The European Union Solidarity Fund: an assessment of its recent reforms

Abstract

After extensive flooding in 2002, the European Union Solidarity Fund (EUSF) was created as an ex post loss-financing vehicle for EU member states and candidate countries in the case of disasters that exceed the government’s resources to cope. The EUSF is viewed as a valuable instrument for pooling risk among countries in Europe and potentially as a model for financing loss and damage from climate change in vulnerable countries worldwide. This paper assesses its future prospects taking account of reforms adopted in 2014. Our analysis is based on three recognized aims of the Solidarity Fund: its promotion of solidarity with those countries having the least capacity to cope with major disasters; its contribution to proactive disaster risk reduction and management (climate adaptation); and its robustness with regard to its risk of depletion (stress testing). Using a simulation approach for future disasters, we conclude that the reformed EUSF’s risk of depletion, although it is reasonably robust to more frequent disasters, could be reduced by increasing member state contributions and/or engaging in risk transfer. The European Commission has taken important steps in linking the fund to proactive risk reduction; yet, by changing its budgeting practices, the commission could be more proactive in encouraging risk management in member states. In its current form, the EUSF does not embed needs-based solidarity. Lower-income “new” member states have received disproportionately less compensation in terms of eligible losses, although on average, they have received more disaster aid than what they contribute to the fund. Solidarity could be enhanced by changing the rules for disbursing aid. After briefly describing alternative risk-pooling models in the Caribbean, Africa, and Europe, we suggest how design features of the EUSF as compared to other regional risk pools can inform discussions on the Warsaw International Loss and Damage Mechanism.