Iceland owes us billions. Why on earth is the EU giving millions of our money in aid?

Published in The Daily Mail (March 8th, 2012)

For all its recent problems, Iceland remains a prosperous place. Visiting there a few months ago, I was struck by the speed of its recovery from near-bankruptcy four years ago.The cafes were full of beautiful blond people using laptops, the shops were stacked with expensive designer clothes and a spectacular concert hall has been built.

I dined on stunning seafood in a lovely — if pricey — restaurant beside the harbour. Outside the window, among the trawlers bobbed a solitary grey gunboat, a reminder of Iceland’s victory over Britain in the ‘Cod War’ 36 years ago and a symbol of the bloody mindedness of this island nation.

Such attitudes have been demonstrated again in recent years, with Iceland’s obstinate refusal to repay £2.3billion owed to Britain following the collapse of its casino banks in the credit crunch.

Councils, charities and thousands of individual savers were left out of pocket and had to be bailed out by our Government while the dispute has gone through the courts.

So you might be surprised and angered to learn that when British government ministers talk of spending your taxes on overseas aid with such evangelical fervour, claiming they are eradicating poverty in Africa and eliminating disease in Asia, millions of pounds of it are heading to Reykjavik.

This is hypocritical enough, given the bitter arguments and unresolved differences over the fallout from the financial crisis. But it is even more surprising when you consider Iceland is one of the world’s wealthier nations, with a national income per head higher than Spain, Greece or Portugal.

It is hard to imagine that even those eager beavers at the Department for International Development would want to send money to a nation that owes us such a large amount.

But this is not a direct payment from British coffers. It is ‘development aid’ granted by the European Union, which is happy to hand out our money to a country richer than many of its members in order to persuade it to join the organisation.

Such spending is par for the course for the world’s biggest donor of aid. Despite a record in the EU of shocking waste, outrageous inefficiency, widespread fraud and wanton misuse of funds — which has been heavily criticised even by Andrew Mitchell, our International Development Secretary — Britain is handing over huge sums each year.

While cuts in public spending are made at home, we are giving £1.3 billion — some 16 per cent of our soaring aid budget — to Brussels. You might well ask why — as MPs on the select committee for development did when Stephen O’Brien, a junior minister, appeared before them on Tuesday.

He offered the usual glib answer beloved of aid apologists. ‘The top line is that UK aid channelled through the EU saves lives,’ he said, going on to talk in sanctimonious style about saving the hungry and sick in nations such as Niger and Burma.

In fact, the biggest recipient of EU aid is Turkey, a fast-growing, middle-income country which, like Iceland, wants to join the Brussels club.

Kosovo and Serbia are also in the top ten recipients; indeed, 85p in every £1 spent from the EU aid budget goes to middle-income nations, including Brazil (whose economy was claimed to have overtaken ours this week), China and Argentina.

According to a recent investigation by the Open Europe think tank, an analysis of EU aid spending over the past decade revealed that developing European countries were given £6.64 per head of the populace compared with just £2.49 per head in sub-Saharan Africa and a measly 29p per head in central Asia.

Barbados, a comparatively wealthy country, was found to receive 35 times more per head than Bangladesh, one of the world’s poorest places.

Scandalously, much of the aid goes to countries seeking accession to the EU. This allows the British government to pretend it is heading towards the sacred — if totally arbitrary — aid target of 0.7 per cent of national income, despite a requirement to spend such monies on alleviating global poverty.

So Turkey — a nation that has its own international aid programme — was handed £570 million last year by the EU, some £80 million of which came from British taxpayers.

It spent most of this massive gift on improving its sewage system — while in Britain, people face higher water bills to cover similar costly infrastructure upgrades.

The tide of cash to Istanbul also funds university courses for hundreds of Turkish students and trips around Europe for thousands of school pupils. Special websites have even been set up to help people tap into the grants.

But if you think this spending on sewers and scholarships is money down the drain, it gets far worse in the surreal world of Euro-aid.

For a start, Brussels bureaucracy means administration costs are more than twice those of the UK government.

On some projects, it is almost twice as high as that again, swallowing nearly 9 per cent of the cash available — significantly above the ceiling imposed here when handing out grants to development charities.

Then there is what the money goes on. Much of it borders on the comical, such as the £385,000 given to teach teenagers to dance in Burkino Faso.

Or the immigration advice centre in Mali that was handed £8.8 million to help people find work in Europe: it managed to find just six jobs in three years.

Or how about £800,000 for a Spanish firm to improve data protection in Israel; £96,000 for designing a report on aid; £40,000 for a circus festival in Egypt; £15,000 for surveying attitudes to Europe in Jordan; or £3,000 for a Tunisian company to buy ties emblazoned with the EU logo?

On top of this, there is rampant fraud. The EU’s own anti-fraud investigators have admitted they often ‘encounter modus operandi typical of organised fraud’.
Perhaps this explains why auditors examining a Palestinian power-line project given £33 million by the EU were unable to find out what happened to the funding since there was no documentation.

The system is incredibly muddled, with so many European and national bodies involved in doling out cash to so many projects that potential savings which could be made have been put in one recent study at £5 billion a year.

Meanwhile, recipient nations waste huge amounts of precious time and resources churning out reports for all these EU donors. This is the tangled reality of the booming aid industry.

But perhaps worst of all is the way our money, channelled through Brussels, ends up actually making life more difficult for millions of people in developing nations.

The EU court of auditors has complained that projects earmarked for aid are randomly selected without assessing needs, while corrupt and repressive regimes are regularly handed vast sums just by filling out a few forms.

Half the EU aid goes straight to recipient government treasuries, although development experts such as the former World Bank economist Paul Collier have pointed out that this only serves to entrench bad regimes, to the detriment of people living under them.

Among those given this direct ‘budget support’ is the notoriously hopeless government in the Democratic Republic of Congo. In Malawi and Uganda, the presidents bought themselves jets after receiving European aid.

It has also emerged that the toppled regimes in Egypt and Tunisia, which stole billions from their people and had appalling human rights records, were rewarded with vast sums — £169 million in 2009 alone — after passing the EU’s supposedly rigorous democracy and anti-corruption tests.

Our politicians however, are determined to ignore such evidence as they continue to hand over our billions to Brussels. Instead, they preen themselves as saviours of the world.

But next time you hear them claiming to be crusaders against global poverty, remember your money is really implementing food safety laws in Iceland, improving sewers in Istanbul and helping African despots buy themselves private planes.

This is the reality of our outdated aid policies. And when they go through the mangle at Brussels, they come out even worse than at Westminster, which is no mean feat.

Categorised in: Aid & development, Europe, European Union, home page, Iceland