By ousting President Morsi the Egyptian army prevented a violent climax in the battle between opponents and supporters of the president. In the past year, the Morsi administration has not been able to make any progress in solving the huge economic and social problems in the country. The high youth unemployment and rising inflation rate is keeping the Egyptian situation explosive.
But the army ousted an elected president. The fragile Egyptian democracy has not been helped by the coup. The new interim leadership might look reasonable from the outside, but does not have large popular support.
The pre-Morsi status quo has been restored: the army holds the power in Egypt. By removing Morsi and trying to avoid a situation of total anarchy, the military leadership is protecting its own large economic interests. More than 20% of the Egyptian economy is in the hands of the military.
One of the big questions now is how the Muslim Brotherhood will react to the new situation. They remain a powerful group in Egypt with many followers. Their Islamist agenda is supported by a large part of the Egyptian population.
Not a big surprise, but still interesting was the reaction to the coup from Turkey. The government in Ankara condemned the coup and the ruling AK Party called it a sign of backwardness. The Turkish government shared with the Morsi administration its Islamist agenda and its ambition to reduce the power of the military.
Risk of an economic blow-up has increased. Since the beginning of the Egyptian uprising, in January 2011, the Egyptian economy has been kept afloat with big support packages from IMF, EU and friendly Gulf states. With balance-of-payments and budget dynamics still acute, but with the democratic legitimacy of the Egyptian leadership gone, it has become more difficult to expect more foreign support in the coming period. Money that was already pledged, might not be disbursed now. This increases the likelihood of a sharp depreciation of the Egyptian pound.
A currency crisis can make things much worse than they already are. Egypt imports much of its basic food needs. Food price inflation would go up, which could lead to more popular unrest in an already highly impoverished and polarised country.
It is difficult to say what the potential impact of the Egyptian crisis will be outside of Egypt. Its relevance is high mainly for the Middle East: for the conflict in Syria, for Israel and for the other Arab countries where regimes have been pushed out or challenged since 2011. Turkey has lost one of its main allies in the region. All in all, the immediate outlook for the region has become even more difficult than it already was. As a result, the oil price could be pushed higher.
