Finance Minister Yair Lapid said Wednesday that should Israel be blamed for failure to reach a peace agreement with the Palestinians, the EU was considering canceling its association agreement with Israel, which serves as the legal basis for Israel-EU ties.
"Just canceling the 'association agreement' with the EU, which we know is already on the table now as far as they're concerned, would reduce exports NIS 3.5 billion, harming GDP by NIS 1.5 billion and causing 1,400 layoffs," Lapid said at the INSS conference in Tel Aviv on Wednesday.
Canceling the agreement, which was signed in 1995 and went into effect in 2000, would be an enormous step back for Israel-EU ties. Europe is Israel's main trading partner, accounting for 33% of trade. Israel's preferential trade ties with the EU, participation in cultural and scientific bodies, its recently passed Open Skies Agreement and other important treaties fall under the framework of the Association Agreement.
Though Lapid's spokesman stood by the text of his speech, it seems possible that the Finance Minister spoke out of turn,
The EU delegation to Israel denied such drastic steps were being considered, saying, “There has been absolutely no consideration in the EU of the abrogation of the Association Agreement. It is not in the cards.”
The economic cost Lapid associated with the agreement's cancellation--NIS 1.5 billion--was also a fraction of the damage he estimated an EU boycott would cause, NIS 11 billion.
It would not be Lapid's first time confusing figures. In April, he accidentally quoted an obscure deficit estimate that was NIS 7 billion below the commonly used figure, a gaffe then-Opposition Leader Shelly Yacimovich dubbed "an embarrassment."
Lapid's intention in the speech will become clearer if the Treasury releases the full report on which his figures were based.
Most of his speech Wednesday focused on the repercussions of a boycott.
"If negotiations with the Palestinians will stall or blow up and we will enter the reality of a European boycott, even a very partial one, the Israeli economic will retreat backwards, the cost of living will rise, budgets for education, health, welfare and security will be cut, many international markets will be closed to us," he said. "If there will not be a political settlement, the Israeli economy will face a dramatic withdrawal that will substantially hurt the pocket of every Israeli."
A concerted effort at a boycott would be easy for Europeans, he said, who would have little trouble labeling products from Israel or the settlements, allowing "armchair activists" to simply avoid buying them in favor of plentiful alternatives.
If boycott would reduce exports to Europe by a fifth and eliminate their foreign direct investment in Israel, Israel's economic output would fall NIS 11 billion a year (about 1.1% of GDP), 9,800 people would lose their jobs.
Rattling off an unsettling list of organizations already joining the movement to Boycott, Divest and Sanction (BDS) Israel, Lapid warned that the tipping point could come unexpectedly. South Africa, he said, did not realize until well after the fact the severity of the sanctions movement against it.
Reaching a peace deal, on the other hand, would yield economic benefits, trimming NIS 20 billion from annual government spending, and a potential NIS 16 billion growth of service exports.
A week earlier, Economy Minister Naftali Bennett argued that a peace deal would destroy Israel's economy by making it vulnerable to more terror attacks from the West Bank.
“What would the economy of Israel look like if once a year, a missile launched from Judea and Samaria brings down a plane headed to Ben-Gurion Airport?”