After an emergency meeting held in Brussels last week, EU foreign ministers decided to suspend export licences for equipment that could be used for internal repression in Egypt. The ministers also agreed to evaluate any financial aid given to Egypt, but confirmed at the same time that financial aid to civil society and humanitarian support to the “most vulnerable groups” would carry on, according to EU Foreign Affairs Chief Catherine Ashton. The meeting fell short of the full embargo on the sale of weapons that some believed would have put pressure on the Egyptian government to end what they have described as the escalation in violence in the country. Ahmed Ghoneim, director of the Centre for Economics and Financial Research Studies in Cairo, ruled out the idea that Europe or the US would resort to economic or trade sanctions on Egypt, as this would have adverse effects on both sides. “I do not expect there to be any impact on aid, financial assistance or trade relations. All the parties have mutual interests, and most of the grants and loans committed are linked to international agreements signed between Egypt and the EU bloc,” he said. At the same time, Egyptian ambassador Gamal Bayoumi, chief negotiator of the Egypt-EU Association Agreement, said that aid from the United States was part of the peace process with Israel and that the EU was also obliged to support Egypt's economy to lift the burden caused by the Egypt-EU free-trade agreement. “EU countries allocate assistance to Egypt in order to compensate it for the difficulties of liberalising foreign trade,” he said. The US is the biggest supplier of military assistance to Egypt. However, according to EU figures on arms export licences granted by member states in 2011, Europe sells some 300 million euros worth of weapons to Egypt each year. Ahead of the EU foreign ministers meeting, it emerged that Germany, France, Italy, Sweden, Austria and the Netherlands had called for a complete ban on the export of weapons to Egypt. However, the EU adopted a flexible position, choosing not to slash financial aid worth five billion euros and only to suspend weapon sales. Some countries feared a stricter position could affect EU efforts to convince the country's interim government to restore democratic rule. “Europe is not even a major weapons supplier, so suspending weapons sales will not have a concrete impact on Egypt,” Ghoneim said. European officials said that holding back financial support would harm the poorest people in Egypt, while the new regime could still depend on the financial help promised by the Arab Gulf countries, which have pledged their support to the interim Egyptian government. Last November, the EU pledged a total of five billion euros ($6.71 billion) in loans and grants to the administration of ousted former president Mohamed Morsi, though much of this assistance was tied to demands for economic and political reforms. Only a small amount of the total sum has been paid out. The five billion euros came in addition to traditional cooperation assistance managed by the European Commission. While the EU confirmed that no new money had been given to Egypt's government so far this year, the European Commission, the EU's executive arm, has spent several hundred million on social, civil society and infrastructure projects in 2012 and 2013, according to Bayoumi. In addition, the EU's lending arms, the European Investment Bank and the European Bank for Reconstruction and Development, have made available around 300 million euros in loans to Egypt since the start of last year. The European Commission has committed itself to providing additional financial support to Egypt in an overall amount of nearly 800 million euros in the form of grants and loans. This includes 303 million euros in the form of grants, 50 million euros as the grant component of the EU macro-financial assistance operation, and 163 million euros from the EU Neighbourhood Investment Facility (NIF), according to Bayoumi. Another 450 million euros in the form of loans and macro-financial assistance were linked to the conclusion of a loan agreement between Egypt and the IMF, which has not yet materialised. In 2007-13, the EU made available more than one billion euros to Egypt under the European Neighbourhood Partnership Instrument (ENPI), the main financial instrument for providing assistance programmes to the region. At the moment, programmes being implemented under the ENPI amount to about 892 million euros, and payments have declined. In 2013, only 16 million euros have been made available thus far, due to the continuing instability in Egypt and alleged failures to conform to agreed conditions. In addition to the ENPI, EU assistance is provided through other financial tools, such as the NIF, the European Instrument for Democracy and Human Rights, or thematic programmes under the Development and Cooperation Instrument. Aid to civil society organisations and non-state agencies under these financial instruments, outside the ENPI, amounted to about 23 million euros, according to the website of the EU delegation to Egypt. Bayoumi expected future EU intervention in Egypt to call different parties to refrain from violence, to complete the democratic process and to preserve human rights. The EU and Egypt are also major trading partners in the southern Mediterranean region. Relations between the EU and Egypt are governed by an association agreement. Following the signature of this in June 2001, the agreement was ratified by the Egyptian parliament and all EU member states. As a result, EU aid to Egypt cannot legally be breached, according to Bayoumi. After the agreement became effective on 1 June 2004, trade conditions improved between the EU and Egypt. Since then, bilateral trade between the 28 states of the EU and Egypt has more than doubled, reaching its highest level in 2012, from 11.5 billion euros in 2004 to 23.8 billion euros in 2012. Bayoumi said that the EU could decide to freeze or halt development aid, which would affect the size of Egypt's imports from the EU, amounting to $19 billion in 2012. The worst-case scenario, Bayoumi added, would be that the EU would apply Article II of the partnership agreement, which says that relations between the parties are based on democracy and the respect for human rights, and gives either of them the right to breach the agreement if it thinks that the other has violated it. This could be used to suspend the agreement, which would lead to a halt in customs exemptions on Egyptian exports, amounting to $10 billion a year, though this would also lead automatically to Egypt's stopping tariff exemptions on European exports to Egypt. EU countries pay 10 per cent customs duties at present, and they are due to be exempted from all tariffs by 2019, meaning that any suspension of the agreement would hurt both sides. For European aid amounting to $150 million, Egypt in return imported goods to the value of $19 to $21 billion in 2012 from Europe, meaning that for every dollar paid in assistance, Egypt spends $135 in purchases, Bayoumi said. EU imports of goods from Egypt are dominated by energy, followed by chemicals, textiles and clothes. EU exports to Egypt consist mainly of machinery and chemicals. EU exports of services to Egypt are dominated by business services, while EU imports from Egypt consist mainly of travel services and transport. Bayoumi said that while he could understand pressures to reject foreign aid to Egypt as a matter of national pride against foreign interference in Egyptian affairs, this aid was Egypt's right under the peace process and as a result of entering into the EU free-trade agreement.
