Israel can’t afford the EU’s economic incentives

The required quid pro quo would be ruinous to security, and without security, no economy can function.

US Sec. of State Kerry hugs EU foreign policy chief Ashton37 (photo credit: Reuters)
US Sec. of State Kerry hugs EU foreign policy chief Ashton37
(photo credit: Reuters)

The European Union is offended: After offering a package of “extraordinary” economic benefits last month if Israel would only sign a final-status deal with the Palestinians, it hasn’t even received an official response. Germany, France and Britain have all reportedly informed Jerusalem of their disappointment at this silence; French Ambassador Patrick Maisonnave even did so publicly, via an op-ed in Haaretz.

Since the offer was explicitly conditioned on an Israel-Palestinian accord that almost nobody on either side considers achievable, Jerusalem probably doesn’t consider the issue high priority: Proposals that haven’t a chance of being realized rarely are. But there’s also a substantive reason for Israel’s non-response, which Defense Minister Moshe Ya’alon voiced, unofficially, during a meeting with Israeli business leaders last month.
The EU offer was meant to encourage Israel to accept the framework agreement now being drafted by US Secretary of State John Kerry. But this framework, Ya’alon warned, “will destroy the economy ... If we lose freedom of military action, the West Bank will turn into Hamastan, missiles will be fired at Tel Aviv and the economy will be destroyed.” In other words, the “extraordinary” package the EU offered requires concessions on security whose economic harm will far outweigh the putative benefits.
This isn’t mere speculation on Ya’alon’s part; he was speaking from personal experience of the very recent past. Barely a decade ago, the second intifada’s suicide bombing campaign in Israel’s major cities sparked a deep recession: two years of negative growth, 11 percent unemployment, a debt-to-GDP ratio of 103%. And the combination of terror and recession made international markets so downbeat on Israel that it could no longer borrow overseas to finance its mammoth debt, raising the specter of imminent default – a disaster averted only thanks to $9 billion in US loan guarantees.
The guarantees were offered for ten years, but Israel needed them only for two: By 2005, it was able to borrow independently again. Not coincidentally, 2005 is also when it became clear the intifada had been beaten: Thanks to a counter-terrorism offensive launched in March 2002, bolstered by construction of the West Bank security barrier, Israeli deaths from Palestinian terror fell by roughly 50% a year in 2002-05, from a peak of about 450 to 51.
Major economic reforms also contributed significantly to the recovery, but alone, they wouldn’t have sufficed. It’s simply not possible to maintain a flourishing economy when locals are afraid to leave their houses and tourists and investors are afraid to come.
That lesson was relearned following the 2005 disengagement from Gaza. Over the next three years, Palestinians launched 6,000 rockets at southern Israel, sending the south into an economic tailspin that government aid failed to halt. But in late 2008, a major military operation significantly reduced the rocket fire. Within a year, housing prices in communities near Gaza had jumped by 20% to 50% due to surging demand: With security restored, the economy revived.
Nor is this pattern unique to Israel: The same thing happened during the US war in Iraq. For years after the 2003 invasion, America tried to reduce the violence by investing in Iraq’s economy, thinking that if young men had jobs, they would lay down their arms. But the bloodletting just kept getting worse – Iraqi casualties peaked at 29,000 in 2006 – and the economy languished accordingly, with negative real growth of 3% in 2005 and positive growth of just 2.4% in 2006. In 2007, however, Washington reversed course, announcing a troop surge whose goal was to significantly reduce the violence. Casualties plummeted, and over the next five years, real growth averaged 5.8% a year. 
Granted, security concerns are irrelevant if you buy the fantasy that Palestinian terror will end the day an Israeli-Palestinian deal is signed. But after 20 years of territorial withdrawals, few Israelis believe that anymore. In the two and a half years after the 1993 Oslo Accord was signed, Palestinians killed more Israelis than in the entire preceding decade, mainly via attacks from territory Israel vacated pursuant to that accord. In the 20 years since Oslo, Palestinians have killed some 1, 200 Israelis – fully two-thirds of all the Israelis killed by Palestinian terror in Israel’s 65 years of existence. These attacks, too, came mainly from territory Israel vacated under Oslo’s successor agreements. And the disengagement produced an almost seven-fold increase in rocket launches from Gaza, from 424 in 2002-04 to 2,916 in 2006-08.
This experience is compounded by real concern that Israel’s negotiating partner, Mahmoud Abbas’ government, won’t long survive an Israeli withdrawal. Hamas, which adamantly rejects any peace with Israel, ousted Abbas’ government from Gaza in a bloody coup less than two years after the IDF left. And as Ya’alon noted last week, that scenario could easily repeat following an IDF withdrawal from the West Bank.
Whether Abbas would sign a deal with Israel under any circumstances is doubtful. But he certainly won’t sign one without Israeli concessions that Israel considers untenable from a security perspective (withdrawing to the 1967 lines, dividing Jerusalem, quitting the Jordan Valley, etc.), since Europe and America both support him on these issues. Hence the “extraordinary” benefits Europe offered Israel were conditioned on steps that Israel considers devastating to its own security – and therefore, to its economy as well.
As Ya’alon put it on another occasion last month, if an Israeli-Palestinian agreement would lead to rockets on Ben-Gurion Airport, “I would rather have a European boycott.” For devastating though a European boycott would be, Israel would at least still have other trading partners. But nobody will do business with a country whose only international airport and major economic centers are under constant threat of rocket fire.
This is the truth that Europe, facing no comparable threat to its economic centers, willfully refuses to see: All the economic incentives in the world can’t compensate for loss of security, because security is the necessary precondition for any modern economy to flourish. And that’s why Jerusalem has tactfully remained silent on the EU’s “extraordinary” offer: Because the only answer any responsible Israeli government could give is “thanks, but no thanks – the price is just too high.”

Evelyn Gordon is a journalist and commentator. Follow her on twitter here.