Europe’s aid at a crossroads: from solidarity to mutual interest

For much of the post–Cold War period, Europe could take the legitimacy of its development cooperation model largely for granted. Aid was framed as a moral obligation, justified by solidarity with poorer countries and underpinned by a relatively stable geopolitical order. That era is now ending.

Across Europe, overseas development assistance (ODA) is under fiscal pressure, politically contested and increasingly overlooked in favour of domestic priorities such as security, migration and supply‑chain resilience. This shift is not accidental, nor is it temporary. As Masood Ahmed has argued, the traditional North–South aid model “has run its course,” even if international cooperation itself is far from over. The question is no longer whether European aid will change, but what will replace it.

The end of aid as we knew it

Warnings about the decline of aid are not new. As early as 2018, Indermit Gill wrote provocatively of “the end of aid,” noting that while aid volumes had grown in absolute terms, they were losing political relevance in both donor and recipient countries. His core insight remains relevant today: development is increasingly about investment, jobs and institutions, not transfers framed as charity.

What has changed since then is the speed and depth of the transition. European aid budgets are now being cut in real terms, concessional resources are declining and donors are shifting their attention – as much by necessity as ideology – towards loans and instruments such as guarantees that can crowd in private investment. As Jean‑Michel Severino has recently argued, this is not merely a budgetary crisis but an existential one: the official development assistance (ODA) system has become overextended, normatively overloaded and politically fragile.

From altruism to mutual interest

The European Commission’s ambitious proposal to increase outlays for global development by around 75% to €200bn in the next Multi Annual Financial Framework (MFF) would seem to buck this trend. Yet, this proposal, too, is framed in terms of Europe’s strategic interests in the face of increasing geopolitical competition.

A new organising principle has thus emerged out of the crisis of traditional aid: mutual interest development cooperation. Rather than denying donor self‑interest, this approach seeks to make it explicit, transparent and compatible with partner‑country development. In this vein, Tobias Heidland, Moritz Schularick and Rainer Thiele argue that aid can generate measurable returns for donors – economic, geopolitical and security‑related – when it is well designed and aligned with partner‑country reforms. The implication is not that aid should serve donors alone, but that durable political support for development cooperation requires visible shared gains.

Growth, jobs, and debt sustainability

One consequence of this shift is a renewed focus on economic growth and job creation, as reflected in the World Bank Group’s new corporate strategy. Only jobs can provide livelihoods and dignity to millions of young people entering the labour force in developing countries each year. Only sustained economic growth can ensure that the shift from grants to credits does not aggravate the debt burden and that loans can be repaid.

Rising incomes and growing employment in developing countries will in turn power future demand in the global economy. Already, between 2005 and 2023, exports from high-income countries (HICs) to low- and middle-income countries grew more than twice as fast as exports from HICs to HICs. With demographic headwinds in HICs, the difference is likely to grow.

At the same time, this shift raises uncomfortable questions about low‑income and fragile countries, where debt distress is already high. Here, scarce grants must be targeted strategically, to tackle humanitarian crises and encourage country-led reform efforts, rather than being spread thinly across an ever‑expanding agenda.

Global public goods and strategic cooperation

What does the shift towards mutual interest development cooperation mean for donor support to global public goods? Their very nature implies that benefits only partially accrue to the funder and recipient and only to the extent others feel encouraged to contribute, too. Yet precisely because progress relies on cooperation, Europe can use technical assistance and concessional funding to promote collective action, by framing it as co‑investment in shared outcomes while maximising development benefits. Climate and biodiversity finance can help developing countries meet access requirements to the Single Market, global skills partnerships can support more orderly migration pathways by creating legal channels for mobility, and aid for trade can strengthen commitment to multilateral trade rules. Moreover, the International Finance Corporation has shown, knowledge in international development increasingly flows in both directions – generating innovations in developing countries, for example in green technologies, that benefit advanced economies as well.

Why multilateralism still matters

One expression of the shift towards mutual interest development cooperation is the return of calls for tied aid. This would be a mistake. Europe’s credibility as a partner depends on its commitment to an open, rules‑based development architecture. Its interests are best served by achieving the underlying objective of boosting job creation and trade opportunities. Eligibility restrictions instead could increase costs and lower development effectiveness. With recent trade agreements with Mercosur and India, Europe has additional reason to keep its procurement system open as it seeks better access to these growing markets.

Multilateral development banks (MDBs) are particularly well-suited to a world of constrained grants and the shift towards mutual interest development cooperation. Their leveraged balance sheets, technical expertise and convening power allow scarce public resources to crowd in private finance at scale. MDBs and key European bilateral development finance institutions have largely aligned their due diligence and procurement requirements, achieving significant gains in efficiency and allowing resources to be pooled for bigger impact. Recent changes to these rules emphasising value for money are creating new opportunities for quality suppliers from Europe. Operating through this system offers European aid providers an opportunity to demonstrate scale and effectiveness while retaining full visibility.

A new social contract for Europe’s Aid

Europe’s development policy is not ending, but it is being fundamentally redefined. The future lies neither in nostalgic defence of a fading aid paradigm nor in cynical transactionalism. Instead, Europe needs a new social contract for development cooperation – one that recognises mutual interest, prioritises jobs and global public goods and remains anchored in multilateralism.

The views expressed in this #CriticalThinking article reflect those of the author(s) and not of Friends of Europe.