EU flexes economic muscle over Israeli settlements

Yossi Mekelberg
Yossi Mekelberg
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It was another topsy-turvy week in the relationship between Israel and the Palestinians. What began as an attempt by the European Union to flex its economic muscles to curb the expansion of Israeli settlements, ended in an impressive achievement by Secretary of State John Kerry, who managed to bring the Israelis and the Palestinians to talk about peace once again. Although these events are unrelated, the first represents exasperation with Israel’s policy of expanding settlements without any domestic or international restraints. The other represents sheer persistence and optimism on the part of Mr. Kerry, that a permanent solution for this decades-long conflict could and should be achieved around the negotiation table, and preferably brokered by the United States.

It is too early to assess whether the combination of President Obama, free of the pressures of re-election, and Kerry’s determination are going to succeed where their predecessors failed in the past. However, the decision of the EU to utilise its bureaucratic might on this occasion demonstrates a diametrically different approach to the persuasive one of the Americans. In the end it might provide a complementary measure to the American initiative rather than an alternative policy.

The message from Europe is that this asymmetry cannot last indefinitely and that Israelis should wake up to the fact that the international community is losing its patience with the lack of solution.

Yossi Mekelberg

In a seemingly innocent looking Notice the EU Commission changed the eligibility of Israeli entities from access to ‘grants, prizes and financial instruments’ funded by the EU if they are active in the Palestinian occupied territories. Apparently, no one should be surprised by this or any other step the EU takes in order to influence the Israeli government to change its settlements’ policy. For decades now, EU leaders have condemned the building of settlements, and earlier this year leading EU diplomats stated that, “…settlement construction remains the biggest single threat to the two-state solution. It is systematic, deliberate and provocative." Moreover, the new guidelines also follow a decision taken by the foreign ministers of the EU last December at the EU Foreign Affairs Council, where it was declared that agreements between the State of Israel and the EU should not apply to any territories occupied by Israel in June 1967.

The Israeli response of utter condemnation and contempt was to be expected. Naftali Bennet, the economy minister from the right-wing party The Jewish Home, went as far as calling it nothing short of economic terrorism. He was conveniently ignoring that the new policy emphasises a complete distinction between Israel’s pre-1967 borders and the occupied territories. To be sure, following 46 years of occupation, the economic, social, and political ties of the occupied territories and Israel within the green line are interwoven. The new measures will most likely affect a large number of businesses, research institutions and even NGOs. This probably provides an explanation for the almost threatening reaction from Israel, that these measures will make her even more resolute in building settlements. Prime Minister Netanyahu thrives on this type of friction with the international community, which for him is just another demonstration of the EU’s pre-conceived bias against the Jewish state. His predictable rhetoric, blaming the EU for neglecting the real issues in the Middle East such as Iranian nuclear capability or the civil war in Syria, serves as evidence that he fears this move could potentially hurt Israel economically and weaken her position in negotiations with the Palestinians.

Owing to the EU-Israel Association Agreement, the EU is Israel’s major source of imports and the second largest market for exports -with trade totaling nearly €30 billion in 2011. Netanyahu understands Israel’s vulnerability in her economic relationship with the EU, and he knows that there are a range of measures which can be taken by the Europeans in order to test Israel’s resolve on the settlements issue. Nevertheless, for many years Israeli leaders have been well aware that for obvious historical reasons, and in order to avoid upsetting the United States, the Europeans tend to neglect translating their frustrations with Israeli governments into policies which have any bite. In the case of Israel and EU idleness when it comes to foreign affairs it is even more remarkable.

A turning point

Those who have a stake in the Israeli-Palestinian conflict might ask themselves whether the decision to remove Israeli bodies from access to European funds is just a first step which will be followed by even more severe measures aimed at exerting more pressure. For many years the Palestinians witnessed the Europeans castigating successive Israeli governments for policies which obstruct peace, especially building settlements, and at the same time rewarding Israel with generous economic and cultural agreements. In the past it was actually American presidents who were more prepared, even if quite rarely, to put pressure on Israel in order to advance a political solution with her neighbors. Is this the turning point in the EU policy towards Israel?

The prickly relationship Israel has with the European Union, at least rhetorically, became even thornier this week. However, the message from Brussels this week was not only to the Israeli government, but also for the benefit of the Israeli citizens and the business community. For a long time they have been accustomed to the occupation having little political or economic repercussions; some would argue that Israel actually benefits economically from the occupation through, for instance, the use of natural resources and tourism. At the same time, the occupation has negative effect on the Palestinian economy; some surveys estimate it at the tune of $7 billion a year, not to mention all the other ills of the occupation. The message from Europe is that this asymmetry cannot last indefinitely and that Israelis should wake up to the fact that the international community is losing its patience with the lack of solution. Even if Israel is not the only guilty party in the lack of progress, it bears much responsibility by adhering to policies which prolong the occupation and make a peaceful solution a remote possibility.

For all his faults, Netanyahu understands the limits of power. He was reminded of Israeli limits twice this week, first by the European Union and then by the US administration. When negotiations resume in Washington in a short while, this reminder may prepare him to show the much needed flexibility in what might become a last opportunity to reach a peaceful solution with Palestinians and avoid deepening rifts with the international community.


Yossi Mekelberg is an Associate Fellow at the Middle East and North Africa Program at the Royal Institute of International Affairs, Chatham House, where he is involved with projects and advisory work on conflict resolution, including Track II negotiations. He is also the Director of the International Relations and Social Sciences Program at Regent’s University in London, where he has taught since 1996. Previously, he was teaching at King’s College London and Tel Aviv University. Mekelberg’s fields of interest are international relations theory, international politics of the Middle East, human rights, and international relations and revolutions. He is a member of the London Committee of Human Rights Watch, serving on the Advocacy and Outreach committee. Mekelberg is a regular contributor to the international media on a wide range of international issues and you can find him on Twitter @YMekelberg.

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