European cash aid to the Palestinian Territories is being eroded by bank charges totalling almost €100,000 a month, the charity Oxfam revealed today.
The cause is a well-intended EU decision to avoid paying euro-funds to the ruling Hamas-run Palestinian Authority by targeting money directly on those it is aimed at.
But that means the bank which sorts out payments from Brussels to more than 140,000 Palestinian low-paid public sector workers pockets more than €7.50 per transaction.
Oxfam emphasised it was not criticising the HSBC Bank which conducts the business. But the charity described the situation as an "aid fiasco".
The UK's Department For International Development (DFID) rejected the claim, pointing out that the bank charges - less than 4 per cet of the total aid budget to Palestine for 2006-2007 - were due to the need to filter payments through five counter-terrorism checks.
The monthly cash allowances go to struggling Palestinians working in social services, as well as to pensioners and low-income families.
The money goes into individual bank accounts in the Occupied Palestinian Territories, via the HSBC bank. According to Oxfam, the bank charges cost the EU budget nearly around €3.3 million between August last year, when the arrangement began, and the end of the year.
With expansion of the scheme, the monthly bank charge bill had risen to almost €100,000.
"It's a fiasco that HSBC is being paid to act as a middleman. European states are wasting millions of euros of aid to Palestine through this bureaucratic scheme" said Oxfam Director Barbara Stocking.
"The way that European aid is currently being delivered is undermining Palestinian basic services and damaging a highly fragile economy.
"Palestine is teetering on the edge of chaos and current European aid policy is undermining Palestinian institutions".
All direct EU aid to the elected Palestinian Authority was halted more than a year ago when Hamas rose to power and rejected European calls to renounce violence and recognise Israel.
But to avoid further damaging the impoverished economy, aid was kept flowing under tighter controls to avoid the risk of it being siphoned off for political or military aims.
The resulting "Temporary International Mechanism" scheme has severely hit the €500 million of EU aid Palestinian services such as health and education were getting before Hamas was elected.
Last week, Ireland increased its aid for Palestinian refugees to €11.4 million. However, it is administered through United Nations Relief Works Agency.