Jump directly to page content

A Dubious Deal with Cairo

Why the German Government Should Not Support the EU-Egypt Agreement in its Present Form

Megatrends spotlight 29, 25.03.2024

The EU’s planned aid for Egypt will primarily serve to prop up authoritarian rule rather than contribute to the country’s long-term stability. Additionally, the EU Commission’s procedural approach is highly problematic, highlights Stephan Roll in this Megatrends Afrika Spotlight.

The EU Commission President, Ursula von der Leyen, has described the new partnership agreement between the European Union (EU) and Egypt as a “historic milestone”. In March, von der Leyen travelled to Cairo alongside the heads of government of Italy, Greece, Belgium, Austria, and Cyprus to sign the agreement with President Abdel Fatah al-Sisi. At the heart of the agreement is a EUR 7.4 billion aid package aimed at stabilizing Egypt's public finances and its ailing economy. In exchange, the EU Commission expects the Sisi administration to assist in curbing irregular migration. Egypt, with a population of over 110 million, is not only significant as a transit country but also increasingly as a country of origin. The agreement outlines a “holistic” approach to migration management, in which border security and repatriation are expected to be the key focus areas for the Commission.

A Sense of a Political Déjà Vu

The EU Commission’s plan is unlikely to succeed. Its approach is similar to that of 2016, when Cairo reached an agreement with the International Monetary Fund (IMF) on a program to rescue Egypt’s public finances. At that time, during the peak of the so-called refugee crisis, European capitals were as concerned about the possibility of an Egyptian state bankruptcy and the resulting potential migration movements as they are today. Several European countries therefore immediately supported the IMF agreement with generous budget support. Germany alone provided EUR 450 million in untied loans. This was partly in the expectation that Egypt would then better secure its borders. And indeed, shortly after the financial aid was granted, the number of migrants attempting the dangerous journey across the Mediterranean directly from Egypt fell from over 12,000 between January and September 2016 to less than 100 in the following months. The number of Egyptian migrants entering the EU irregularly through alternative routes, primarily via Libya, remained relatively low compared to other countries.

However, the initial joy in European capitals over this success was short-lived. Despite the IMF program and further assistance from the Fund, Egypt did not achieve the hoped-for economic stabilization. Instead of sustainable growth, the country experienced a surge in public debt. The rise in inflation and cuts to an already struggling social system led to a dramatic increase in the poverty rate, which now stands at well over 35 per cent. Moreover, the willingness of state authorities to effectively secure the country’s borders significantly declined in the following years. As of 2022, six years after the agreement with the IMF, Egyptians, totalling 21,753 individuals, comprised the largest group among migrants arriving in Europe via the central Mediterranean route.

Wrong Assumptions about the Causes of the Crisis

In its analysis of the current situation in Egypt, the EU Commission mentions the insufficient implementation of reforms by the Egyptian government. However, it primarily attributes the country’s economic imbalance to the effects of external shocks, such as the Russian invasion of Ukraine, the war in Gaza, and the conflict in neighbouring Sudan. Indeed, these developments have affected Egypt in the past two years. But they are by no means the main cause of the ongoing economic and financial crisis. Instead, this is the result of the debt-financed spending policy under President Sisi.

Rather than prioritizing the needs of the population, Sisi prioritizes the interests of the Egyptian military. Egypt has been the world’s third-largest arms importer between 2017 and 2021, despite being burdened with debt. In addition, the national debt is exacerbated by questionable infrastructure projects. The construction of the extravagant administrative capital, which significantly benefits the military, alone is estimated to cost up to USD 59 billion. A significant amount of this spending is expected to come from state funds. Additionally, the construction of a nuclear power plant by Russian companies, which is financed by debt, is likely to continue straining the state budget for years to come. Meanwhile, it is unlikely that Egypt’s economic policy will undergo significant changes in the near future. The authoritarian system of governance relies on the military’s support, whose powers are being increasingly expanded. The absence of checks and balances, the restriction of press freedom, and the repression of independent civil society by the police state all contradict the principles of good governance.

Tactical Bypassing of the EU Parliament

The EU’s agreement with Egypt raises questions not only about the underlying assumptions, but also about the procedure. The Commission’s hasty approach appears problematic. According to the agreement, Egypt will receive a total of EUR 5 billion in loans and EUR 2.4 billion in investments and grants (including EUR 200 million for migration management). The European Commission, with the support of the European Council, intends to fast-track EUR 1 billion of this macro-financial assistance to Cairo as early as 2024. This would rule out prior consultation of the EU Parliament and thus bypass it. Commission President von der Leyen justifies her action with Article 213 of the Treaty on the Functioning of the EU. The article allows the EU Council, under exceptional circumstances and upon the Commission’s proposal, to make such a decision if immediate financial assistance is required in a third country.

The given justification is by no means plausible. After all, Egypt is expected to meet its payment obligations in 2024 without any difficulty due to an investment agreement signed with the United Arab Emirates at the end of February. For USD 24 billion, as well as the conversion of a central bank deposit of USD 11 billion, Abu Dhabi has secured rights to the tourist development and use of the Ras al-Hikma region on the Egyptian Mediterranean coast. The funds are expected to be gradually transferred to Cairo within two months. Additionally, the country will receive fresh liquidity through the planned increase of an existing credit agreement with the IMF from USD 3 billion to USD 8 billion.

Therefore, the German government should not support such actions by the EU Commission. The EU would have sufficient time to carefully scrutinize the financial support for Egypt as part of the regular parliamentary decision-making procedures. In any case, disbursement of the planned aid only makes sense if the Egyptian government first implements a series of reform measures to ensure better governance. To foster sustainable economic stabilization in the EU’s most populous southern neighbor, it is crucial to dismantle military economic activities and implement concrete measures to put an end to police-state repression. Otherwise, any assistance provided will only bolster the authoritarian rule under President Sisi. Any containment of irregular migration, if accomplished at all, would likely be temporary.

Dr Stephan Roll heads the SWP Africa and Middle East Division.