Europe's struggle for influence in Egypt

Egypt tests Europe’s ability to influence events in its southern neighbourhood. In January 2011, the protestors in Tahrir Square brought down President Mubarak, despite lukewarm support from Western countries. After Mubarak’s removal from power, the EU adopted a new policy based on the ‘more for more’ principle; the more a country enacts democratic reforms, the more EU aid it can expect. In November 2012, after the elections that led to Mohamed Morsi’s brief presidency, the European Union announced a package of grants and loans totalling nearly €4.2 billion. The following week President Morsi announced his autocratic grab for Egypt’s constitutional powers. When European officials complained about the violation of religious or women’s rights in Egypt, Muslim Brotherhood officials would retort by pointing at rising Islamophobia in Europe. Now, in spite of intense American and European diplomatic pressure, the interim government has used disproportionate force to disperse the pro-Morsi sit-ins, killing more than 800. A cycle of violence has ensued as dozens of policemen and security officers have been killed in response. Egypt now balances on the precipice of further violent conflict.

Europe’s diplomatic relations with Morsi’s government were troubled, but things are no easier now. The liberals and the moderates in the current government  ‒ those that the EU and Washington considered allies  ‒  have either been co-opted or outflanked by the hardliners. Prime minister Hazem el-Beblawi, a liberal economist, supported the crackdown against the sit-ins and has suggested the Muslim Brotherhood’s licence to operate as a political party could be revoked. Another moderate and key interlocutor of the West, Mohamed ElBaradei, is no longer influential after he resigned in protest at the violence and even faces legal charges over that decision. Meanwhile, Tamarod, a grass roots protest movement which appeared to share Western values, is becoming more nationalist and has called for tearing up Egypt’s peace treaty with Israel and an end to American military aid.

Following last week’s violence, the EU has decided to stop the sale of all ‘arms that can be used internally’. In practice the EU measure is likely to halt the export of small arms, munitions and possibly armoured personnel carriers. The army and police are too powerful for the EU’s decision to influence the internal balance of power. And if the Egyptian military run out of guns and bullets, there are many more suppliers able to replenish its stocks. Given the proliferation of arms from places like Libya, the same also holds true for the Islamists. And so, the EU’s decision will do little to bring the parties back to the table. It seems calculated to make clear that Europe disapproves of the violence, but not of the new regime.

If it had wanted to make a stronger point, the EU could have suspended aid, withdrawn its ambassadors, made a common demarche on the Egyptian ministry of foreign affairs or slapped economic sanctions on the assets and movements of senior government or military officials. Of course, the EU could still do all these things, but it seems unwilling to antagonise the Egyptian government. Egypt is too important for several European interests; a secure Suez Canal, enduring Arab peace with Israel and the fight against militant Islam.

Behind closed doors US and European security and intelligence communities will have welcomed Morsi’s replacement by General Abdel Fattah al-Sisi. Morsi’s government looked the other way while lawlessness flourished in the Sinai peninsula. Militants have bombed the natural gas pipeline to Israel and Jordan thirteen times in the past two years. The peninsula has become a conduit for Libyan arms to Hamas and Syria’s rebel groups (intelligence agencies have been particularly concerned about the spread of shoulder-fired missiles that can shoot down helicopters and planes). In the Sinai, there are nearly daily attacks against the police and army (in mid-August 24 police officers were killed in an ambush). Despite their restrictions on arms exports, most European governments probably hope that Egyptian security forces have enough weapons to reimpose order in Sinai.

But the overthrow of Morsi is unlikely to bring peace. Al Qaeda’s chief, Ayman al-Zawahiri, has called on his followers to resist the interim government in Cairo. The Egyptian economy is on life support. Sectarian attacks on Coptic Christians and their churches have increased. The Suez Canal – a maritime chokepoint that carries roughly 8 per cent of global seaborne trade  ‒  is at risk. This puts Europe in the uncomfortable position of giving preference to its security interests over its liberal values, without being sure that it can protect either.

The larger story of Europe’s pursuit of influence in Egypt relates to the changing balance of power in its southern neighbourhood. With America unwilling to get involved, European countries have tried, with mixed success, to take the lead on issues in Libya, Mali and Syria. In Egypt the EU now finds itself competing with the Gulf countries for influence. Saudi Arabia, Kuwait and the UAE – primarily concerned with domestic support for the Muslim Brotherhood – have welcomed the assault on the Brotherhood and have given the interim government a cheque worth $12 billion, almost €9 billion.  Reasoning that Cairo, if it wanted, could simply ignore Europe and rely on the Gulf states, the EU has decided to keep its aid and trade relationship intact. It is betting that by denouncing the violence, stopping arms sales but maintaining other ties, Brussels will be able to keep doors in Cairo open.

