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Egypt Violence Piles Pressure on Army to Hand Over Power Faster

Egypt’s worst violence since the popular revolt that toppled President Hosni Mubarak in February adds to pressure on the army to speed up the transfer of power to an elected government.

Clashes between protesters, mostly Coptic Christians, and security forces in Cairo this week left at least 25 people dead and fueled calls for the ruling generals to change a timeline that may allow them to stay in power until 2013. The violence rocked the government, with Finance Minister Hazem El Beblawi handing in a resignation that was rejected by the army council.

Egypt’s return to civilian rule starts with elections for parliament next month. The end-date is less clear, tied to a presidential vote that currently requires a new constitution to be drawn up first. With Fitch Ratings and HSBC Holdings Plc (HSBA) already saying the prolonged transition is hurting the economy and draining currency reserves, this week’s violence may prompt the generals to cede power earlier than they planned.

The clashes may motivate the military “to speed up the transition of power to a civilian authority, to respond to the wish of the majority,” Mahmoud Ghozlan, a spokesman for the Muslim Brotherhood, Egypt’s biggest Islamist group, said in a telephone interview. “To drag it to the end of next year or into 2013 is unacceptable. We are exerting pressure in this direction.”

Thousands of mourners chanted against the rule of the Supreme Council of the Armed Forces during a funeral for 17 protesters held Oct. 10 in the Coptic Christian Cathedral in Cairo, the Associated Press reported.

Driving Into Crowds

Footage broadcast on Al Jazeera and local television channels showed armored vehicles driving into crowds who were protesting an attack on a church in southern Egypt. The army has denied soldiers used excessive force or were responsible for the killings.

General Mahmoud Hegazy said yesterday that the military is looking for the perpetrators. He also said the army has no desire to hang on to power.

“We’re the first who want to turn over governance,” Hegazy told reporters. “But this is a big country. There must be objective grounds for the transfer, so that it doesn’t collapse.”

The Free Egyptians Party, co-founded by Christian billionaire Naguib Sawiris, warned the military council that “continuing to handle events with force will shake the trust that Egyptians have given it.” It called on the army to “shoulder its responsibility to protect Christian establishments” and said the violence was “a clear attack on the freedom to peacefully protest.”

Stocks, Bonds Slump

Sawiris’s Orascom Telecom Holding SAE (ORTE) is down 27 percent this year, outperforming the EGX 30 index. (EGX30) The benchmark has slumped 43 percent, the third-worst in the world after Cyprus and Ukraine. Government borrowing costs have soared to the highest level since 2008. The economy contracted 4.2 percent in the first quarter and grew 0.4 percent in the following three months.

“The longer this transition takes, the more difficult it’s going to be for the economy,” Richard Fox, the London-based head of Middle East and Africa Sovereigns at Fitch Ratings, said in a telephone interview. Fitch cut Egypt’s credit rating to BB on Feb. 3, leaving it two levels below investment grade.

Egypt scrapped plans for a $3 billion agreement with the International Monetary Fund in June. The military played a role in vetoing that loan, leaving the government dependent on local banks to finance its budget deficit, said David Butter, regional head of the Economist Intelligence Unit in London.

‘Quite Perilous’

IMF backing “would have stabilized the balance of payments and potentially provided the kind of assurance that would have encouraged foreign investors,” he said. “Egypt’s foreign exchange situation is starting to get quite perilous.”

Currency reserves have fallen by one-third this year to $24 billion.

Speeding up the transfer of power depends “on the ability of various political forces to agree among themselves,” Samer Soliman, assistant professor of political economy at the American University in Cairo, said in a phone interview.

Most Egyptians welcomed the army’s takeover in February. Some still want it to stay in power until security is restored, said Hani Sabra, a Middle East analyst at Eurasia Group in New York. The military council “does enjoy some support as guarantor of stability,” he said.

“The majority of the Egyptian people know exactly how honest the army is,” General Hegazy said. “I don’t think we’ve lost that.”

Tantawi Angers Activists

The council has yielded to public pressure in some cases and refused to budge on others. It fired remaining Mubarak-era ministers after demonstrations against them, and waived charges against an activist accused of insulting the armed forces. The army council has refused to repeal emergency law, a key demand of protesters.

This week’s violence capped a series of incidents that worsened relations between the military and activists who led the revolt. Another was an Oct. 2 speech by Field Marshal Mohammed Hussein Tantawi, who heads the military council, in which he said Mubarak didn’t order him to use force during the uprising. Activists said that statement was an attempt to exonerate the former president, who is standing trial on charges of conspiring to kill protesters.

The pressure on the military to yield power started before the sectarian violence. Six presidential hopefuls, including former Foreign Minister Amre Moussa, proposed April 1 as a date for presidential elections. The current timeline risks delaying economic recovery, Moussa said in a conference call with analysts and journalists Oct. 5.

‘Will Is There’

“The mood in the country will prevail and the mood in the country is to have presidential elections” before a constitution is in place, said Moussa, the front-runner for the job in an April survey by Pew Research Center’s Global Attitudes Project. “If there is a will, there is a way, and the will is there.”

The violence may help unite political groups in an effort to speed up the shift to democratic rule, said Shadi Hamid, director of research at the Brookings Doha Center in Qatar.

“The military is going to have to give in unless it’s willing to use full force against its own people,” he said in a telephone interview. “They would be wise going in that direction, to avoid tearing the country apart even further.”

To contact the reporters on this story: Alaa Shahine in Dubai at asalha@bloomberg.net; Mariam Fam in Cairo at mfam1@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net; Claudia Maedler at cmaedler@bloomberg.net

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