Lesson 19: The Financial Crisis and Foreign Intervention in Egypt (from Isma'il to Tawfiq)

01The real causes of foreign intervention

• The political crisis with the European powers began because of the debts the Egyptian government had borrowed to spend on development projects, on obtaining the sultanic firmans needed for a measure of self-rule from the Ottoman State, on the Suez Canal project and the ceremony of its opening, and on introducing other manifestations of civilisation.
• But debts were not the real cause of the intervention of England and the others, for that had begun at the end of Said's rule (1862).
• The main causes were:
  • Egypt's expansion to the south, which threatened European influence in east Africa — evident from Isma'il's campaign on Abyssinia (1875);
  • the Suez Canal.
• Confirming this, 1875 is the very year in which European intervention began, under the pretext of finding a way to repay the debts.

02Forms of foreign intervention

The Cadwalter mission (1875)

• It was brought from Britain to help solve the financial crisis.
• This drove France to send its own expert, M. Vivier, so that England should not take the matter alone.

The Debt Fund (1876)

• To conciliate the creditors, Isma'il asked them to devise the system they approved.
• The French side submitted the project of founding the Fund and consolidating the debts, and a decree was issued creating it.
• Its task: to be a sub-treasury beside the public treasury, receiving the sums earmarked for the debts directly from the government departments.
• It was the first official European body created to impose foreign intervention in Egypt's affairs: it was administered by foreign delegates nominated by the creditor states and appointed by the Khedive.
• Then the forms of intervention came tumbling down: in May 1876 the Khedive issued a decree creating a Higher Council of Finance of ten members, half of them foreigners.

Dual control (November 1876)

• It was created to supervise Egypt's finances through two controllers, one English and one French.

The European inquiry commission

• When the government's financial position worsened, the control administration accused the Khedive of placing obstacles in the way of ordering financial affairs.
• At the proposal of the controllers and the members of the Fund, a European inquiry commission was formed (January 1878); Isma'il yielded and issued a decree creating the Supreme Commission of Inquiry to examine the government's financial affairs and verify the deficit in the revenue heads and its causes.
• A further decree in March 1878 generalised its competence to include all the revenues and expenditures of the government, obliging ministers and officials to give it all the data.

03Khedive Tawfiq and the sharpening of the crisis

The new firman (August 1879)

• Tawfiq came to power after the deposition of his father Isma'il (1879).
• The Ottoman sultan seized the opportunity to curb the Khedivial powers granted by the Comprehensive Firman of 1873, issuing a new firman providing:
  • the text of treaties Egypt intended to sign must be notified to the Sublime Porte;
  • the army in peacetime must not exceed 18,000 soldiers;
  • new loans were forbidden unless the purpose was to settle existing debts and with the creditors' approval.
• England and France asked that the earlier Khedivial privileges not be withdrawn — not out of sympathy for the Khedive, but to prevent the sultan's influence from overwhelming him, which would stall their own projects in Egypt.

Sharif's ministry, then Riad's

• The consuls of England and France showed disquiet at Sharif Pasha's ministry (September 1879) because he insisted on the constitution and on forming a chamber of deputies.
• The two consuls held that parliamentary life obstructed the creditors' interests, so Tawfiq moved to rid himself of Sharif's ministry.
• Tawfiq formed a temporary ministry until Riad Pasha arrived from Europe. Riad was a supporter of absolute rule, hostile to the constitutional system and submissive to European influence — the best instrument for the creditor states.
• Tawfiq restored dual control, which had been suspended after two European ministers (an Englishman and a Frenchman) entered the ministry; Riad's ministry endorsed this measure.
• The English and French consuls drew up a regulation for dual control that gave the controllers greater influence than the ministers of the state: the right to attend cabinet sessions and to see the statement of revenues and expenditures; their opinion was advisory but in practice binding.

04The policies of control and their effects

• The policies of control produced the first discontent and anger against Riad's ministry. Among them:
  • Selling Egypt's share (January 1880) in the profits of the Canal, amounting to 15%, to the Financial Union of Paris in payment of debts. Isma'il had already been forced to sell Egypt's shares in the Canal, so Egypt now owned nothing at all in the Suez Canal.
  • Abolishing the Muaraza Law (January 1880): the peasant resumed paying the full tax to the government, so that it could collect the largest possible amount of tax to repay the debts — and its abolition was a cause of the grievance of the landowners.
  • The International Liquidation Commission (March 1880): of the states holding most of the debt — France, England, Germany, Austria and Italy — to examine the financial situation and define the relations of the government, the Daira Sanuya (Isma'il's personal property) and the Domain (the family's property) with the creditors and the method of liquidating the debts.
  • It issued the Law of Liquidation (July 1880), which remained the basis of Egypt's financial system until 1904.

The most important provisions of the Law of Liquidation

• The government's annual expenditure was fixed at less than half of revenues, and the remainder assigned to the public debt account.
• The properties of the Daira Sanuya and the Domain were earmarked as security for the Daira's debt, for which the borrowing had been done, and were placed under international administration.

05The influence of the notables late in Isma'il's reign

• The influence of the notables (a'ayan) grew in Isma'il's last days through their membership of the Council of Deputies (1866).
• Isma'il welcomed this, in order to use the notables to face the Anglo-French political pressure and to balance the influence of the Turkish–Circassian element.
• The notables were no longer merely a rural class: many moved to the towns, took part in public life and entered step by step the sphere of direct political work.

06Exam traps and key takeaways

• Debt is the pretext, not the real cause: intervention began 1862 under Said, and the true causes are southern expansion and the Canal.
• Sequence to master: Cadwalter 1875 → Vivier 1875 → Debt Fund 1876 → Higher Council of Finance May 1876 → Dual control Nov 1876 → Inquiry Commission Jan 1878 → extended March 1878.
• The Debt Fund is the first official European body imposing intervention; it is a sub-treasury receiving debt money directly from departments.
• The Higher Council of Finance = 10 members, half foreigners; dual control = two controllers, British + French.
• The 1879 firman cut Khedivial powers, yet Britain and France defended the earlier privileges — for their own projects, not for the Khedive.
• Sharif fell because he clung to the constitution and a chamber; Riad was chosen because he wanted absolute rule and obeyed Europe.
• Controllers' power: attend cabinet, see budget; advisory in name, binding in fact.
• Two January-1880 measures: sale of the 15% profit share (after Isma'il had already sold the shares) and abolition of the Muaraza — each angered a different group (nation / landowners).
• Liquidation Commission members: France, England, Germany, Austria, Italy; Law of Liquidation July 1880, basis of finance until 1904; spending capped at less than half of revenue.
• Daira Sanuya = Isma'il's personal property; Domain = family property — both placed under international administration.
• The notables' rise served Isma'il as a counterweight to the Turkish–Circassian element and to Anglo-French pressure.