Lawrence Solomon: If Europe breaks Palestine, it will have to clean up the mess

(July 27, 2011) There is something the Europeans, who assume a hypothetical, independent Palestine, have overlooked: Without Israeli good will, a Palestinian state couldn’t support itself.

Portugal, Ireland, Italy, Greece and Spain, the five countries whose financial obligations burden the European Union, may soon be joined by another that the EU may unwittingly be taking on — Palestine. If Palestine declares statehood this September, as many of its EU underwriters are encouraging it to do, the EU would be implicitly assuming an open-ended financial burden for a country of over four million, or almost the size of Ireland.

“The issue before us at the moment is the building of a reality,” France’s foreign minister, Bernard Kouchner told the Journal du Dimanche in February. “France is training Palestinian police, businesses are being created in the West Bank … It follows that one can envision the proclamation soon of a Palestinian state, and its immediate recognition by the international community, even before negotiating its borders.”

Kouchner, who with his Spanish counterpart Miguel Moratinos is leading a European effort to establish a Palestinian state, stated that “If by mid-2011, the political process has not ended the [Israeli] occupation, I would bet that the developed state of Palestinian infrastructure and institutions will be such that the pressure will force Israel to give up its occupation.”

Europeans, along with the IMF, view the Palestinian Authority as “now able to conduct the sound economic policies expected of a future well-functioning Palestinian state” because its bureaucracy has learned how to tax its people and administer government programs. But if Kouchner is proven right and Israel departs, there is something that the Europeans who assume a hypothetical, independent Palestine have overlooked: Without Israeli good will, a Palestinian state couldn’t support itself.

Almost two-thirds of Palestinian government net income — about $1.5-billion per year — comes from tax collected on the Palestinians’ behalf and remitted to them by Israel. The IMF projects that this revenue stream will not only continue but grow — a prospect that depends on good relations between a sovereign Palestine and Israel. Yet after terrorist Hamas took over Gaza in 2006, Israel understandably suspended the tax payments. With Hamas forming part of any new Palestinian government, the EU can expect continued hostilities and an Israeli reluctance to finance its newly sovereign enemy.

Eighty seven percent of Palestinian exports now go to Israel, making the broad Palestinian economy dependent on good relations with its neighbour. Should relations with Israel deteriorate, Palestine’s exports would sharply contract. A sharp contraction in exports is precisely what happened to Gaza’s economy after the Hamas takeover.

Israelis remain major employers of West Bank Palestinians, both in Israel proper and in the West Bank settlements. The tens of thousands of Palestinian employees of the Israeli settlements will be barred from this work by 2012 because the Palestinian government considers the work illegal. These settlement jobs not only constitute one-seventh of the total Palestinian workforce, they constitute one-quarter of the total Palestinian payroll because Israeli employers pay two to three times that paid by their Palestinian counterparts, according to the Palestinian Central Bureau of Statistics.

As for the jobs that Palestinians commute to in Israel — 20,000 West Bankers have work permits and as many work in Israel illegally — these too would be in jeopardy should Palestine declare independence. Before Palestinians turned to suicide bombings in the late 1980s, a staggering 110,000 — almost 40% of all employed Palestinians — commuted to Israel for higher-paying Israeli jobs. Once Palestinians became a security threat, Israel replaced most of the Palestinians with migrant workers from Asia and Eastern Europe, and would have replaced more of them still had the U.S. and Europe not pressured Israel to maintain employment for Palestinians.

One year after Israel left Gaza, and trading ties between them were severed, the unemployment rate in Gaza more than doubled, from 23% to more than 50%. Should trading ties between Israel and the West Bank become severed following a Palestinian declaration of independence, the EU can expect unemployment to soar in the West Bank.

Adding to the instability that would confront a nascent Palestinian government, one-third of its budget comes from external aid, in the form of loans and grants that come mostly from the U.S., the EU, and Western organizations. The U.S. Congress has already signalled that it might suspend aid if Palestine declares sovereignty, presenting the EU with another shortfall in the Palestinian budget that it would feel pressure to meet.

Palestine without Israel has no viable economy, and the Americans don’t seem particularly eager to meet any shortfall (and have troubles enough with their own balance books). If Europe, through its encouragement of a premature Palestine, breaks the Palestinian economy, it could own it.

This article first appeared in the National Post.

Lawrence Solomon is executive director of Urban Renaissance Institute and the author of The Deniers. LawrenceSolomon@nextcity.com.

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About Lawrence Solomon

Lawrence Solomon is one of Canada's leading environmentalists. His book, The Conserver Solution (Doubleday) popularized the Conserver Society concept in the late 1970s and became the manual for those interested in incorporating environmental factors into economic life. An advisor to President Jimmy Carter's Task Force on the Global Environment (the Global 2000 Report) in the late 1970's, he has since been at the forefront of movements to reform foreign aid, stop nuclear power expansion and adopt toll roads. Mr. Solomon is a founder and managing director of Energy Probe Research Foundation and the executive director of its Energy Probe and Urban Renaissance Institute divisions. He has been a columnist for The Globe and Mail, a contributor to the Wall Street Journal, the editor and publisher of the award-winning The Next City magazine, and the author or co-author of seven books, most recently The Deniers, a #1 environmental best-seller in both Canada and the U.S. .
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