Europe and Israel:
Where Politics and Economics Do Not Meet


Israel and the European Union (EU) have an anomalous strategic relationship; they are simultaneously strong economic partners and weak political partners. On the one hand, Europe* is Israel’s largest trading partner and Israel enjoys preferential trading privileges with the European Union. On the other hand,
"...the EU regularly formulates and articulates one-sided political positions toward Israel"
the EU regularly formulates and articulates one-sided political positions toward Israel, particularly with regard to Israel’s conflict with the Palestinians. At times, the EU has blackmailed Israel with the Israel-EU economic relationship, imposing sanctions and other economic measures against Israel when the EU does not agree with Israeli policies. This analysis examines the economic and political history and current status of Israel’s relationship with the European Union.

* For purposes of this analysis, "Europe" refers to the 16 members of the European Union

Europe & Middle East

Europe has always had a special political and economic relationship with the Middle East, dating back to colonial times.
"Access to Middle Eastern oil has always been a major factor in Europe's relationship with the Arab and Muslim world."
Today, Europe maintains significant economic interests in the Arab and Muslim world and continues to enjoy easy and preferential access to the agricultural products of its former colonies. In exchange, Europe has accorded associate status in the EU to the Mediterranean Middle Eastern states, including Algeria, Morocco, Tunisia, Egypt, Jordan, Israel, Syria, Lebanon and Turkey

Access to Middle Eastern oil has always been a major factor in Europe's relationship with the Arab and Muslim world. Europe is heavily dependent on Middle Eastern oil; whereas in 1995,Western Europe imported 9.6 million barrels of oil daily, of which 5.5 million came from the Middle East and North Africa, the U.S. imported 8.8 million barrels daily, of which 1.8 million came from that region.

European trade with the Middle East also exceeds that of the United States. In 1995, exports from the EU to the Middle East and North Africa totaled $77.5 billion, or 18 percent of all EU exports to developing countries. U.S. exports amounted to $21.8 billion, only 8.8 percent of total U.S. exports to developing countries. European imports from the region represented
"...the Europeans view themselves as promoters of economic prosperity, political cooperation and peace in the Middle East."
15 percent of imports from developing countries, while U.S. imports represented 6 percent.

In addition to trade, Europe is a recipient of Middle East investment capital and a major supplier of aid to the poorer nations in the region. The total economic aid disbursed by the EU, both collectively and in bilateral donations by its members to the region, totaled $2.8 billion in 1994, as compared to $2.1 billion by the U.S., $0.6 billion by Japan and $0.4 billion by the United Nations. Europe is currently the largest single aid donor to the Palestinian Authority.

In addition, millions of Arab, Turkish and Iranian nationals have immigrated to Europe and have altered the social, cultural, religious and educational milieus of European societies. The influx of these immigrants and their strong ties to their ethnic and religious backgrounds draw European countries even closer to the nations of the Middle East.

Finally, the Europeans view themselves as promoters of economic prosperity, political cooperation and peace in the Middle East. Preferential trade, scientific and technological policies toward the countries of the region are part of the EU’S strategy to forge bilateral agreements with all Mediterranean partners and create a stable, free trade zone among the EU and the Middle East. Specifically, the EU is seeking to create a Euro-Mediterranean Economic Area by the year 2010. At the November 1995 Euro-Mediterranean Conference in Barcelona, the EU and the 12 Mediterranean countries with which the EU has association agreements signed a partnership declaration laying the basis for closer political, economic, cultural and social ties.

The Director for the Mediterranean and Middle East at the Directorate General for External Relations of the EU, Eberhard Rhein, summed up Europe’s ties to the Middle East in 1995:

"Europe has strong economic, commercial, political, and historical links with North Africa and the Middle East. From an economic point of view, they are intertwined geographically and politically; they are our back door. It seems self-evident that we should do our -utmost within the constitution of the EU to integrate them, to help them achieve economic prosperity?"

