* Pledge coincides with Islamist president's first Europe
* EU funds conditional on IMF deal for Egypt
* Mursi reassures West after attacks on U.S. embassy
By Sebastian Moffett and Justyna Pawlak
BRUSSELS, Sept 13 The European Union offered
Egypt economic aid of up to 700 million euros ($902 million) on
Thursday, showing how European governments are trying to build
ties with the Islamist rulers brought to power in Egypt's first
The pledge came as Egyptian President Mohamed Mursi made his
first trip to Europe since his election in June, hoping to
reassure the EU of his democratic credentials and win economic
aid as he looks to revive the broken economy.
He rose to power under the Muslim Brotherhood, which is
opposed to Israel and with which Washington only opened formal
relations last year. Mursi said on Thursday he backed peaceful
protest but not attacks on embassies after Egyptians angry at a
film deemed insulting to the Prophet Mohammad climbed into the
U.S. embassy in Cairo and tore down the American flag.
Europe wants to keep Egypt as a firm ally of the West after
the collapse of Hosni Mubarak's authoritarian rule last year,
and hopes Cairo can turn into an example in a region that has
seen tumultuous change since the Arab Spring began in 2011.
"Egypt is a key country in a region that is so close to and
important for Europe," said Herman Van Rompuy, president of the
European Council, which represents EU governments. "Egypt's
success would have positive repercussions on the region as a
Jose Manuel Barroso, the president of the European
Commission, said the EU had offered Egypt macro-economic aid of
500 million euros - conditional on Egypt reaching an agreement
with the International Monetary Fund (IMF) on financial
assistance - as well as between 150 and 200 million euros to
fund an agreed economic recovery plan.
These pledges come on top of 449 million euros the EU has
already made available to Egypt for the period 2011-2013 to
support programmes such as vocational training for young people.
The EU has ambitious plans to guide North Africa - which the
bloc calls its "southern neighbourhood" - towards deeper
democracy after the Arab Spring, and EU officials say they want
to make clear links between aid and democratic reforms.
The talks in Brussels included questions about a new
democratic constitution for Egypt, on which talks have stalled
over the role of Islam in law.
"The political context of this visit is very important," a
senior EU official said on Wednesday. "Egypt is now debating its
future constitution which will be key for the country ... and we
hope a reference for the rest of the Arab countries."
The EU is Egypt's biggest trading partner, with figures for
2010 showing trade nearly four times more valuable than with the
United States, Cairo's second biggest partner.
But the bloc faces competition for influence. Mursi's first
trip outside the Arab region and Africa since his election was
to Beijing, Egypt's third-largest trading partner. The United
States has bankrolled Egypt's military for decades, giving
Washington particular leverage.
So far, the U.S. approach to Mursi's Islamist government has
been cautious. Asked on television on Wednesday whether Egypt
was still an ally of the United States, President Barack Obama
said it was neither an ally nor an enemy. Under Mubarak, the
United States usually described Egypt as a strategic ally.
The EU leaders, by contrast, were unequivocal.
Barroso said he was "extremely pleased with the reassurances
given today by President Mursi regarding Egypt's unwavering
commitment to democracy and the rule of law".
Van Rompuy told Mursi the EU will stand by the side of the
Egyptian people, "as a friend, a neighbour and a partner".
Financial assistance is a critical need for Mursi's
fledgling government. Last year's revolution damaged tourism
revenues and foreign investment. The country is still trying to
rebuild unity as well as its shattered economy.
Egypt has already requested a $4.8 billion loan from the IMF
in the hope of a deal by the end of year, and has asked for 500
million euros ($644 million) of aid from the European
Commission, the EU executive.
But its needs may be far greater. A senior EU official said
on Wednesday that it may need financing of more than $10 billion
to shore up the state budget and rebuild investor confidence
after 18 months of political turmoil.