January 30, 2014
Should Israel be blamed for failure to reach a peace agreement with the Palestinians, the European Union is considering canceling its association agreement with Jerusalem, which serves as the legal basis for Israel-EU ties, Finance Minister Yair Lapid said on Wednesday.
“Just canceling the association agreement with the EU, which we know is already on the table now as far as they’re concerned, would reduce exports by NIS 3.5 billion, harming the GDP by NIS 1.5b. and causing 1,400 layoffs,” Lapid said at the annual conference of the Institute for National Security Studies in Tel Aviv.
A cancellation of the agreement, which was signed in 1995 and went into effect in 2000, would be an enormous step backward for Israel- EU ties. Europe accounts for 33% of Israel’s foreign trade, making it the country’s main commercial partner. Preferential trade ties with the EU, participation in cultural and scientific bodies, the recently approved Open Skies Agreement and other important treaties fall under the framework of the association agreement.
Though a spokesman for Lapid stood by the text of the speech, it seems possible that the minister spoke out of turn, with a spokesman for the EU delegation to Israel denying such a drastic step was being considered.
“There has been absolutely no consideration in the EU of the abrogation of the association agreement,” it said. “It is not in the cards.”
The annual NIS 1.5b. economic cost Lapid associated with a cancellation of the agreement was just a fraction of the NIS 11b. in overall damage he estimated an EU boycott would cause.
It would not be Lapid’s first time confusing figures. In April, he accidentally quoted an obscure deficit estimate that was NIS 7b. below the commonly used figure, a gaffe that then-opposition leader Shelly Yacimovich dubbed “an embarrassment.”
Lapid’s intention in the speech will become clearer if the Treasury releases the full report on which his figures were based.
Most of his speech on Wednesday focused on the repercussions of a boycott.
“If negotiations with the Palestinians stall or blow up and we enter the reality of a European boycott, even a very partial one, the Israeli economy will retreat, the cost of living will rise, budgets for education, health, welfare and security will be cut [and] many international markets will be closed to us,” he said. “If there will not be a political settlement, the Israeli economy will face a dramatic withdrawal that will substantially hurt the pocket of every Israeli.”
A concerted effort at a boycott would be easy for Europeans, he said, who have little trouble labeling products from Israel or the settlements, allowing “armchair activists” to avoid buying them in favor of plentiful alternatives.
If a boycott reduced exports to Europe by one-fifth and eliminated the continent’s foreign direct investment in Israel, the country’s economic output would fall by NIS 11b. a year, or about 1.1% of GDP, and 9,800 people would lose their jobs, Lapid said.
Rattling off an unsettling list of organizations already joining the BDS (boycott, divest and sanctions) movement against Israel, he warned that the tipping point could come unexpectedly. South Africa, he said, did not realize until well after the fact the severity of the sanctions against it.
Reaching a peace deal, on the other hand, would yield economic benefits, trimming NIS 20b. from annual government spending, and a potential NIS 16b. growth of service exports, Lapid said.
A week earlier, Economy Minister Naftali Bennett argued that a peace deal would destroy Israel’s economy by making it vulnerable to more terrorist attacks from the West Bank.
“What would the economy of Israel look like if once a year, a missile launched from Judea and Samaria brings down a plane headed to Ben-Gurion Airport?” he asked.