Israel & EU: Economic Allies

As a highly developed, industrialized state with advanced technology, Israel is a ripe partner for increased economic integration within the EU. Indeed, in recent years, Europe has become Israel’s largest trading partner, with one-third of Israel’s

"Israel-EU economic ties are active and close."
total exports going to Europe and more than half of Israel’s imports coming from there. In 1997, Israeli exports to the European Union amounted to $6.7 billion and its imports from the EU totaled $14.8 billion. While Israeli exports to the United States total $7.2 billion, Israeli imports from the U.S. amount to only $5.4 billion.

Israel-EU economic ties are active and close. Israel’s political, industrial, commercial and scientific elates tend to be EU-oriented. Many major Israeli and EU firms have branches in the other’s jurisdiction. Close cooperative relationships between enterprises are also widespread.

Israel’s economic relationship with the EU dates back to the signing of a simple commercial agreement in 1964. In the 1970s, Israel began a process of trade liberalization and of monetary and fiscal reforms on lines advocated by the EU and the U.S. In 1975, Israel and the then European Economic Community concluded an extensive trade and cooperation agreement that governed Israel-European relations for 20 years.

The EU’S European Council endorsed granting Israel special economic status in the European Union in December 1994. In a statement, the Council said:

"The Mediterranean represents a priority area of strategic importance for the European Union.... The European Council considers that Israel, on account of its high level of economic development, should enjoy special status in its relations with the EU on the basis of reciprocity and common interest. In the process, regional economic development in the Middle East, including in the Palestinian areas, will also be boosted."

In November 1995, Israel and the EU’S 15 member states signed a Treaty of Association agreement replacing and updating the 1975 trade and cooperation agreement. The accord, approved by the European Parliament in February 1996, strengthened economic and political ties between the parties. Economically, the accord expands the existing free trade zone through updated, more flexible rules and practices. It prohibits the imposition of customs duties on imports and exports between Israel and the EU, and it commits the two sides to policies of greater liberalization in agricultural trade. The agreement also eases restrictions on financial transactions and the flow of capital, and includes new areas of Israel-EU cooperation including the promotion of culture and education. On the political level, the agreement calls for regular dialogue at the level of ministers, senior officials and diplomats.

Israel was also accepted as a fill member of the EU’S Fourth Framework Research and Development (R&D) program — the first non-European state to be granted membership. Initialed in October 1995, the R&D agreement means that Israel can participate in the EU’S R&D committees, Israeli companies can participate in R&D tenders within the EU and Israeli institutions can participate in EU research projects. In May 1998, Israel became a member of the EU’S Fifth R&D program.

The European Union and Israel signed the Scientific and Technological Cooperation Agreement in March 1996, according Israel the opportunity to participate in 16 research programs now financed by the European Union. In return, European scientists will have access to Israeli-initiated projects. The accord also calls for Israel to contribute about $37.5 million annually to a program of jointly financed research projects.

In July 1997, Israel and the EU signed agreements on public procurement and telecommunications, according Israeli suppliers greater access to the $600 billion public procurement market and the $25 billion telecommunications market.

In October 1997, the Federation of Israeli Chambers of Commerce (FICC) was accepted as a full member of EuroChamber — the Federation of Chambers of Commerce of Europe (FCCE). The FICC had been seeking this status for some time; until then it had been participating as an observer.

European Platforms on Arab-Israeli Peace

Since the 1970s, the European bloc has taken positions on the Arab-Israeli conflict which differ sharply with American Middle East policy and which have led most Israeli leaders and the Israeli polity to view Europe as a biased party in the search for Middle East peace. Although the Europeans recognize the need for Israeli security, for the most part Europe has adopted the Arab negotiating position and has not balanced its criticism of Israeli actions with criticism of Arab actions.

For example, in the European worldview, only a "balanced and comprehensive" settlement of the Arab-Israeli conflict with an independent Palestinian state as its centerpiece would bring peace and prosperity to the region and guarantee the stability of Middle East oil supplies.
"...the European bloc has taken positions on the Arab-Israeli conflict . . . which have led most Israeli leaders and the Israeli polity to view Europe as a biased party in the search for Middle East peace."
Europe has long held that Israeli settlements are in contravention of international law and counterproductive to peace. And, the Europeans supported a negotiating role for the PLO when it was still a terrorist organization committed to the destruction of Israel.

