'Failed Palestinian peace talks will hit every Israeli in the pocket'

Finance minister warns of boycott by EU partners if deal cannot be reached

Israeli finance minister Yair Lapid fears an EU boycott (AP)

Israel’s finance minister has warned that the country could be targeted by an economically costly boycott if peace talks with the Palestinians fail, signalling that concerns about growing international isolation have moved centre stage in Israel’s public discourse.

The minister, Yair Lapid, said the Treasury has examined various threat scenarios. Even in the case of a limited boycott that reduces Israeli exports to the European Union (EU) by 20 per cent, the damage would amount to about 20 billion shekels ($5.7bn) in exports annually, he said.

Israel’s GDP – just under $260bn in 2011, according to the World Bank – would lose about $3bn each year, he said in a speech to a high profile security conference in Tel Aviv late Wednesday.

Intelligence Minister Yuval Steinitz from Prime Minister Benjamin Netanyahu’s hard-line Likud Party played down the risks, saying Israel “has the tools to prevent boycotts.”

Steinitz, a former finance minister, told Israel Radio that any deal that endangers Israel’s security would do far more economic damage than a boycott.

European officials have recently warned that Israel could face deepening economic isolation if it presses forward with the construction of Jewish settlements. A small but growing number of European businesses and pension funds have begun to drop investments or limit trade recently with Israeli firms involved in West Bank settlements.

The EU is Israel’s largest trading partner. Mr Lapid said Israel’s economy was more vulnerable than its security and that even a limited boycott would raise the cost of living and lead to a cutback in government services. Without a diplomatic solution to the conflict, he said Israel could lose major markets in Europe. “When you say to Israelis ‘European boycott,’ they think it means that this year they won’t get Camembert cheese on time... That is not the case,” Lapid said.

“If the negotiations with the Palestinians get stuck or break down and we enter a reality of a European boycott, even a very partial one, Israel’s economy will retreat backward and every Israeli citizen will feel it straight in the pocket.”

Mr Lapid, who heads the centrist Yesh Atid party, said he was working off a “medium-range scenario” presented by Treasury researchers.

After years of dismissing the boycott threat as a tool of fringe extremists, Israel appears to be genuinely concerned. A high-profile government meeting is expected to take place in the coming days to address the recent European measures.

Steinitz said his office is preparing a campaign “against the boycotts and de-legitimisation of Israel” but did not elaborate. The comments come as Israel copes with an increasingly heated domestic debate over whether it should accept US Secretary of State John Kerry’s anticipated framework for the terms of a Palestinian state in most of the West Bank, Gaza and east Jerusalem.

Kerry has not revealed his ideas, but is expected to propose an Israeli withdrawal from most of the West Bank and parts of east Jerusalem, coupled with stringent security arrangements to shield Israel against attack.

Mustafa Barghouti, a former Palestinian legislator, praised the boycott efforts.

“It’s a very effective way in pressuring the Israeli occupation, because it touches two sensitive points in Israel: the economy and the moral challenge,” he said.

AP