Europe and development finance

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At the time of the ‘Wall Street Consensus’: for a coordination of European Financial Institutions towards the Franc Zone

Beyond the Global Gateway investment programme or the Team Europe proactive cooperation initiative, the European Union remains marked by a central paradox: despite the power of its public finance, it struggles to articulate it strategically beyond its borders by incorporating it as a tool of its development policy. This rigidity of action saddles it with a significant lag compared to its strategic competitors, at a time when development policies are shifting from concessional aid to so-called blended finance, interweaving public and private finance.  

The Franc Zone, which brings together two monetary unions – WAEMU and CEMAC – constitutes a monetary area characterised by its exchange-rate peg to the euro. While this monetary framework encourages European investment for development purposes, such investment remains very limited. Furthermore, when it does materialise, it is likely to generate numerous counter-intuitive negative externalities, which harm regional development. Thus, the Franc Zone's special relationship with European finance crystallises a double paradox: it simultaneously constitutes a privileged yet under-utilised «receptacle» for European investment, whilst exposing these economies to perverse effects likely to compromise the development benefits of such investments.  

To find a mutually beneficial solution, several avenues are emerging: rethinking the European institutional framework, reorienting the priorities of its development policy, and also moving beyond – without denying their importance – the dominant critical interpretations centred on the colonial legacy, which limit the constructive progress of transregional cooperation.

 The stakes are high: enabling Europe to adapt its financial apparatus to an international system where competition reigns supreme, while delivering concrete and sustainable results to reverse the «underdevelopment» of the Franc Zone countries, for which European colonial exploitation is largely responsible. The approach adopted in this article therefore views development policy not only as a tool to stimulate development, but also as a de facto strategic instrument serving the interests of its provider.

The European lag

Following the 2008 financial crisis, an underlying transformation has shaken up the practice of international development. The paradigm of Washington consensus, dominant since 1945 and centred on economic liberalisation, financialisation, and the withdrawal of the state, has given way to a new configuration. In this configuration, states are once again central actors in global capitalism, without however marking a return to canonical state control. Daniela Gabor (2021) refers to this new paradigm “Wall Street consensus”, where states are mobilised to direct and channel private investment towards their strategic ends.

At the heart of this shift: Public Financial Institutions (PFIs), bringing together, amongst others, development banks, sovereign wealth funds, or public investment banks, which combine market logic with policy objectives. They provide patient capital, direct investments and structure markets (Macfarlane and Mazzucato, 2018). PFIs therefore embody the executive arm of states re-established in the economic arena, in the form of a renewed «state capitalism» (Alami and Dixon, 2024).

Europe has an exceptional ecosystem of public financial institutions

Along with the European Investment Bank (EIB) and more than twenty national DFIs (AFD, KfW, CDP, etc.), it forms one of the pillars of global public finance. Its constellation of DFIs is, above all, put at the service of domestic economic recovery. Notably, since 2014, the Juncker Plan has enabled cooperation between the EIB and member state DFIs to purchase tranches of European SME debt (Mertens and Thiemann, 2018). This results in an «underlying European investor state», which marks the concrete articulation of state capitalism within the Union. Yet this power remains largely underutilised internationally.

Because of this: the fragmented structure of the Common Foreign Policy and a low integration of DFIs into the Union's public financial arsenal.

European development policy still operates according to a “27+1” logic, where member states and European institutions act in parallel, often without real coordination (Keukeleire and Delreux, 2014).

Recent initiatives such as Team Europe or Global Gateway show a willingness towards integration, but remain largely declarative and aspirational. Although Global Gateway represents 150 billion euros for external investment, it operates in a fragmented way between European DFIs and the EIB, highlighting the lack of institutionalised cooperation beyond the Commission's guidelines. At the same time, 80% of the EIB's operations take place in Europe, having only acquired an external mandate in 2022 (Spielberger and Mugnai, 2022).

Thus, Europe thinks in terms of strategy, but acts in a disjointed manner and struggles to adapt its institutional apparatus to the changes in international development.

Delputte and Orbie (2024) put it this way: although coordination practices are the «Holy Grail» of the Union's development policy, its lack of a distinct vision regarding the ways to practise development prevent it from succeeding. The institutional rigidity of Brussels, centered on concessional development aid, ends up «distracting» European decision-makers from conceptual and practical advances in the field of development (ibid). For example, multilateral PID Asian Infrastructure Investment Bank reflects its adaptability to the realities of the Wall Street Consensus, calling for the creation of «new financial product categories» thus enabling multilateral financialised investment.   

Putting things right: the Franc Zone as a privileged partner.

The Franc Zone is nowadays predominantly analysed from a postcolonial perspective, being a direct legacy of the colonial era. This approach is well-founded, necessary, and fair, given the efforts to identify the vectors of underdevelopment, as well as the efforts towards reconciliation through cooperation, particularly in the face of recent missteps by France and the West in West Africa. The architecture of the Franc Zone is mainly criticised for the constraints it imposes, such as the loss of monetary autonomy, fiscal suffocation, or the impossibility of devaluing the currency for competitive purposes (Pigeaud and Sylla, 2021).

However, such approaches mask another aspect, rarely explored: the structural opportunities offered by this system. In a context where sub-Saharan Africa faces an annual development financing deficit estimated at nearly 200 billion dollars (OECD, 2023), these characteristics of the Franc Zone system could be leveraged to attract investment.

Three features deserve to be highlighted, following a nuanced and critical approach:

First, monetary stability.

