The Eurozone crisis will influence Arab Spring countries in more ways than one, Niveen Wahish reports Europe's southern Mediterranean partners are affected by what happens within the EU and the Eurozone whether through trade, tourism, remittances or financial linkages. For Egypt the effect is felt mostly through trade and tourism. In all, 32 per cent of Egypt's exports -- or 3.8 per cent of GDP -- go out to the EU's 27 member states. And around 75 per cent of tourist arrivals in Egypt are from Europe. As for remittances, only eight per cent of the whole come in from the EU, while the bulk originates in Gulf countries. Egypt is not so integrated with EU financial systems as to be affected by what happens inside them. In that sense Egypt is still much better off than its Maghreb neighbours. Trade with the EU represents 75 per cent of Tunisia's exports and 60 per cent of Morocco's. According to Heliodoro Temprano- Arroyo, head of unit at the European Commission's Directorate General for Economic and Financial Affairs, Maghreb countries are much more exposed to the crisis because of their higher dependence on EU remittances and more interconnectedness to the EU's financial systems. Temprano-Arroyo addressed a seminar organised by the Egyptian Centre for Economic Studies (ECES) on the repercussions of the euro area debt crisis on neighbouring countries, including Egypt. "We have a serious situation in the euro area," said Temprano-Arroyo. He added that "whatever happens in the euro area, including the area's capacity to deal with the crisis, will influence economic developments in the Mediterranean region. For 2012 the growth forecast for the euro area is 0.5 per cent, with a very weak first half of the year. And forecasts are being revised possibly further downwards." The situation today is much more serious than it was in the aftermath of the global financial crisis in 2008-2009. At that time, although the economies of the EU were affected, that effect on Arab countries was limited. By then, Arab economies were strong enough and there was enough fiscal space to withstand the backlash. Now, the deterioration of Arab economies following the revolutions has made them more vulnerable. As Temprano-Arroyo pointed out, the slowdown in economic activity in the revolutionary aftermath has negatively impacted fiscal revenues. "In order to assuage social pressures, most governments adopted fiscal packages entailing increased social spending, including delays and even reversals in food and energy subsidy reform, tax relief and higher public investment," said Temprano- Arroyo. Furthermore the cost of borrowing for governments has increased. "Together with increases in debt, this is increasing interest payments on debt," he said. According to International Monetary Fund (IMF) forecasts, expected growth for Arab countries stands at 1.5 to two per cent in 2012. But things can be turned around, said ECES Director Magda Kandil, if the EU and its southern Mediterranean partners work to complement each other through a wider vision of integrating the south within the EU. That could help anchor a reform strategy in the south, just like it did for accession countries. Kandil suggested a "sectoral strategy where the flow of investment and technical assistance could target specific sectors in the south, with a view to capitalise on the relative comparative advantage of abundant labour and the prospect to grow exports and maximise the return on investments on both ends." But what the region needs now is financial assistance. Participants at the ECES conference pointed out that the Deauville initiative launched by the G8 had pledged 38 billion euros to Egypt, Jordan, Morocco and Tunisia, but that nothing has materialised so far. Temprano-Arroyo explained that the disbursement of those funds depends on governments knowing what their priorities are and coming up with projects for financing. He recognised Egypt's need for quick disbursement of assistance. Because of that, Temprano-Arroyo added, Egypt could benefit from the macro-financial assistance (MFA) package of 500 million euros that the EU could make available to Egypt, pending an agreement with the IMF. "The funds would cover financing needs until mid-2012," he said. But while some participants believed the 500 million euro sum was very small in comparison with the hundreds of billions disbursed to support EU members, Temprano-Arroyo was quick to point out that in its crisis the EU could have chosen to focus on its internal affairs, but instead it chose to help its neighbours. Moreover, he clarified that the funds given to Egypt cannot be compared to those spent on Greece, for example. That is because Greece is a bloc member, and a "brother country within the EU."