One positive for the EU in the Egyptian crisis is that member-states are allowing Catherine Ashton to coordinate EU policy. She was the first European leader to visit Egypt after the fall of Mubarak, and the only senior foreign official to have visited Morsi after his detention. This gives her credibility in Europe and in the region. European governments should mandate Ashton, and the EU’s Special Representative for the region, Bernardino Leon, to coordinate efforts with the Gulf states and the US and reach out to the interim government to help establish a national political dialogue.

Europe’s influence also relies on the power of its markets. Europe’s aid package is less than half of the Gulf states’ financial commitment, but Egypt needs foreign investment and deeper trade relations, rather than a line of credit. Once stability has been restored, the EU should be prepared to help the country deal with its vicious cycle of unemployment, inflation, capital flight, rising debts, falling currency reserves and increasing budget deficit (running at roughly 12 per cent of GDP) by further opening its markets to Egyptian goods. In time, the Egyptian government will have to reduce its subsidies on fuel and bread – actions that could spark popular unrest. The EU has also made macro-financial assistance to Egypt – worth €500 million – conditional on the successful negotiation of an IMF loan. European leaders should continue to push the interim government to strike a deal even though the political environment is not ready for this yet.

While the Brotherhood is suppressed, the military is the most organised political institution in the country. Under current conditions, a rush to the ballot box would almost certainly mean victory for the military’s candidate, perhaps al-Sisi himself, and enrage the Brotherhood’s supporters. At a conference in Cairo in March, one of the speakers, since elevated to a very senior position in government, said that if Morsi’s government failed, it would mean the bankruptcy of political Islam in Egypt. His words now read like a policy prescription. The interim government has detained 75 senior members of the Muslim Brotherhood, including Morsi himself. Under the existing electoral law, given their criminal indictments, many of the Brotherhood’s leadership would not be eligible to participate in the elections. By purging the Brotherhood, General al-Sisi hopes to stop his opponents from playing a meaningful role in Egypt’s politics.

The EU has an interest in a pluralist democracy, not in military rule sanctioned through quick elections. However difficult it may be, to give the opposition parties a fair chance it would be sensible to gather all parties (including the Brotherhood) in a process that lets them determine the timing of the elections. The recently created European Endowment for Democracy could also use its admittedly limited funds to support some of Egypt’s nascent political parties.

If the military insist on pushing the Brotherhood underground, however, this is likely to create security problems of its own. As avenues for democratic participation are closed to the Brotherhood, the likelihood increases that its supporters will resort to violence (as happened in Algeria in 1991 when the military intervened to deprive Islamists of their election victory, sparking civil war). The Brotherhood’s hardliners will gain influence, condemning the US and Europe as anti-Islamic and hypocritical for condoning the overthrow of a democratically elected government. The Brotherhood could also reverse its earlier renunciation of violence. Political Islam in Egypt would become more anti-Western and less amenable to democratic ideas, opening the way for a rise in violent extremism, including against Western interests, in a region that is rife with conflict. Tragically, Europe’s access to Cairo’s powerbrokers would then become even more important, even as its policy choices become more unpalatable.

Rem Korteweg is a senior research fellow at the Centre for European Reform.

How the EU can help Kerry with Israeli and Palestinian peace talks

As soon as US Secretary of State John Kerry announced the resumption of peace talks between Israel and the Palestinians, the EU promised to do everything it could to support the new American initiative. The Middle East peace process has been a top EU priority for years. But Europeans are conscious that they lack the diplomatic clout to be a major player. Palestinians and Israelis think that EU member-states are too frequently divided among themselves. Many Israelis also argue that even though the EU and Israel have close ties, the Union does not give sufficient importance to their security concerns. Nevertheless, Europeans played a modest role in helping the US convince Israelis and Palestinians to sign up to new talks. And the EU can make further contributions to the peace process.

In July, as Secretary Kerry negotiated assiduously with Israeli Prime Minister Benjamin Netanyahu and Palestinian President Mahmoud Abbas to give peace talks another chance, the EU high representative for foreign affairs Catherine Ashton announced that the EU would no longer give grants and scholarships to companies and educational institutions based in Israeli settlements. In addition, a leaked letter from Ashton detailed EU plans to require products from settlements to be labelled as such when sold in the EU. The Union, which has long argued that Israeli settlements are illegal under international law, had been working on both initiatives for a while. But the timing of the announcement and the leaked letter helped in a small way to convince both President Abbas and Prime Minister Netanyahu to agree to peace talks.

