayyad when Hamas took over power in the Gaza Strip in June 2007. The EU did not abolish the TIM but adapted it to cooperate more closely with the Palestinian administration until a new mechanism, PEGASE, could come into operation in February 2008. The TIM's mandate was extended until the first quarter of 2008 in order to enable the PA to cope with its liquidity crisis. The mechanism turned out to be less temporary than originally conceived and its damaging impact on Palestinian development cannot be underestimated.

In bypassing the Palestinian government, even after the formation of a unity government, the EU defied its long-term objectives in the region. The donors abandoned their primary goal of Palestinian state-building and focused on short-term goals such as creating jobs, preventing a major humanitarian crisis and a total collapse of the Palestinian institutions. In doing so, they reversed the progress the EU made in institution building and reforms. Knowing that this would contribute to the disintegration of the PA, the EU took the political decision to follow the line of the strongest partner in the Quartet, the United States. As some observers point out, there was an alternative. Donors could have bypassed the PA through the financial system. It could have achieved its goal, to guarantee that Hamas would not benefit from its aid, at a much lower cost.

5. The long-term impact of a temporary mechanism

Many observers from the field agree that in view of the EU's suspension of direct aid,[3] the TIM was the best possible option, but they would rarely go as far as calling it a success, as the EU does. A much-heard critique is that the TIM was a band-aid to alleviate the consequences of the exacerbated crisis, a result of the suspension of direct aid and Israel's refusal to transfer the Palestinian tax and customs remittances. Firstly, the TIM did not tackle the disintegration of the Palestinian institutions and the political system. On the contrary, it contributed to the internal political crisis as payments were directed through the Office of the President. Secondly, delivering aid through a newly established mechanism to circumvent the government turned out to be ineffective. The TIM added costs and further undermined development. Thirdly, by focussing on the TIM, the main problem of Israel's unwillingness to meet its financial and legal obligations as an occupying power, was insufficiently addressed. Fourthly, the TIM did not restore the image of the EU as an honest broker.

1) When setting up a parallel structure, the EU did not sufficiently ramify the consequences. Even if it remained committed to the Oslo architecture, the EU temporarily froze Palestinian state-building. This was not compatible with its major political aim in the region: the realisation of the two-state solution.

a. The donors abandoned the goal of state-building since the PA was no longer the centre of a structure that was designed during the peace process. The EU's support to the Presidency and the shift away from the executive was an overtly political move given that president Abbas is also the leader of the Fatah party, which lost its parliamentary majority to Hamas in the 2006 elections.[4] Preferential support to one party and to certain personalities, such as president Abbas, contributed to the internal Palestinian crisis. This might have reinforced Hamas rather than weakening it.

b. Some of the reforms that the EU had achieved, like in the field of transparency with the establishment of the Single Treasury Account, have been undone. The temporary blocking of the Single Treasury Account and the multiplication of aid mechanisms, lead to a scattering of the incoming funds. In 2006, there were huge amounts of cash inflow but there was insufficient follow-up and tracing of the revenues and expenditures.[5] The Palestinian Central Bureau of Statistics estimated that the revenues amounted to over $1 billion but only $732 million was accounted for.[6] The direct salary assistance to Palestinian officials is also questioned.

2) The international donor community turned away from long-term development and abandoned the goal of planning and budgeting. After the first years of the second Intifada, from 2003 to 2005, donors increasingly focused on the development agenda. The suspension of direct aid and the subsequent shift back to humanitarian aid moved the donors away from the development agenda that the Palestinian Ministry of Planning had set. In the context of a lurking financial crisis, liquidity problems and a break down of institutions, there was no scope for development projects.[7]

3) The TIM did not address Israel's obligation as an occupying power towards the civilian population in the oPt. Yet, it had to mitigate the effects of Israel's abuse of power, a feature of all aid efforts to the oPt since the start of the occupation in 1967.

a. Israel refuses to exercise effective control and military power lawfully and it installed a regime of institutionalised violations of International Humanitarian Law (IHL). Furthermore it refuses to respect its agreements with the PA, such as the Agreement on Movement and Access (AMA) that was brokered after the disengagement from the Gaza Strip. This contributed significantly to the current crisis in the Gaza Strip.

b. Israel violated its financial obligations by refusing to transfer Palestinian tax remittances from March 2006 until August 2007. These account for two thirds of the monthly wage bill. The TIM did not sufficiently take this into account and the donors increasingly paid the cost of Israel's violations of its agreements, instead of putting the burden of the costs on Israel.

4) The Palestinian population perceived the EU's suspension of direct aid as a sanction. As a result, the Palestinians started to perceive the EU as part of the existential threat to the establishment of a viable state. Furthermore, by contributing to the disruption of public administration, the EU has undermined the respect for IHL. This guarantees the protection and the wellbeing of the civilian population in the occupied territory and provides the population's right to a lawful and effective administration.

6. Can PEGASE repair the shortcomings of the TIM?

There is a currently renewed optimism among donors with regard to the perspectives of development. The Palestinian Reform and Development Plan (PRDP) was launched in November 2007. The international community pledged $7,7 billion of support for the PRDP at the donor conference in Paris in December. The Commission and the member states pledged €3,4 billion for the next three years. Furthermore, the Commission launched the new aid mechanism PEGASE in February 2008 and argued that this will allow greater stability and predictability while involving the interim Palestinian government. Commissioner Ferrero-Waldner applauded its efforts to 'set out realistic priorities for Palestinian development after a hiatus of two years.'[8]

It must be stressed that the donors are responsible for this two-year standstill in Palestinian development. The PRDP, albeit a very valid document, has to be seen in the context of renewed international commitments and is consequently highly donor-driven. There is a strong focus on state-building whereas some fundamental obstacles to development such as the freedom of movement and the Wall are hardly raised. The donors' optimism with regard to undoing the damage of the standstill via PEGASE may be misguided. Two elements are worth exploring: the extent of ownership of the PA and its legitimacy and the situation in the Gaza Strip.

