The ball's in Bibi's court

In early January, PGGM, the Dutch pension giant, decided to divest from Israel's five largest banks because of their business ties with West Bank settlements. The Dutch Pension Fund for Care and Wellbeing, whose funds are managed by PGGM, immediately put the big five, Hapoalim, Leumi, Discount, the First International Bank and Mizrahi-Tefahot, on its exclusion list. Two weeks later other major European investment funds, ABP, a huge Dutch pension fund, the Scandinavian Nordea Investment Management and Norway's DNB Asset Management, announced they were considering following suit. KLP, one of Norway's biggest pension funds, said it would discuss “dilemmas linked to the financing of West Bank settlements;” and the Dutch-based ING international investment house declared that it had requested independent third party research on the settlement issue. That was followed by direct action by Scandinavian banks against Israeli counterparts; Danske Bank, the largest in Denmark, announced it was boycotting Bank Hapoalim for “legal and ethical” reasons; and Sweden's Nordea Bank, the largest in Scandinavia, asked for clarifications from Bank Leumi and Mizrahi-Tefahot regarding their dealings with the settlers and the settlements. The latest cluster of European settlement related boycott/divestment or threatened boycott/divestment followed the cancelation in early December by the Dutch drinking water supplier Vitens of a major contract with Mekorot, Israel's national water company, because of its operations across the 1967 Green Line. And it is not only the European private sector that is stepping up its anti-settlement sanctions. The German government is making future grants to Israeli hi-tech and the renewal of a scientific cooperation agreement dependent on the exclusion of Israeli entities in the West Bank or East Jerusalem; the Norwegian government recently divested from two Israeli companies, Africa Israel and its subsidiary Danya Cebus, because of building activities across the Green Line; and last September the Dutch engineering giant Royal HaskoningDHV withdrew from a Jerusalem municipality sewage project in East Jerusalem on the advice of the Dutch government. Most significantly, Israel almost lost its right to participate in the EU flagship scientific cooperation program, Horizon 2020, over a dispute on funding across the Green Line. An agreement critical for the future of Israeli scientific research was signed in late November only after the Israeli government backed down. The divestment moves and strings-attached funding have so far had little impact on the Israeli economy as a whole. The fear is of a devastating snowball effect. According to cabinet ministers on the center-left, like Justice Minister Tzipi Livni and Finance Minister Yair Lapid, the only thing holding this up is the ongoing peace process with the Palestinians. Should the process break down, they warn, the economic consequences for Israel could be dire. Ministers on the right counter that Israel has withstood economic sanctions in the past and it cannot subordinate its Zionist vision and security to economic considerations, no matter how weighty. The economic argument reflects the deep chasm between the center-left's pragmatic Zionism and the right-wing settler model. A showdown between them is almost certain when US Secretary of State John Kerry presents his plan or terms of reference for future peacemaking within the next few weeks. And with Israel's economic future on the line, Prime Minister Benjamin Netanyahu will have to choose which side he is really on. There are four distinct kinds of sanctions Israel is facing: • European governments conditioning funding on entities over the Green Line being barred access • European governments targeting products made in the settlements by insisting that they be appropriately labeled and denying tax or other concessions granted to similar products made in Israel • Private European firms targeting companies in Israel proper that have business dealing with the settlements • Private European firms targeting companies in Israel proper, period. According to lawyer Daniel Reisner, the public actions against Israel and Israeli companies are just the tip of the iceberg. Reisner, a former head of the IDF's International Law Branch and a senior partner in Israel's largest law firm, Herzog, Fox and Neeman, says a covert boycott of Israeli companies per se is quietly taking hold. He claims to have a steadily increasing number of hush-hush clients seeking redress for broken contracts and lost business. “They behave like rape victims,” he said in a recent TV interview. “They don't want anyone to know.” Leading Israeli business people, however, have been vociferously warning the government for months of the possible consequences of failure to cut a deal with the Palestinians. Since last May, over 300 Israeli and Palestinian entrepreneurs, industrialists, hi-tech and business people have been working together for peace through an initiative they call “Breaking the Impasse.” In late January, more than a hundred Israeli BTI members, including virtually all the high-profile captains of industry, hi-tech and business, converged on the Swiss town of Davos to press their agenda among politicians at the World Economic Forum. “We're not engaged in borders or security arrangements, but we know that if Israel wants a stable economy and to enjoy a better future and continued growth, we must reach a diplomatic settlement. The world is losing patience and the threat of sanctions is growing daily,” they declared. Back in Israel, they launched a massive ad campaign emphasizing the necessity of a peace deal for the economy and of a two-state solution for the Jewish and democratic character of the state. Slogans on posters in the main urban centers read, “Bibi, only you can” and “A strong country signs an agreement.” For now the peace talks seem to be keeping more substantial boycott moves at bay. Justice Minister Livni, the lead Israeli negotiator, warns that if there is a crisis in the talks, “everything will break loose.” She says she spoke to Jews in South Africa who told her that during the apartheid era, they knew sanctions were coming, but they thought they had lots of time until they did. But then, all of a sudden, everything hit them, all at once. The most graphic warning of what might happen if peace talks collapse came from Finance Minister Yair Lapid. “Every resident of Israel will be hit financially; the cost of living will