In further consonance with the Arab negotiating position, Europe does not accept Israeli sovereignty over the entire city of Jerusalem. It has repeatedly stated that "East Jerusalem is subject to the principles set out in UN Security Council Resolution 242, notably the inadmissibility of the acquisition of territory by force and is therefore not under Israeli sovereignty. The Union asserts that the Fourth Geneva Convention is fully applicable to East Jerusalem, as it is to other territories under occupation* (In 1995, Europe boycotted Israel’s Jerusalem 3000 celebrations.)

Whereas Europe has regularly condemned various Israeli activities, it has been less than emphatic in condemning Arab terrorism, the Arab boycott and other hostile Arab activities over the years.

In the wake of the October 1973 Arab-Israeli war, Europe feared oil shortages and began to take an increased policy interest in the Arab-Israeli conflict. Seeking to appease the Arab oil states, the foreign ministers of the European Economic Community (EEC) issued a declaration in November 1973 that reaffirmed the principles of UN Resolution 242 but also added "recognition that in the establishment of a just and lasting peace account must be taken of the legitimate rights of the Palestinians.’

The Europeans took their position a step further in June 1977 when the European Council issued a declaration stating that "a solution to the conflict in the Middle East will be possible only if the legitimate right of the Palestinian people to give effective expression to its national identity is translated into fact, which would take into account the need for a homeland for the Palestinian people...."

The European Community crystallized its stance on the Arab-Israeli conflict and signaled its desire to become more involved in the peacemaking process with the Venice Declaration of June 13, 1980. Considered the European response to the American-brokered Camp David Accords, the Venice Declaration proposed a "special role" for the Europeans in the pursuit of a comprehensive Arab-Israeli settlement.

The Declaration went beyond previous European statements in that it called for self-determination for the Palestinians and articulated a role for the PLO in the negotiations. It stated:

"A just solution must finally be found to the Palestinian problem, which is not simply one of refugees. The Palestinian people... must be placed in a position, by an appropriate process defined within the framework of the comprehensive peace settlement, to exercise fully its right to self-determination.... These principles apply to all the parties concerned, and thus: the Palestinian people, and to the PLO, which will have to be associated with the negotiations."

The policy declaration also stated that the EC would "not accept any unilateral initiative designed to change the status of Jerusalem" and maintained that "settlements, as well as modifications in population and property in the occupied Arab territories, are illegal under international law"

"Whereas Europe has regularly condemned various Israeli activities, it has been less than emphatic in condemning Arab terrorism, the Arab boycott and other hostile Arab activities over the years."

The Israeli Government flatly rejected and denounced the Venice Declaration on the grounds that it called on Israel to negotiate with the PLO, which at that time was a terrorist organization that called for the destruction of Israel. Israel also opposed the Declaration in that it spelled out its own formula for resolving the conflict rather than calling on the parties to resolve the issue amongst themselves. The European statement clashed with American Middle East policy for the same reasons.

In the late 1980s, Europe began to take a more assertive role in Arab-Israeli peacemaking. In the Brussels Declaration of February 1987, the EC formally supported the convening of an international conference for Middle East peace under United Nations auspices. Five months later, in the Copenhagen Declaration, the EC called such an international conference "the only formula which would allow the peace process in the region to move forward?’

Although it continues to support a UN-sponsored international conference, the European Union endorsed the 1991 Madrid peace conference and its subsequent negotiating tracks. The EU is deeply involved in the multilateral track, serving as chair of the Regional Economic Development Working Group and participating in the Arms Control Working Group. It co.-organizes activities on the other working groups of water, environment and refugees and has funded a large number of multilateral activities. At this writing, due to the lack of progress in the peace process, the Arab states have essentially frozen the multilateral track. Given its leadership and commitment of financial resources in this track, the EU is worried over the current stalemate.

* The United States also does not recognize Israeli sovereignty over eastern Jerusalem.

