This post first appeared on The Economist blog Free Exchange.
Emboldened by "people power", millions of Egyptians have once again toppled a government by the sheer weight of their numbers. But as the excitement dies down, another era of disappointment will beckon.
The amassing of millions in Tahrir, a big square in central Cairo, on June 30th and the celebration of Morsi's overthrow on July 3rd is not hard to explain. It reflects the deep frustration of many Egyptians who have experienced electricity shortages, long diesel queues, expected wheat shortages, rising inflation, rising unemployment, and diminishing public security.
So will the military coup, and the government it installs, steer Egypt away from the abyss? I'm afraid not. Egypt's economic woes are deep, structural, and resistant to quick solutions. These fatal flaws will result in another mass uprising yearning, yet again, for change.
Egypt has lost over $20 billion in foreign-exchange reserves since the first 2011 revolution. After the overthrow of Hosni Mubarak, Egypt's longstanding dictator, international investors fled the country. These elusive global investors are unlikely to put their money back into Cairo, especially as many other emerging markets have recently suffered an exodus of capital as well.
This foreign-exchange crisis has contributed to Egypt's electricity shortages and long diesel queues. The government spends millions on subsidising imported energy products as well as imported wheat, a staple grain for the majority of Egypt's citizens who are overwhelmingly poor. The deposed government of Muhammad Morsi refused to curb these subsidies on imported goods, thereby disqualifying itself from $4.8 billion of badly needed help from the International Monetary Fund (IMF).
If the military-backed government is to rectify Egypt's economic woes, it will need the IMF's loans and the return of foreign capital. To qualify for the IMF's help, it will have to reform its subsidy system. Curbing the subsidies, however, risks another revolution.
In 1977, the last time Egypt tried to eliminate these subsidies at the IMF's behest, the country saw street protests and clashes, the sacking of ministers, and a restoration of the subsidy.
The Morsi government avoided many of the reforms Egypt required. But he had his reasons. He feared a backlash from his key supporters: the poor urban masses and the rural population. What will make the military-led government effective in pushing through these liberal economic policies? The power of armed force.
I expect to see the new government adopting tough economic policies backed by military might. That may allow it to shed the subsidies without forfeiting power. However, it will not restore investor confidence or win back the tourists who account for nearly 25% of the economy.
There is instead a high risk that the military government will further alienate Egypt's rural masses and urban poor. These constituencies were not among the crowds filling Tahrir on June 30th, but they do constitute Egypt's true majority. If Egypt retains its subsidies, it will endure continued shortages. If it removes them, it will suffer further unrest. The military has overthrown the government but inherited all of its dilemmas. As the June 30th movement noted, the revolution will continue.