By July 23, 2013 Read More →
EU: The Economic Consequences of EU Policy on Israeli Settlements

EU: The Economic Consequences of EU Policy on Israeli Settlements

In many ways, the mild sanctions which the EU imposed on Israel last week has helped to break new ground in the Middle East peace process. For the first time, a major economic power offered a meaningful public rebuke of Israel’s occupation of Palestinian territory. More importantly, the timing of the move was essential in aiding US Secretary of State John Kerry in his mission to revive the stalled negotiations between Israel and Palestine. Upon hearing of the move, Netanyahu immediately contacted Kerry to request his aid in reducing the scope of the sanctions. While Kerry did promise he would speak to EC President Barroso regarding the matter, he also said that the EU’s actions should be considered a “warning sign for what would happen if talks with the Palestinians weren’t resumed.”

Mahmoud Abbas considered the sanctions as supportive of the PLO’s position and they reportedly encouraged “him to give up his demand for a complete settlement freeze” as a precondition to resuming the negotiations. Hanan Ashrawi, a member of the PLO executive committee, made the following statement:

The EU has moved from the level of statements, declarations and denunciations to effective policy decisions and concrete steps which constitute a qualitative shift that will have a positive impact on the chances of peace. The Israeli occupation must be held to account, and Israel must comply with international and humanitarian law and the requirements for justice and peace…

Yet these sanctions constitute little more than a proverbial slap on the wrist because they do not encompass trade. As it currently stands, the EU decision bars Israeli ‘entities’ (regional or local bodies, corporations, NGOs etc.) which are active outside of 1967 borders from receiving financial support from the Union. The 1967 borders (also known as the Green Line) represent the boundary of Israel proper as recognized under international law and by the international community – including the United States. The types of funding which will no longer be available to affected Israeli entities include grants, prizes and financial instruments. It is estimated that these sanctions will affect only 0.5 percent of the nearly € 800 million which Israel receives from Brussels every year. However, if the EU would extend its decision to also include trade, the consequences for the Israeli economy would be far more profound. According to a document recently released by the PLO’s Negotiation Affairs Department, trade between the EU and the territories illegally occupied by Israel (the Golan Heights, Gaza Strip and the West Bank, including East Jerusalem) amounts to € 229 million per year.

While the implementation of sanctions against Israel is indeed unprecedented, the decision is in fact based on a decades-old EU position which is much in line with opinions of other countries around the world. The decision to finally enforce their viewpoint through sanctions came from EU policymakers’ perception that Israel behaves intransigently and is more than willing to flout international law.

There is, however, one aspect of the sanctions which could potentially put Israel (and the EU) at a financial loss. Horizon 2020 is an EU financial instrument which is designed to, among other things, promote cooperation in scientific research and help “secure Europe’s global competitiveness”. The €80 billion Euro project will run from 2014 to 2020 and will also support SMEs by providing improved access to capital. Israel was a participant in the precursor to Horizon 2020 known as Framework 7. According to one source, Israel’s participation in this programme resulted in a 40 percent return on investment.

Israel is also supposed to be a central participant in Horizon 2020. However, if Israel does not sign an agreement conceding that the Green Line represents the country’s true borders, it will be denied access to funds from the project. Considering the government’s  typically hard-line attitude toward settlements, their stance on this matter is unlikely to soften. According to a Foreign Ministry diplomat, Israel expects to receive 50 percent returns on their planned € 600 million Euro contribution to the project.

The overall effects of EU sanctions on the Israeli economy are summarized by Bernard Avishai of the Daily Beast as follows:

Is this enough to wreck Israel’s economy? Not yet. But it is enough to make the difference between growing at 3.5 percent rather than 6 percent, or 7.2 percent unemployment rather than 6.5 percent. And that difference is enough to account for the difference between a budget surplus or a 40 billion NIS deficit, thus universities that are cutting rather than hiring, thus an innovation engine that revs down…

Read More:

Barak Ravid – EU made Netanyahu go the extra mile, U.S. threats left Abbas with no choice – Haaretz

Michel Waelbroeck – Israel should thank EU for setting guidelines, avoiding sanctions – Haaretz

Barak Ravid – Israel warns EU ambassadors of serious crisis over new settlement guidelines – Haaretz

Brett Wilkins – Op-Ed: EU’s new Israel’s settlement policy – A step in the right direction – Digital Journal

Alistair Dawber – Israeli anger as EU bans funds for West Bank settlements – The Independent

Bernard Avishai – Business is Personal: Why the EU’s New Guidelines Could Hurt Israel’s Economy – The Daily Beast

Israel moves to quit flagship EU project over restrictions – The Times of Israel

Juan Cole – European Union Boycotts Israeli Colonies on the Palestinian West Bank – Informed Comment

Gad Lior – Scientific cooperation with EU in danger – ynetnews.com

Uchechi Kalu – The EU Tells Israel, “End the Settlement – Or Else” – policymic.com

Misguided EU – The Jerusalem Post

Official Publication of the Directive – Journal of the European Union

EU Trade with Israeli Settlements – PLO Negotiations Affairs Department

(Flickr image courtesy of Alan Whelan)

About the Author:

Sebastian Andrei is NABATAEANS’ editor for EU - Middle East Trade and Political Relations. He completed his undergraduate studies at the University of Vienna, where he majored in journalism with minors in political science as well as business and economics. Sebastian is responsible for reporting on the European Union’s external trade relations. He also writes about economic development and investment opportunities in Europe as well as about policy changes which affect the EU common market.

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