Justice Minister Tzipi Livni warned Monday at an accountants’ conference in Eilat that lack of progress on the Palestinian track could lead to a potential disaster for Israeli exports.

“Europe is boycotting goods,” said Livni, head of Israel’s negotiating team with the Palestinians. “True, it starts with settlement [goods], but their problem is with Israel, which is seen as a colonialist country. Therefore, it won’t stop at the settlements, but [will spread] to all of Israel,” she said.

Her words were somewhat similar to a warning that Lithuanian Foreign Minister Linas Linkevicius – whose country took over the revolving presidency of the EU on Monday – issued in a May interview with The Jerusalem Post. He said that if Israel did not take the issue of labeling settlement products more seriously, it could find itself facing a boycott of all Israeli goods.

Livni’s words raised the ire of the Bayit Yehudi party, which sits with Livni’s Hatnua in an uneasy alliance in the coalition. “The policy of sowing fear of boycotts is detached from reality,” the party said in a statement.

“The Israeli economy is innovative and ground-breaking. The entire world comes here to learn from us, and business people are amazed at Israeli technology and innovations,” the statement said. “We advise Livni and her friends not to panic.”

During her Eilat speech, Livni said she was impressed that youth in the country protested against the government decision to export natural gas.

“I appreciate the fact that they care and are thinking about the future, and obligating us to think about the future,” she said. “But the time has come for the same youth to ask, to what kind of state do they want to leave the gas reserves? To a Jewish democratic Israel? Or to a binational Arab state? Or to an apartheid state? It is impossible to deal with economic issues and to ignore the important diplomatic issues related to two states for two peoples.”

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