During the 1990s, as I served as the Israel economist for the leading Swiss bank, UBS, I observed first-hand the transformation of the Israeli economy. In the early days of the optimistic Oslo peace process, foreign investments were heavily pouring into Tel Aviv, after having been mostly absent prior. My role consisted of scrutinising the Israeli economy for UBS and its clientele, identifying potential opportunities and calculating the prospective rewards for both the Israeli economy and potential West Bank-based Palestinian economy, should future peace and openness materialise. It’s hard to believe now, but during that time, Palestinians and Israelis frequently commuted across the Green Line, which represents the 1967 borders. I primarily resided in a Tel Aviv suburb, Ramat Gan, home to numerous Iraqi Jews expelled from Baghdad in 1948. Engaging with these individuals, most of whom were first or second-generation Jewish refugees, offered me an understanding of their worldview.
As the saying amongst psychologists goes, those who have been wounded tend to wound others.
Three decades ago, Israel’s economy was beginning its transformation from a near-socialist, introspective, second-tier entity that was deeply affected by hyperinflation, into the technological, finance-savvy, trading powerhouse it is known as today. The influx of several hundred thousand well-educated and tech-inclined Soviet Jews in the early 1990s reshaped the engineering identity of Israel. These individuals provided the intellectual foundation for the subsequently documented boom in Israeli high-tech, as illustrated in the best-seller, Start-Up Nation: The Story of Israel’s Economic Miracle.
Through my studies and interactions with local economists, policymakers, manufacturers, and commentators, it became increasingly clear that the Israeli economy is heavily reliant on the EU. While America may serve as Israel’s protector, Europe is essentially its main source of sustenance. Over the past 30 years, this fact remains relatively constant. It has become a common understanding that trade economics largely reflects geography, suggesting that nations tend to trade with proximate nations. In light of this, just as Britain predominantly engages in trade with Europe due to its vast trading block, Israel also relies significantly on its trade with the EU.
Although I don’t foresee imminent sanctions on Israel, I do acknowledge that circumstances can drastically change during wartime.
Lastly, Irish electricity prices have nearly tripled over the past 12 years, whereas in Scandinavian nations, they pay merely half the price. Why is this the case?
There’s an appealing visionary plan to fuel the dormant potential of Cork, considering Ireland’s ‘recklessly imbalanced’ state. Both Galway and Limerick are considered paramount to its forward movement.
The European Union is by a substantial margin Israel’s main trade ally, contributing to 28.8 per cent of its entire merchandise trade. This statistic is nearly the double of Israel’s commerce tied with its second biggest collaborator, the USA, which sits at 15.6 per cent. Approximately 31.9 per cent of Israel’s incoming goods originate from the EU, and merely under a fourth (24.3 per cent) of the nation’s traded products are purchased within European borders. The USA, on the other hand, covers just below a tenth (9 per cent) of Israeli imports and nearly a fourth (25.6 per cent) of its exports. In the realm of trade, Israel places as EU’s 25th largest partner and only forms 0.8 per cent of the EU’s total merchandise trade as of 2022.
From an economic standpoint, the EU may seem meek politically to Israelis, but it signifies an enormous entity—one that potentially could halt the Israeli economy at its whim.
The imbalance in the commercial relationship between the EU and Israel is incredibly stark. The total merchandise trade involving both the EU and Israel in 2022 escalated to €46.8 billion — a trivial amount for the EU, yet monumentally substantial for Israel. Taking into account the €16.7 billion services trade between EU and Israel in 2021, it is evident that Israel’s economy is critically dependent on the EU. In fact, the trade exchange between Ireland and Israel capped a staggering €4 billion last year alone.
In global business, the larger entities hold considerable sway. They often set the playing field, while smaller nations are left to toe the line. This is why it’s crucial for less powerful countries to engage in diplomatic negotiations as part of a bigger alliance. When an individual or group isn’t directly involved in deliberations, they often end up at the mercy of those in command. When this point resonates with Israeli nationalist political figures, who belittle the EU while pandering to the US, their industrial sectors may begin to feel discomfort. As ex-German Chancellor Willie Brandt aptly summarised, politically, the EU may seem insignificant to the Israelis, but from an economic standpoint, it’s a juggernaut that can hinder Israel’s economic prosperity, if it opts to do so.
This leads us to the subject of imposing sanctions on culprit nations, such as Serbia in 1992, Russia in 2022, or even South Africa in 1985. These penalised nations perceived themselves as the casualty, misconceived by the global community, criticised unjustly, resulting in the nation falling victim to unstable local conditions. But this ‘whataboutery’ points out an insignificant matter; in the overall scheme of things, the international community primarily saw heavily armed troops attacking defenceless individuals, whether it was vulnerable Bosnians seeking refuge in Sarajevo, South Africans in Soweto, or Ukrainians in Mariupol. This is the perilous path Israel currently treads.
To clarify, I won’t suggest immediate sanctions against Israel. However, the conditions in a war can change rapidly. The Israeli military could devastate Gaza in their pursuit of Hamas. A similar approach towards Hizbullah in Lebanon could reactivate several dormant measures.
As it currently stands, Europe appears impotent; a passive onlooker. However, this dynamic may shift if unprovoked violence against innocent civilians persists. The EU may not possess military strength, but it does have considerable financial power. Over time, financial might has proven to eclipse military power, ideologies or even religions. The EU also possesses its collective voice, with the European populace often expressing disgust at the violence depicted daily on their screens. Currently, a more pragmatic approach dominates European governments, but this could change. Consider what might happen if, hypothetically, Israeli forces attacked European UN peacekeepers shielding civilians in South Lebanon. This scenario raises important questions.
Currently, the EU is steadfastly supporting Tel Aviv, which has caused widespread distress among Europeans from all walks of life. Germany’s historical issues, which need not be elaborated on here, imply that any action against the Jewish nation from Berlin would mark unexplored grounds. However, stances can shift amidst crises. While Ireland exhibits extraordinary support for Palestinians, comparatively, consensus among the rest of Europe is polarised, primarily on the basis of age. For instance, 46 per cent of Europeans convey empathetic sentiments towards Palestinians, with 38 per cent being more supportive of Israel. Notably, this dichotomy reveals a significant generational gap, with the younger generation, specifically Gen Z, more inclined to back Palestinian rights. In France, for instance, a mere 32 per cent of those below 35 years old have a positive perspective of Israel, in contrast to 57 per cent of individuals above 65.
Given the current circumstances, what would transpire if the situation aggravates, support for Israel fades and Europeans are informed about the one-sided EU-Israel trade, and how imposing sanctions wouldn’t impact Europeans, but would ruin the Israeli economy? It appears that many EU citizens still perceive Israel as a tiny nation besieged by relentless adversaries, an echo of the David and Goliath narrative. However, each act of violence against innocent children makes this narrative progressively difficult to uphold, even for those with longstanding memories.
In time, all clashes reach a conclusion. Generally, a dominant power interferes, influences the terms, governs the outcome and hastens the journey towards peace. All parties involved face pressures to engage in negotiations, often incorporating a blend of incentives and warnings. If EU sanctions, akin to those applied against Russia, were to exert that pressure, might Israel reconsider their strategies?
As we step into the second year of this conflict, what could be the outcome if the battle transitions into a corporate setting? Who will experience the strain? At present, it appears improbable, but we have learned from crises that changes occur rapidly, and what was once perceived as extreme becomes the norm, and what was once commonplace becomes obsolete. This trajectory seems inevitable.