1) The current interim government will be increasingly involved in the implementation of PEGASE. The EU highly appreciated the role and the work of Prime Minister Fayyad and wants to support his government through renewed efforts in Palestinian state-building. However, the EU insufficiently addressed the issue of the internal Palestinian crisis and the legitimacy of the interim government. Observers like Professor Natan Brown argue that according to Palestinian Basic Law, the emergency government's mandate expired after three months, leaving no other option than new elections.[9] PEGASE cannot guarantee long-term stability and predictability as long as the Palestinian internal crisis remains unresolved.

2) Even after the resumption of direct aid to the Palestinian government, the situation in the Gaza Strip remains alarming as the strip is no longer under the authority of the Palestinian government and Israel installed a blockade after Hamas' takeover in June 2007. The EU continues payments for fuel through PEGASE, acknowledging that they are subject to Israeli restrictions. Since Israel declared the strip 'hostile territory' in September, it diminished the delivery of fuel, which resulted in an insuffiencent supply of fuel for electricity generation in the Gaza Strip. This reached its climax in January. The Israeli High Court opposed a petition of human rights organisations that consider it an element of collective punishment and declared the restrictions on fuel lawful, thus creating a legal precedent.[10] The EU did not strongly oppose Israel's restrictions on its fuel delivery. Neither did it indicate how it intends to prevent its financial involvement in the delivery of reduced amounts of fuel from giving legal effect to a measure of collective punishment.

7. Aid to the oPt: contributing to the two-state solution?

Over the last two years, we have witnessed an intensification of the donors' tendency to adapt aid to the oPt to suit their political agenda. Assistance to the oPt has generally been motivated by donors' political preferences, not by the needs on the field. This has led to the establishment of the TIM that undid a lot of the EU's achievements on the field. If the EU does not address the Palestinian political crisis and reverse the isolation of the Gaza Strip, this might also threaten the implementation of PEGASE.

Today we are seeing the tragic outcome of the donors' refusal to pursue a rights' based approach to development. The EU based its aid on the assumption that it would lead to the creation of a Palestinian state. The premise was that Israel would exercise effective control lawfully and abide by its obligations as an occupying power. When Israel refused to do so, the donors refrained from putting pressure on Israel to dissuade it from pursuing its unlawful policies in the oPt. The acquis communautaire obliges the EU to respect international law, including international humanitarian law, in the conduct of its external relations. The EU wants to be an effective player in an environment of disrespect for basic rules protecting the rights and development perspectives of the Palestinian population.

This is an obvious challenge. The EU can only succeed in it if it consistently respects its own international law obligations and requires Israel not to obstruct a lawful European engagement. In contrast to this rights' based approach to development assistance, we are currently witnessing a disturbing trend in which donors pour in funds into the oPt while conducting relations with Israel in violation of domestic and European law obligations. The EU has demonstrated a harmful level of tacit consent in cooperating with unlawful practices in the past. As the case of the Association Agreement has demonstrated, the EU is tempted to accommodate to Israel's application of bilateral agreements in ways that follow its unlawful national legislation and practice.

The massive aid effort since the start of the peace process did not create a political horizon. If the international donor community, in which the EU takes the lead, does not succeed in linking its aid effort to a durable political process, we face an open-ended Palestinian aid-dependency. According to the World Bank, without donor assistance, poverty would be 40% higher.[11] A self-reliant Palestinian economy cannot emerge without freedom of movement and a sovereign state. Stability and predictability are needed first and foremost. Therefore funds should be guaranteed independent of the donors' political choices. The TIM has shown that the donor community's involvement has been ambiguous when it cannot reconcile its aid efforts with its policy objectives.

Donors have to acknowledge that systematic and institutionalized violations against basic rules governing occupation cannot go together with development. The EU has to invest in a political strategy that reverses the destructive dynamics on the ground. It must stop the Palestinian economy's tendency to become increasingly dependent on donor aid while Israel continues its illegal policies. The conflict can only be ended when the expansion of settlements, economic stagnation, the humanitarian crisis and weak Palestinian governance are addressed.[12] If the EU's assistance is not linked to a political agreement that ends the occupation, it cannot advance peace.

[1] Broederlijk Delen and Trocaire.

[2] WORLD BANK, 'Twenty-Seven Months-Intifada, Closures and Palestinian Economic Crisis', 2003, p. 51.

[3] On the occasion of 'One year of TIM', the author interviewed several representatives of Palestinian and international NGOs, UN-agencies, civil servants and academics. Seen the sensitivity of criticising the donors' aid efforts and the Palestinian internal crisis, the interviewees are not cited.

report.asp?id=2871.

[5] Interview at the Palestinian Ministry of Finance, 29/05/07.

[6] Interview at Palestinian Central Bureau of Statistics, 30/05/07.

[7] Interview at the Palestinian Ministry of Planning, 30/05/07.

[8] Speech by Commissioner External Relations Ferrero Waldner at Annapolis, Institutional Reform and Capacity Building in the oPT , 26/11/2007.

[9] N. BROWN, What Can Abu Mazin do?, 17/06/2007, www.carnegieendowment.org.

[10] GISHA,

In response to the Supreme Court's Rejection of Petition against Fuel and Electricity Cuts, 30/01/2008 www.gisha.org.

[11] WORLD BANK, Twenty-Seven Months-Intifada, Closures and Palestinian Economic Crisis, 2003.

[12] M. KEATINGS, Aid, Diplomacy and Facts on the Ground, 2005.