Of course, the Obama administration was the key driver behind Abbas and Netanyahu’s endorsements of new negotiations. But according to European officials, the Palestinian president felt emboldened by the fact that the EU was willing to put international pressure on Israel. Israel, for its part, is always worried about being isolated. Netanyahu asked Kerry to convince the EU to revisit the decisions on the settlements. But Kerry told Netanyahu that he would not ask the EU to back down, and that unless Israel took part in peace talks, Tel Aviv risked similar action by other countries in the future. According to officials, the exchange between Kerry and Netanyahu weighed on the Israeli prime minister’s decision to support negotiations.

The EU helped the Americans coax the parties to the negotiating table because it has some economic leverage over them. Israel has an association agreement with the EU, and so many of its exports to Europe benefit from preferential trade terms. The Union disburses research funds and scholarships to Israeli industry and universities. And the EU is the largest donor to the Palestinians. In recent years, the European Commission and member-states have together provided €500 million a year. Amongst other things, this money has helped Palestinians develop the institutions required to function as an independent state – though more Palestinian nation-building will be needed before a two-state solution can be viable. The EU’s economic weight could be of significant help to both Israelis and Palestinians if they reached a peace deal. European states could help stabilise the region through further aid and trade concessions. The EU is already reflecting on how it could deepen bilateral ties with Israel in response to the progress in the peace process, a move the Israeli authorities greatly welcome.

Europe could also help the negotiations by making clear that if a deal was reached it would offer peacekeepers to prevent violence. Over the years, a number of European politicians have raised this possibility. Europeans already provide peacekeepers to UN monitoring missions along the Lebanese and Israeli border, and the Golan Heights. But if Europeans want their offer to be credible, they need to reassure Israelis and Palestinians that their peacekeepers would not be passive observers. Instead European troops would be given a mandate to use force if necessary to stop outbreaks of violence. EU states have sometimes imposed limitations on what troops or police forces can do when deployed, for a variety of reasons including minimising the risks to personnel. This was the case for example during an EU police monitoring mission along the border between Gaza and Egypt between 2005 and 2007. As a result, Israel never felt the mission was credible.

Finally, and controversially, the EU can support the peace effort by helping to bring Hamas into the process. The militant group, regarded by the EU, US, Israel and many other countries as a terrorist organisation, has been in sole control of Gaza for six years. Hamas, which frequently clashes militarily with Israel, is popular among Palestinians in the West Bank as well as in Gaza. Without its endorsement President Abbas will be incapable of reaching a durable peace settlement with Israel. In recent years, Egypt, Qatar and several EU governments have grudgingly reached this conclusion. Qatar and Egypt – even under former President Hosni Mubarak – have tried unsuccessfully to reconcile the warring Palestinian factions. The EU has made clear that it would be willing to work with a Palestinian unity government which included Hamas, if President Abbas were comfortable with the deal and Hamas renounced violence.

The need to include Hamas in a peace deal is also recognised by some Israeli officials, including former heads of Mossad – the Israeli national intelligence agency – and by some in the US government. During her last year in office, former Secretary of State Hillary Clinton asked her department to work out how to engage with the militant group. But the US government is unlikely to stop boycotting Hamas, given strong Congressional opposition to the organisation.

If the talks between Netanyahu and Abbas develop into something meaningful, Secretary Kerry should make use of Europe’s willingness to engage with Hamas. With the consent of President Abbas and the Israeli government, the US should discreetly encourage the EU to make the public case for including Hamas in the peace negotiations.

Even with a co-ordinated transatlantic effort, the prospects for the nascent peace initiative are not good. Not only must Hamas and President Abbas’ Fatah party be reconciled for any Palestinian state to work, but Netanyahu will also have to ensure his coalition supports a deal (and he would then probably have to win a referendum on withdrawal from many of the West Bank settlements); meanwhile many of the Arab countries whose support will be essential, above all Egypt, are in turmoil. Hezbollah could seek to re-establish its credibility in the Middle East – damaged by its support for Syrian President Bashar Assad – through a new military confrontation with Israel. More generally, spill-over from the Syrian conflict could destabilise both Lebanon and an increasingly fragile Jordan. But the talks are worth pursuing, with strong EU backing: if they fail, it is unclear how long Mahmoud Abbas can remain Palestinian president, and few other Palestinian politicians are as supportive of a negotiated peace. Secretary Kerry would probably have preferred a better hand of cards on taking office. But the next hand could be even worse.