rise, the education, health, welfare and defense budgets will be cut, and many international markets will be closed to us,” he declared in a late January address at the Tel Aviv-based Institute for National Security Studies. Citing an in-house report by Michael Sarel, the ministry's chief economist, Lapid said that in a “mid-range scenario” in which there was “only” a 20 percent drop in exports to the EU and direct investment in Israel from the EU stopped, Israel's GDP would fall by 11 billion shekels ($3.14 billion) and around 10,000 people would lose their jobs overnight. Worse, Europe would likely be a bellwether for the rest of the world. “If Chinese or Japanese or Indian companies come to believe that because of Israel they will lose their big markets in Europe, they won't hesitate for a moment before joining the sanctions so as not to lose business,” he warned. Within the establishment there are three opposing schools of thought on how best to deal with the growing Boycott, Divestment and Sanctions threat. Yuval Steinitz, the minister for strategic affairs charged with devising a new policy, favors an aggressive high-profile PR campaign; senior foreign ministry officials warn that this could backfire. The more dovish cabinet ministers, like Livni and Lapid, however, believe that the time for PR and “branding” (showing Israel in a better light) is long past, and that what is needed now are game-changing decisions on the Palestinian issue. The problem Israel faces stems from impatience with an occupation now in its 47th year and a widespread perception in Europe and beyond that the Netanyahu government is not negotiating in good faith and simply playing for time. No amount of PR, the more dovish ministers hold, will change this, whereas policies that genuinely promote peacemaking with the Palestinians will. People on the center-left point to the profound moral and pragmatic blindness of the far right; as if all boycott moves are motivated by inherent anti-Semitism and not the perceived immorality of occupation; and as if an Israel, isolated and having lost the moral high ground, could stand alone against the rest of the world. The first test of Israeli policy will come with the presentation of Kerry's terms of reference for continued Israeli-Palestinian peace talks. Its main parameters will reportedly include the following. The territorial basis will be the 1967 lines with land swaps, with Israel keeping the large settlement blocs and ceding equal territory to the Palestinians from Israel proper. According to Martin Indyk, the special American peace envoy, about 75-80 percent of the settlers will remain on the Israeli side of the new border. The Israeli withdrawal from the West Bank will be phased over several years. There will be a special security zone along the Jordan River. Israel will be referred to as the state of the Jewish people, Palestine as the state of the Palestinian people. There will be compensation for Palestinian refugees and for Jews forced to flee Arab countries. A peace deal will signify end of conflict and finality of claims. The parties will be able to express reservations over details they do not accept. According to Indyk, reference to Jerusalem will be vague and will not spell out its final status. Kerry is reportedly working on a trade-off – the Palestinians recognize Israel as the Jewish state and in return Israel recognizes Arab East Jerusalem as the Palestinian capital. The new goal, according to Indyk, will be to reach a final peace treaty by the end of 2014 through intensive negotiations based on the new American terms of reference. This is certainly a framework Israel can accept. Significantly, lining up against the naysayers on the far right, hawkish Foreign Minister Avigdor Liberman described it as the best offer Israel is likely to get. For his part, Kerry is depicting a peace deal as win-win for both sides, and failure to rise to the occasion as big-time lose-lose. He warns Israel against thinking the status quo will hold and the Palestinians against thinking they can get statehood through a UN fiat. “Israel's economic juggernaut is a wonder to behold,” he declared at the World Economic Forum in Davos. “But a deteriorating security environment and the growing isolation that could come with it could put that prosperity at risk.” And a few days later in Munich, he used the boycott word. As for the Palestinians, he warned that if they failed to achieve statehood now, “there is no guarantee another opportunity will follow anytime soon.” On the other hand, if the parties reach a peace deal, he predicts that the economic benefits for both will be enormous. At this critical juncture, Israel's future is largely in the hands of just one man, Benjamin Netanyahu. There are three critical questions: Does he really want a peace deal or is he just going through the motions to keep the Americans happy and get the Palestinians blamed for failure? If the latter is the case, his continual raising of the ante is merely a ploy to get the Palestinians to say no, and, by having them cast as the rejectionists, hope to avert economic and diplomatic disaster. Secondly, assuming he really wants a deal, can he overcome his deep, visceral distrust of Palestinian intentions? On this reading, Netanyahu is ready for a Palestinian state, but only if he gets cast-iron security guarantees. If this is the case, his continual raising of the ante is a way of ensuring longterm stability and security. The problem is that by pushing for too much and refusing to take even a modicum of risk, he could lose the baby with the bath water. Thirdly, assuming he wants peace and is ready to make the necessary leap of faith, does he have the strength of leadership to carry it through in the teeth of the fierce opposition on the right, both in his own Likud party and in the current government coalition? So far, unlike Ariel Sharon, who made his strategic intentions very clear and took on the right-wing dissenters head-on, Netanyahu has been, at best, enigmatic. Will he have the political courage to break with the Likud hard-liners, to change coalition partners and, if necessary, to call early elections? The months ahead will be a supreme test of Netanyahu's leadership – with huge consequences for Israel's long-term future.

The ball's in Bibi's court

With Israel’s economic future on the line, Prime Minister Benjamin Netanyahu may have to make the necessary leap of faith to go for a peace deal.

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