As Brussels embarks on a revamp of the European Neighborhood Policy, Egypt is the place where the essential spirit of a common neighborhood appears most clearly to have met its demise. EU policy there is increasingly a squeezed and defensive protection of basic European interests.

Egypt is heading toward a coarser and more unalloyed authoritarianism than existed under former president Hosni Mubarak. The EU reaction has been tepid.

The EU has sought to use some of its development aid as leverage. It has held back parcels of budget support, macroeconomic assistance, and some aid projects directly benefiting the government. The union is also waiting until after parliamentary elections in March 2015 before it renews its European Neighborhood Policy action plan with Egypt. All member states suspended arms sales and security assistance after the coup in 2013.

These policy responses have been too weak to influence the regime. A complicating factor now is the role of Saudi Arabia and the United Arab Emirates, both of which are channeling vast amounts of money to Egypt in a way that undermines Europe’s ability to wield influence. There is a strong consensus in Cairo that this has exposed the EU (and United States) to serious competition.

Despite the increasingly extensive repression, the EU is negotiating a significant new aid package for 2014–2015 with the Egyptian regime. The government has made sure political reform questions are largely excluded from the list of priorities to be addressed under this program. A handful of EU governance-related projects have stalled as they have not been authorized by Egyptian authorities. Several member states are struggling to implement projects effectively under their various reform funds.

The main EU focus in Egypt is still on boosting the capacities of the country’s ministries to align with the union’s technical harmonization and on fostering the mutual recognition of standards. The Dutch and Danish governments interrupted their aid programs after the 2013 coup but have now restarted activities. Several member states are rumored to be thinking about restarting arms sales. The Egyptian regime appears to have little interest in negotiating the free trade agreement that the EU offered in 2011.

Against the currently unpropitious background, the EU should focus on four impending challenges in Egypt.

The EU must assess whether and how it can protect #Egypt's civil society.
 
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First, the EU will need to assess whether and how it can offer basic protection for the country’s embattled civil society. With the regime reducing the space available for civil society organizations, all NGOs were obliged to register under highly restrictive terms by November 10, 2014. The regime appears intent on eviscerating any genuinely independent civil society.

Carrying out a round of meetings in Cairo last week was a somber experience. Many human rights activists have fled Egypt, several having received death threats. Those still present told me nervously about contingency plans in the event of the imminently expected knock on the door. Even if the anticipated crackdown does not materialize, the regime has already intimidated such groups sufficiently to curtail civic debate.

European funding has already been affected. Several Egyptian human rights groups have withdrawn their bids for EU funds. Several embassies report that their project partners have encountered problems.

From my conversations in Cairo, it appears that the EU and its member states have little clear idea of how to respond. It goes without saying that cutting cooperation with Egypt would be a drastic step. European diplomats are inclined to see Egypt as a bulwark of stability in today’s turbulent region.

But one wonders whether the EU can really turn a blind eye to what is happening without seriously damaging its credibility—and thus its ability to advance longer-term strategic interests. Egypt is suffering about as serious an infringement of associative freedom as one can imagine. The EU cannot sweep this under the carpet without exposing its human rights discourse as cynically hollow.

A second important question relates to the next parliamentary elections. On this issue, the international community does have leverage. Without elections, governments could stay away from the major international investment conference planned for March—depriving the Egyptian regime of the $120 billion of inward investment it says it desperately needs. While EU conditionality in general now struggles to gain traction, this issue does matter to the regime.

However, the new parliament is unlikely to be an effective check on executive power. The government is gerrymandering districts and setting rules to control the drawing up of candidate lists. The main opposition Freedom and Justice Party is banned from taking part in the election. The parliament will be dominated by independents—prominent “families” loyal to the regime—rather than party representatives.

One wonders if the EU will take facade elections and the reconvening of a merely rubber-stamp parliament as a green light to rush in with investment offers. Any European observer mission must take care not to confer legitimacy on such elections.

A third challenge is for the EU to get its economic engagement right. Unable or unwilling to confront political issues, international actors are turning their attention to the economic sphere. They are apparently encouraged in this by the military’s talk of supporting economic reform.

Yet the regime’s economic model relies heavily on megaprojects controlled by the military. The dynamics of clientelistic state capture have deepened as business tycoons become more powerful. Many in the EU say they are highly optimistic about economic progress—without flagging these negative governance trends. European economic support should focus far more on fomenting a genuinely independent private sector.

Until political Islam is addressed, stability in #Egypt will be fragile.
 
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A fourth unresolved question is what happens to political Islam. The effective outlawing of the Muslim Brotherhood does not mean that political Islam as a social phenomenon will simply disappear. Until this issue is addressed, stability in Egypt is likely to be fragile and ephemeral.

European governments have hardly been able to maintain links with key Islamists and appear to have relegated the question to the back burner. They should find ways to work it back into their civil society initiatives.

The current situation will surely not suffice as a recipe for long-term stability. Another bombing on the Cairo metro on November 13 and a prominent kidnapping in the city during the same week show how shortsighted it is to think that tough military rule ensures security.