Clara Marina O'Donnell is a senior research fellow at the Centre for European Reform.

Putin's Russia: Stability and stagnation

After a week in Russia I concluded that Russia is very stable – perhaps too stable. President Vladimir Putin appears to want little political or economic reform, lest it lead to instability. Nevertheless, divisions are appearing in his entourage: some favour clamping down hard on the opposition, while others counsel softer tactics. Sometimes Putin backs one group, sometimes the other. On foreign policy, too, Putin seems to have two faces. The pragmatic Putin wants to work with the US in dealing with common problems. But another Putin views the US as a hostile power that is trying to destabilise Russia, and is happy to do things – like sheltering the fugitive Edward Snowden – that infuriate it.

In Moscow, both opposition leaders and the more liberal government officials agree that the need for political and economic change is greater than ever, but that the chances of serious reform are close to zero. After mass demonstrations in the winter of 2011-12, optimists thought the regime would attempt to win back the support of the middle classes by modernising the country’s governance. But these days nobody expects much to change.

Russia’s leaders worry that big economic or political reforms could upset vested interests, create losers and perhaps strengthen the opposition. The government has in fact attempted some reforms of the university, school and healthcare systems, in order to save money, but these have been unpopular. Reform of the pension system – which would mean curbing pension rights – has been mooted for over a decade but frequently put off. There always seems to be an excuse for postponing major reform.

The slowdown of the economy has come as a shock to Russia’s rulers. In 2010, 2011 and 2012, Russia grew at close to 4 per cent. This year growth may be less than 2 per cent. The government initially blamed the slow-down of the world economy: demand for Russia’s natural resources was diminishing. But in April, when Putin gathered key ministers and experts to discuss the economy at the Black Sea resort of Sochi, they concluded that some of the problems were home-grown.

Officials list the structural problems: the absence of spare industrial capacity (in the 2000s the economy could grow quickly by turning on Soviet-era plants); the lack of labour mobility in Russia (old Soviet ‘mono-towns’ are propped up by the state); an ageing population; and, especially, the falling rate of private sector investment. Net capital outflow of $40 billion in the first half of the year did not help, but inadequate rule of law is perhaps the major deterrent to investment. Not much is being done about it. “The leaders put too much emphasis on stability,” said a former senior official. “There is a lack of energy at the federal level”.

More sustainable and less volatile growth requires Russia to wean itself off dependency on natural resources. One official admitted that though diversification remained a political objective, achieving it would be extremely difficult. Russia had to respect its natural strengths, which were raw materials, ‘mathematically-intense services’ (like data processing and computing) and land, said the official – who noted that Australia did quite well despite depending on exports of natural resources.

A high oil price provides cash for the government to satisfy vested interests and undermine potential opponents. But even a lower oil price would not necessarily trigger much reform, officials warn. “Everyone understands we need a crisis before you get institutional reform”, said one. “But they hope you can escape the crisis. Nobody in government or opposition has a really good plan for implementing reforms.” Even opposition leaders doubt that a drop in the oil price would spur reform. “There are no examples in Russian history since the USSR of bad economic performance provoking political unrest,” said one. “And if there are more demonstrations, so what?”

But if reform driven by bottom-up protests seems unlikely, for the time being, could splits in the ruling elite lead to top-down change? There is no longer a division between Putinites and followers of Prime Minister Dmitri Medvedev, because he is no longer a significant player. But the Putinites seem to be dividing between siloviki (those linked to the security establishment) and pragmatists. The battle between them is not yet dangerous to the stability of the regime, because Putin is clearly in charge.

The siloviki, led by, among others, Alexander Bastrykin (the head of the ‘investigative committee’) want to crush dissent. The siloviki ensured that Alexei Navalny, an opposition leader, was sentenced to five years’ hard labour in July. They do not want him to compete in September’s Moscow mayoral election.

But after one night in prison, Navalny was released. This means that he can – while his appeal is pending – run for mayor of Moscow. He can thank the pragmatists, who include Sergei Sobyanin, the current mayor of Moscow, for his release. Sobyanin, it seems, wants to run against Navalny in a free and fair election, as he knows this would enhance his legitimacy and that he would win easily. The Navalny affair is a reminder of the degree to which the courts are controlled by the executive.