Pegging to the euro drastically reduces exchange rate risk, a key factor for international investors (Frankel and Rose, 2002). This monetary stability can foster anchor investments driven by European DFIs, which are capable of catalysing private capital flows. For instance, in certain agricultural value chains, notably in Burkina Faso, anchor investments from various DFIs have helped to initiate a significant influx of private capital (Kragelund, 2011). Furthermore, recent work shows that this type of monetary arrangement facilitates gradual integration into international financial markets (Koddenbrock et al., 2022; Cassano et al., 2013). For example, the issuance of social development bonds in euros by Benin illustrates a turning point, encouraging financial integration while maintaining a stable debt-repayment cost (IMF, 2025). Although sovereign risk remains a central factor in European investment, this characteristic holds strong potential for European investment in the debt of Franc Zone countries over the long term.

Next, the monetary anchor

It contributes to stabilising interregional trade and Euro-African capital flows. By reducing the costs associated with foreign exchange risk hedging, it facilitates trade between the two regions (Frankel and Rose, 2002). This function is explicitly recognised in the Samoa Agreement, which places trade at the heart of development strategies. The Economic Partnership Agreements (EPAs), notably ratified by Côte d'Ivoire and Cameroon, offer preferential access to the European market, consolidating this commercial stability. Consequently, a common foundation exists for more effectively linking trade and European investment in the Franc Zone, particularly in strategic sectors such as infrastructure or renewable energy. However, this transregional «asset» cannot be integrated without strengthening financial regulations. Indeed, Pigeaud and Sylla (2021) emphasise that this monetary stability also constitutes a «license to plunder», since it likewise lowers barriers to capital flight. Between 1970 and 2004, 95% of WAEMU's GDP evaporated in capital flight, representing the obscene sum of 59.7 billion dollars (BCEAO, 2016). Strengthening cooperation on regulation – as Brussels knows so well how to do – is therefore central to achieving an effective outcome from any hypothetical transregional cooperation mechanism.     

Finally, the Franc Zone constitutes an area for the alignment of economic policies, facilitating long-term cooperation.

Pegging to the euro imposes common macroeconomic discipline, particularly regarding inflation and budgetary management, creating a Euro-African «tandem» (Aglietta et al., 2016). This convergence can strengthen the credibility of economic policies and provide a favourable framework for long-term investment by reducing institutional uncertainty (North and Weingast, 1989). Recent institutional mechanisms, such as the Euro-African parliamentary summits planned under the Samoa Agreement, are opening up as yet under-exploited spaces for political coordination regarding development financing. Over time, they could facilitate the establishment of coordinated investment agreements between European DFIs and Franc Zone institutions. At the same time, the CFA franc system has contributed to the formation of a transregional epistemic community, linking African and European economic decision-makers (Borell et al., 2021; Haas, 1992). The withdrawal of the Banque de France from certain decision-making bodies of WAEMU and CEMAC in 2019 highlights the ongoing relevance of this dynamic sixty years after independence. According to «polyheuristic» theory (Redd and Mintz, 2013), this type of cognitive convergence facilitates the coordination of public policies on an international scale, a fertile ground upon which future initiatives by coordinated European DFIs can build. On this point, therefore, the time is right to strike while the iron is hot.

Towards a foreign «European investor state»?

Europe and the Franc Zone thus have an opportunity to seal a mutually beneficial financial cooperation, the foundations of which are already present in the existing structure. On the one hand, this cooperation could stimulate regional economic development. On the other, it would contribute to the maintenance of Europe’s status as a global economic power, and ultimately to the survival of its model at a time when it is under attack both on its eastern flank and on the international economic scene. This obviously presupposes a titanic effort, which begins on the European side.

The Union must devise a new institutional coordination tool for its Public Financial Institutions

Steeped in the reality of the Wall Street Consensus, and up to date with developments in development practice. Although easier said than done, and remaining largely opaque, the future of this evolution must be founded on certain primordial points.

Indeed, coordinating European DFIs presupposes overcoming national logics, redefining relations between member states and European institutions, and assuming a joint investment strategy. This also implies unifying an external agenda that is already domestically fragile because it is limited by prominent budgetary crises, confronting a colonial past that remains vivid, and carrying out a particularly delicate economic diplomacy operation in the post-Operation Barkhane and Task Force Takuba context. More than a decade after the launch of the Herculean project of the Capital Markets Union, this new undertaking for European public finance is no less important, and certainly no less complex. To surpass the current voluntary and fragmented model, the boldness of decision-makers and the rigor of academics will therefore need to be combined in order to deliver such an enterprise.   

Poorly calibrated, excessively focused on rapid returns on investment and lacking regulatory support, such a mechanism could revive asymmetric relations inherited from colonialism. The point here is not to make the Franc Zone a testing ground, but rather to make it the prime partner in a long-overdue merger between European public finance tools, its development policy, and the monetary architecture of the Franc Zone, which requires an increasing influx of capital to achieve its development objectives. Admittedly, development cooperation is never neutral, but here the respective interests – if properly provided for – align into a genuinely mutually beneficial outcome.

The European Union finds itself at a crossroads today regarding its position as a global economic player.

Either it continues to operate according to a fragmented and comparatively ineffective model, or it opts for a profound transformation, building a development policy capable of fully mobilising its potential and competing with its rivals who have already grasped the challenges of adapting to the demands of the Wall Street Consensus.

The future is promising: in a joint letter addressed to the Commission in 2015, several European DFIs and the EIB declared themselves «ready to scale up our activities with the backing of EIB Group risk guarantees [for the] financing of projects, public-private partnerships, infrastructure and participation in securitisation» (Mertens and Thiemann, 2019:16).

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