North Africa’s biggest economy has imploded since a democratic uprising last year and the country will run out of money to meet basic subsidies including wheat and oil by the summer.
The International Monetary Fund and EU officials are engaged in behind the scenes negotiations with the military-backed caretaker government and a team from the Freedom and Justice party to agree details of a loans deal.
But while the billions on offer will strain the world lending system, Brussels is most worried about the popular backlash that would result from deep cuts in public spending just as the first democratic government in six decades take the reins of government.
“This is a very, very delicate issue in which we have to avoid being too tough,” the diplomat said to the telegraph. “There is already a narrative of criticism over neoliberalism being imposed from outside so we, the EU, have to make sure that the austerity package is not too tough.”
Egypt maintains an extensive system of payments that underwrites the cost of basic necessities. As world commodity prices have spiralled alongside the chaos engulfing its economy, Egypt’s coffers have been drained well below half the level when President Hosni Mubarak was ousted in February last year.
A collapse in tourism, overseas investment and business confidence has hurt seen the economy and tax revenues shrink. Growth ran at 6 per cent until the political turmoil pushed the economy into recession last year.
Demonstrators that overthrew Mr Mubarak’s three decade government used the slogan Bread, Freedom and Social Justice as a rallying cry to unite all classes in the protest.
Freedom and Justice, the political front of the Muslim Brotherhood Islamic movement, won a majority of parliamentary seats in this year’s election but will not formally take over government until a new president is elected, probably in July.
The party includes economic reformers and has been fully engaged in the talks on austerity and a bail-out
The military government has formally notified the IMF that it will need at least 2 billion euros in budgetary assistance that year but privately officials concede the figure will reach double figures
Three of Egypt’s main contenders for the presidency have filed appeals to stay in the race after the country’s election commission disqualified them from the vote, along with seven others.
The disqualifications rocked an already tumultuous race for Egypt’s next president.
Muslim Brotherhood’s chief strategist and top choice, Khairat el-Shater filed an appeal as did Omar Suleiman, who served as spy chief under Mr Mubarak, and ultraconservative Islamist candidate Hazem Abu Ismail.