Many oligarchs, liberals and moderates see Sobyanin as a possible successor to Putin. A former governor of Tyumen region, deputy prime minister and head of the presidential administration, he is a grey, Chernomyrdin-like figure. Sobyanin is very loyal to Putin and said to be effective. One former official who has worked with him said that if Sobyanin was in charge he would try to make moderate improvements to the system.

Navalny, who began as an anti-corruption campaigner, is emerging as the most credible opponent of Putin, though he lacks large-scale support (opinion polls suggest that he would be lucky to win 10 per cent of the votes in Moscow) and his own party has not been registered. The most liberal opposition leaders do not trust him to be a real democrat.

The Republican Party seeks to bring together all the liberals but has very little money and too many leaders. One of the party’s four co-leaders, Vladimir Milov, recently walked out to found his own party. Of the others, Vladimir Ryzhkov voted against the Republicans backing Navalny for mayor of Moscow, but Mikhail Kasianov and Boris Nemtsov voted in favour and so the party will support him. The opposition looks like remaining weak – and Russian politics are on course to remain stable.

Russia’s relations with the US, however, are in flux. The ‘reset’ – the warm tone that prevailed between Presidents Barack Obama and Dmitri Medvedev – had disappeared before Putin returned to the presidency in May 2012. This year the atmosphere has gradually soured.

Fathoming Putin’s intentions towards the Americans is difficult. Ask senior Russians how Putin sees the US and you get two different answers. One is that Putin would like a business-like relationship in which the two sides can deal with common challenges, like terrorism, Afghanistan, Iran, Syria and so on – even though they will often criticise each other. Putin understands that the US is the pre-eminent superpower and that he must work with it on some of these issues. Thus Putin personally backed last year’s Exxon-Rosneft deal – perhaps worth up to $500 billion – to develop hydrocarbon resources in the Black and Arctic Seas.

The other answer is that Putin really is paranoid about the US. He takes at face value the often insincere rhetoric of American politicians about the importance of spreading democracy and human rights. He thinks that the US will inevitably try to intervene to overturn regimes it dislikes, as it did in Afghanistan, Iraq, Libya and Serbia. Putin does not distinguish between Republicans and Democrats, believing them all to be interventionist (this upsets some of Obama’s people, since Obama and Secretary of State John Kerry opposed the Iraq war). This hostility to the US explains the clampdown on Russian NGOs that get foreign (and notably American) funding.

Both these views of Putin are probably true. He switches from one face to the other, which makes him a difficult partner for the Americans.

Obama has two priorities with Russia but is making little progress with either. One is arms control. Speaking in Berlin in June, Obama proposed new cuts to nuclear arsenals. For several years Russia has complained that American plans for missile defence could affect its strategic nuclear capability and therefore limit its enthusiasm for cutting warheads. In March the US said it was scrapping the fourth and final phase of its planned missile defence system in Europe. But Russia has not responded to that move or to the Berlin speech. One reason may be its desire to maintain a significant nuclear superiority vis-à-vis China.

Obama’s other priority is Syria. Putin has gone along with the idea of a ‘Geneva II’ peace conference, but this has been stymied by the West’s inability to deliver the opposition (though this is because the opposition is losing, which – in the view of US officials – is partly because of Russia’s support for President Assad). Most Russians believe that events in Syria are proving them right: they always warned that much of the opposition would turn out to be nastier than Assad’s regime. Syria will remain a source of discord for the foreseeable future.

There are other irritants in the US-Russia relationship. Russia has banned American exports of pigs and cattle, because the meat contains the chemical ractopamine. Meanwhile the ‘Magnitsky list’ annoys the Russian government: Congress has passed an act that enables the administration to impose visa bans and asset freezes on officials linked to the death in custody of Sergei Magnitsky, a lawyer and whistle-blower.

And now Russia has granted temporary asylum to another whistle-blower, Snowden. American officials think that Putin under-estimates how much Snowden matters to the Obama administration, which sees him as a serious criminal, and therefore how much the affair can damage the Moscow-Washington relationship. Obama may now be unwilling to meet Putin in Moscow in September, after the G20 summit in St Petersburg, as had been envisaged.

Those who know Obama well say that he is unwilling to spend time on subjects that do not deliver results. So the lack of progress on arms control and Syria, plus the Snowden affair, may lead to Obama minimising the time that he spends on Russia. Not that that is likely to upset Russia’s leaders a great deal. What they care most about is stability within Russia, an objective that they are – for now – achieving.

Charles Grant is director of the Centre for European Reform