Economic Sanctions

In addition to prejudging the outcome of the Arab-Israeli conflict and calling upon Israel to negotiate with the PLO when it was still engaged in terrorist activities against Israel, the Europeans also displayed their partiality by imposing economic sanctions when they disagreed with Israeli policy. Economic sanctions provide the EU with long sought-after political leverage, as a British member of the European Parliament disclosed in October 1988:

"Although my group does not favor using trade agreements to achieve political objectives, we have discovered what a powerful weapon for achieving objectives Parliament has at its disposal in its dealings with those countries with which we have trade protocols?"

Israel’s invasion of Lebanon in 1982 provided the Europeans with their first opportunity to employ economic sanctions for political pressure. At the time, the EC Council of Ministers put the 1975 trade agreement on hold and delayed for one year the signing of a financial protocol with Israel that had already been initialed.

The Palestinian uprising, or intifada, served to highlight Europe’s one-sided approach toward the Arab-Israeli conflict.
"...the Europeans also displayed their partiality by imposing economic sanctions when they disagreed with Israeli policy."
Refraining from criticism of Palestinian violence and terrorism, the various organs of the European Union repeatedly condemned Israel and imposed sanctions on the Jewish State. In March 1988, the European Parliament delayed approving three trade and financial agreements because of Israel’s alleged repression of the intifada and its obstruction of Palestinian exports.

The protocols were later ratified in October 1988, only after Israel granted trade concessions to the Palestinians, agreeing to permit Palestinian products to transit Israeli ports en route to Europe with no Israeli processing or change in certificates of origin.

In December 1989, the European Parliament adopted a resolution condemning "the continuous ban on teaching for the Palestinian population of the West Bank" and calling for a suspension of cultural ties with Israel.

On the basis of alleged Israeli disrespect for human rights, the European Commission suspended the meeting of the Joint Scientific Committee in February 1990, thereby suspending examination of 15 new proposed projects. The Commission also postponed the signing of a cooperation agreement in the field of energy and delayed the visit of a senior European Commission official to Israel.

Finally, since the late 1980s, Israel had been seeking a new trade pact with the Europeans to replace the outdated 1975 accord. Europe kept delaying negotiations with Israel because of the lack of progress on the peacemaking front. Negotiations were finally launched after the Oslo breakthrough and an agreement was reached in November 1995.

EU & Current Peacemaking

The European Union is the single largest foreign donor to the peace process, accounting for over 53 percent of all economic aid to the Palestinian Authority. (The United States contributes 11 percent of aid). Since 1993, the EU has provided $1.8 billion worth of aid to the Palestinians.
"Israel has resisted a greater EU role in the peace process, maintaining that the EU is not an honest broker because of its overt support of Palestinian demands."
Continued EU economic assistance has helped to finance and train the Palestinian police and to support democratic elections in Palestinian self-rule areas.

After the conclusion of the Oslo Accords, political relations between Israel and the European Union became warmer. Dialogue between the parties increased and Israel’s Labor government did not view the EU as a hostile party in the peace process. During this time, the EU finally agreed to launch talks with Israel on renegotiating the 1975 trade accord.

Political tensions between Israel and the EU resurfaced after Benjamin Netanyahu became Prime Minister of Israel. Following the riots that broke out in the wake of Netanyahu’s decision to open a second entrance to the Western Wall tunnel, the EU designated a special envoy to the Middle East in October 1996. Ambassador Miguel Moratinos was given a clear mandate to work toward a comprehensive peace in the interests of both Europe and the Middle East.

In recent months, the EU has sought a more prominent role in Arab-Israeli peacemaking, seeking to translate its economic aid into political clout. It has echoed the Palestinian charge that the United States is too close to Israel to serve as an honest broker in the difficult peacemaking process.

Israel has resisted a greater EU role in the peace process, maintaining that the EU is not an honest broker because of its overt support of Palestinian demands. A recent poll conducted by Tel Aviv University found that 60 percent of Israelis thought the Europeans were more supportive of the Palestinians, 4 percent thought they were more supportive of Israel and 31 percent considered them neutral. In contrast, 24 percent of Israelis consider the United States to be more supportive of Israel, 20 percent think the U.S. is more supportive of the Palestinians and 50 percent consider the U.S. to be neutral.

