Europe slows down on Israel: the weight of Economics on Politics

Translated by Erica Cervellera

In recent months, the European Union has begun a strategic reassessment of its economic and political relations with Israel, amid an increasingly dire humanitarian crisis in Gaza and the progressive deterioration of the Middle East’s geopolitical landscape. This shift in the EU’s stance—departing from its traditionally near-unconditional support for the Israeli state—is emerging primarily as an economic, rather than political, turning point. It reflects growing pressure from European public opinion, civil society, and certain parliamentary forces.

A central element of this shift is the renewed focus on the EU-Israel Association Agreement, in effect since 2000. This agreement governs the full scope of trade, economic, and political relations between the two parties, granting tariff concessions and facilitating bilateral cooperation. Crucially, Article 2 of the agreement stipulates that relations must be based on “respect for human rights and democratic principles,” thus creating a conditionality clause that, in theory, could be invoked to suspend, revise, or downgrade the agreement in the event of serious and systematic violations. Currently, 17 out of 27 EU member states have expressed the desire to discuss activating this clause, pushing for a review of the agreement in light of Israel’s actions during its military operations in Gaza.

At the same time, calls for stronger measures are increasing within the European Parliament. The Socialists and Democrats (S&D) group, along with the Greens and parts of the Left wing, have called for an arms embargo on Israel and for targeted sanctions against political and military leaders accused of violating international humanitarian law. Some members of the European Parliament have also demanded an end to all technological and research cooperation with Israeli institutions or companies connected to the military sector, particularly in the framework of EU programs such as Horizon Europe.

These demands echo across civil society. Numerous NGOs, human rights organizations, and European trade unions have renewed calls to ban the import of products originating from Israeli settlements in the occupied territories, in line with the EU’s official position that such settlements are illegal under international law. Some countries, including Ireland and Spain, are considering unilateral measures to this effect, which could set a precedent within EU trade law.

The economic impact of this new EU approach is already beginning to show. Recent data indicates that foreign direct investment in Israel—especially in the high-tech and venture capital sectors—has dropped by over 70% compared to pre-conflict levels. This sharp decline reflects rising perceived risk among international investors, who are increasingly concerned about reputational damage, political instability, and the possibility of future sanctions. Israel’s startup sector, historically one of the most dynamic in the world, has been particularly affected, facing a notable decline in available capital for new ventures and innovation projects.

The European Investment Bank (EIB), which has financed several projects in Israel worth over €847 million over the years, is also coming under scrutiny. Some EIB board members have raised concerns about continuing credit lines, arguing that any new funding should be made conditional on meeting minimum standards of legality and transparency.

Meanwhile, the European Union has announced an extraordinary financial aid package for the Palestinian Authority, totaling €1.6 billion. The package is intended to support the Palestinian public budget, promote economic stability, and strengthen the resilience of local communities in the West Bank and Gaza Strip—areas severely affected by the ongoing conflict. This move sends a clear political message, underlining the EU’s intention to rebalance its regional presence by actively supporting a negotiated solution and the reconstruction of the basic conditions for peaceful coexistence.

This European repositioning—through economic instruments, legal clauses, and humanitarian initiatives—marks a strategic shift in the EU’s foreign policy. While stopping short of a diplomatic rupture with Israel, the EU appears to be leveraging economic tools to influence the behavior of a partner state, consistent with a conditionality-based approach that upholds fundamental values. The potential consequences are significant: a possible redefinition of the Association Agreement, a domino effect on other EU trade partners, and growing polarization within the European Council.

In un’epoca in cui la credibilità della politica estera dell’UE è spesso messa in discussione per l’apparente incoerenza tra principi dichiarati e azioni concrete, la crisi israelo-palestinese potrebbe costituire un banco di prova fondamentale. Le prossime settimane saranno decisive per comprendere se la linea economica adottata da Bruxelles rappresenti solo una reazione contingente, oppure l’inizio di una nuova dottrina europea nel Mediterraneo e nel Vicino Oriente. 

At a time when the credibility of EU foreign policy is often questioned due to the perceived gap between stated principles and concrete actions, the Israeli-Palestinian crisis may prove to be a crucial test. The coming weeks will be decisive in determining whether the economic approach adopted by Brussels is merely a temporary reaction or the beginning of a new European doctrine for the Mediterranean and the Near East.

“”
-