In December 1997, the European Council of Ministers adopted the Luxembourg Declaration, a list of 18 points dealing with the Middle East peace process. The document "stressed the great urgency for the parties to live up to previous commitments especially as regards credible and significant redeployments?’ It also "stressed the importance of avoiding counterproductive unilateral actions, for instance on settlements and Jerusalem?’ There was no mention of any "counterproductive unilateral actions" undertaken by the Palestinians.

The Council also pledged to "enhance its support to Palestinian institutions in East Jerusalem’ and "continue to monitor closely developments on the ground through its own human rights, Jerusalem and settlements watch instruments." Regarding final status talks, the Council "expressed the EU’S readiness to contribute to permanent status negotiations, by offering specific suggestions to the parties on related subjects, including possible Palestinian Statehood, borders/security arrangements, settlements, refugees, Jerusalem and water issues."

In January 1998, the European Commission issued a report, The Role of the European Union in the Middle East Process and Its Future Assistance to the Middle East, placing much of the responsibility for the stalemated peace process on Israel. The document blames Israeli closures of the territories for Palestinian economic decline and faults Israeli implementation of the Israeli-Palestinian economic agreements.

Also in January, Britain assumed the rotating presidency of the EU and senior government officials stated that a key priority for the British presidency is the Arab—Israeli peace process. In Britain’s capacity as president of the EU, British Foreign Secretary Robin Cook visited Israel in March 1998. He angered the Israeli Government and the Israeli polity with a visit to Har Homa, the site of controversial Israeli construction in Jerusalem. The Foreign Secretary went to the site in order to protest Israeli building activity in Jerusalem. The European Union later released a statement supporting Cook’s action as in accordance with EU policy.

Further exacerbating the and-Israel tenor of the trip,
"..the European Commission issued a report ... placing much of the responsibility for the stalemated peace process on Israel."
Cook also canceled a visit to Yad Vashem but laid a wreath at the site of Dir Yassin. He also stated, on behalf of the EU, that "I have clearly expressed the anxiety of the European Union about the expansion of settlements and our insistence that if the peace process is to thrive, then there must be a halt to such expansion." The Foreign Secretary expressed no anxiety about Palestinian violations of the Oslo agreements, the unwillingness of the Palestinian Authority to rout out Islamic extremist terrorism and Palestinian inflammatory rhetoric.

At a March 1998 speech to the Anglo-Arab Association, Foreign Secretary Cook reiterated European policy calling for ‘justice for the Palestinians and security for the Israelis" and stated:

"International law requires Israel to withdraw from the Occupied Territories, Southern Lebanon and the Golan Heights. We are clear about the illegality of settlements in the Occupied Territories....

In this policy address, however, Secretary Cook did call upon the Palestinians to increase their security activities:

"We believe that there are five steps [sic] that must be taken to get the process back on track and to restore trust between the parties.

    • Both parties must restate their unequivocal commitment to honor existing agreements.
    • The Israelis must make substantial, credible and urgent further redeployments.
    • There must be a parallel commitment by the Palestinians to a hundred per cent effort on security, and implementation of precise security commitments, complemented by an effective mechanism for their monitoring.
    • A halt to all expansion of settlements.
    • The opening of the Gaza airport, Gaza industrial estate and southern free passage, and an agreement to begin work on the Seaport.
    • The resumption of final status talks as soon as there is progress on the ground...?"

Meeting in Majorca in April 1998, ministers from 11 European and Mediterranean countries again singled out Israeli actions as "unilateral actions contrary to the peace process" and issued a statement calling for:

"… the respect of the principle ‘land for peace,’ the right of the Palestinian People to self-determination, including the establishment of a Palestinian State, and the legitimate right of Israel to live within safe and recognized borders. They (the ministers) consider that Oslo, Cairo and Hebron Agreements have to be fully implemented and have decided to join their efforts in order, inter alia, to:

    • Contribute to a credible, satisfactory and adequate redeployment of Israel from Palestinian territories still under occupation in compliance with the relevant agreements. This redeployment should allow the establishment of a viable future Palestinian entity with territorial continuity;
    • Avoid unilateral actions contrary to the peace process, in particular settlements in the occupied territories, including East Jerusalem;
    • Demand maximum effort in the fight against terrorism and cooperate resolutely with this aim;
    • Urge on all the parties to continue negotiations to achieve progress in the peace process, supporting the efforts currently under way"

Also in April, the EU signed an agreement with the Palestinian Authority on security matters and the war against terrorism. Under the terms of the agreement, the EU will assist the Palestinians in training security personnel and equipping them with surveillance equipment and exchanging intelligence information. Israeli government sources said the agreement was an infringement of the Oslo accords, noting that the Palestinian Authority was authorized to sign agreements with a foreign country only with the approval of Israel.

In April 1998, British Prime Minister Tony Blair visited Israel also in Britain’s capacity as President of the European Union. He tried to be conciliatory in the wake of Cook’s previous visit and he succeeded in inviting Benjamin Netanyahu and Yasir Arafat to London for a new round of talks. Although the May 1998 talks were inconclusive, they did raise the profile of the European Union as a party in the peacemaking process.

The European Union again wielded the economic card in May 1998. The European Commission issued a policy recommendation calling on the EU to exclude Israeli imports from the West Bank, Gaza Strip, Golan Heights and eastern Jerusalem from preferential trade benefits granted to Israel. At stake is an estimated $200 million worth of goods, mainly agricultural produce, that are exported annually from settlements in the West Bank and Gaza.

The 1975 and 1995 EU-Israel trade accords do not define the borders of the State of Israel; Article 38 of the 1995 agreement states that the agreement is to be applied "to the territory of the State of Israel?’ The EU is now claiming that the areas acquired by Israel in 1967 are not part of "the territory of the State of Israel?’ The European commission’s May 1998 policy recommendation states ". . . the international community and international public law take a different view All relevant United Nations Security Council Resolutions lead to the conclusion that neither Israeli settlements in the West Bank and Gaza Strip, nor East Jerusalem and the Golan Heights, can be considered as part of the State of Israel. . . ."

The EU further argues that the economic agreement it signed with the Palestinian Authority recognizes the PA as a separate customs entity.

Israel denies that the 1995 agreement in any way excludes the post-1967 areas from "the territory of the State of Israel." It called the EU action an infringement of the Paris Agreements between Israel and the PA which articulated a "single customs envelope" between Israel and the Palestinians. Israel also charged the EU with taking a one-sided political step that could harm the peace process and warned the EU that pursuing this course of action would disqualify the EU from any future role in the peace process.

Indeed, the EU has only recently adopted this position regarding goods from these areas and, according to a news report in the Israeli daily Ha‘aretz, senior EU official Manuel Mann acknowledged that it was the actions of the Netanyahu Government that prompted the EU to raise this issue. At this writing, negotiations between Israel and the EU aimed at resolving this issue are underway.


Israel and the EU have, in a sense, a "compartmentalized" relationship; a strong economic partnership and a weak political partnership.
"Israel and the EU have... a strong economic partnership and a weak political partnership."
Barring the instances in which the EU threatens the economic relationship on political grounds, the two tracks appear to independently coexist.

Europe has a clear political tilt toward the Arab stance in the Arab—Israeli conflict, despite the fact that under Israel’s Labor Government from 1992-1996 political relations between the parties were warmer. This tendency to adopt Arab negotiating positions is based on a host of historical, political, economic and cultural factors. Although Europe values Israel’s status as a strong, stable, high-tech nation, ultimately the EU has far greater economic, political and cultural interests in the Arab and Muslim world.

Finally, the EU considers the stalemated Arab-Israeli peace process a threat to its Euro-Mediterranean framework. Although the framework is supposed to exist independent of the Arab-Israeli peace process, since Israelis a member of the framework, the Arab states have not been able to keep the Euro-Med process separate from the peace process.

As tensions persist in the Arab-Israeli peace process, there is no doubt that the EU will continue to face Israeli charges of one-sidedness and hostility.

This report was published in August 1998

2001 Anti-Defamation League