00:00Well, meanwhile, EU commissioners have been discussing a package of possible measures
00:05aimed at pressuring Israel to end the war in Gaza.
00:08The measures were proposed in European Commission President Ursula von der Leyen's State of the Union speech last week.
00:15Israel's Foreign Minister Gideon Tsar has written to von der Leyen urging her to abandon the idea,
00:22saying that any such sanctions would empower Hamas and jeopardise efforts to end the war.
00:28This from the EU's chief diplomat, Kaya Kallas.
00:33The aim is not to punish Israel.
00:36The aim is to improve the humanitarian situation in Gaza.
00:41All member states agree that the situation in Gaza is untenable.
00:45The war needs to end.
00:47The suffering must stop and all hostages must be released.
00:51We must use all the tools we have towards this outcome.
00:55We must also not lose sight of the dangerous developments in the West Bank
01:00that reduce the viability of a two-state solution.
01:06Well, as we heard there then, spurred on by that ground invasion of Gaza City
01:11and, of course, the recent UN report labelling Israel's conduct in the war as genocide,
01:17the EU commissioners have been discussing a number of mostly political sanctions,
01:23such as asset freezes and travel bans on far-right ministers, as well as violent Israeli settlers.
01:31But we want to talk more widely about the subject of possible trade sanctions on Israel
01:37and what any impact of those trade sanctions might be.
01:41And to do this, I'm joined today on the line from London now by Michael Bengad.
01:47Mr. Bengad, you are Professor of Economics at City of St. George's University of London
01:53and you have worked in the past, I think, in the research department at the Bank of Israel.
01:59Very good to have you with us.
02:00Thank you so much for joining us here on France 24.
02:03I want to start, first of all, there is a bit of confusion.
02:08First of all, we've been hearing EU commissioners talking about cutting proposed bilateral support.
02:15I mean, what exactly do they mean by that?
02:17Bilateral support doesn't sound like trade.
02:19What is that? Perhaps you could clear that up for us, first of all.
02:23Well, there are all sorts of things like the Horizon programme,
02:27which is related to research and development.
02:30I think that that's probably what they're hinting at.
02:33What the Commission, what Ms. Callas was speaking about today
02:40was getting rid of or limiting Israel's preferential trade status vis-Ã -vis the EU,
02:47which would mean not that there would be necessarily sanctions,
02:52but that there's right now a very high degree of free trade in both directions,
02:58between the EU and Israel, that would impact from the Israeli side perhaps about 15 billion euros worth of exports.
03:12In other words, it would be basically the physical goods that go to Europe.
03:17A very big part of Israel's exports are in the form of services, including a lot of software.
03:26And generally, I wouldn't expect that that would be greatly impacted by this.
03:30There does appear to be a general reluctance within the EU to go for actual meaningful trade sanctions.
03:41And nevertheless, you know, we hear that Israel, 32 percent of its exports go to the European Union.
03:47You're saying they're mainly in software and services.
03:51Give us an idea of some of the other sectors where Israel exports to the European Union,
03:58what Israel might lose if sanctions were imposed, and how would that impact the European Union?
04:04Okay, so now we're talking about something very different, which is not what is being discussed at the moment.
04:10So hypothetically, if we actually had sanctions, and let's take the most extreme example,
04:16where there were export sanctions and also import sanctions and export sanctions,
04:21so Israel would no longer be able to export and generate foreign currency,
04:27it would also not be able to import from the EU.
04:30And it imports from the EU, even though Israel runs generally a current account surplus,
04:35it actually runs a deficit vis-a-vis the EU.
04:40Then we're talking about a fairly large hit to the Israeli standard of living,
04:45because generally Israel imports a lot of consumer goods from the European Union
04:52that would be difficult to replace in the immediate term.
04:54That would also depend on whether we could find substitutes in terms of exports.
05:03Israel does not produce a lot of sort of consumer goods,
05:08manufactured consumer goods that you can easily see on shelves.
05:12A lot of it is what we would call capital goods.
05:14So it's machinery that is used to produce other things.
05:18And of course, there's the whole question of defense exports.
05:23And there, I think you see a great deal of reluctance on the part of some members of the EU
05:28to cut those ties, especially given the situation to the east vis-a-vis the threat from Russia.
05:36The idea of cutting themselves off from, let's say, anti-missile technology
05:40is probably not something that most of the eastern parts of the EU would be keen on doing.
05:48Netanyahu made that speech on Monday, where he talked about Israel becoming like Sparta,
05:57you know, the Greek people, the Greek nation, famously self-sufficient, strong militarily.
06:05He said Israel will have to reduce its dependence on outside countries, outside industries.
06:12Is that possible for Israel?
06:16Can they increase production to do that?
06:22No.
06:25So, I mean, a little bit of context to this speech.
06:27So he gave a speech on Monday suggesting the analogy to Sparta was a very strange one.
06:34If anybody knows a little about the history of Sparta and what it was like,
06:38this was a society founded on murder and cruelty.
06:43I mean, it was almost the exact opposite of what we normally think of as being sort of Judeo-Christian values.
06:48And he's somebody who likes to remind everybody that he's the son of a history professor.
06:55So this was a very odd thing to choose.
06:58It created a good deal of panic within the business community.
07:07It caused the stock market to drop several percent.
07:10And so last night he held a press conference where he basically walked a lot of that back.
07:19And he said what he was only really referring to was defense industry,
07:26that we would have to become more self-sufficient when it came to the production of ammunition, for example.
07:35Even then, it's not entirely realistic.
07:38I mean, when we think about sort of high-tech weaponry that Israel, let's say, produces.
07:43I mean, the components are often, I mean, there are thousands of components and they come from all over the world.
07:51I'm right now in London and even Britain could not necessarily produce high-tech weaponry just relying on its own resources.
08:00And you talked there about the markets after his initial speech on Sparta about the markets reacting very badly to it.
08:07But Israel, this war will be coming up to its second year shortly.
08:12It is a very resilient country, the economy.
08:15What is the economy looking like?
08:16And are investors still investing in Israel?
08:20There was an immediate hit, not necessarily because of the war, but when the government took over, it won the election in November of 2022.
08:33And they announced a new judicial reform in January of 2023.
08:38And already you saw a lot of problems in terms of companies not being willing to necessarily register.
08:46So you still had a lot of R&D and a lot of investment into Israel.
08:50But increasingly, corporations were reluctant to necessarily register the company inside Israel.
08:56Now, this judicial reform has been to some large degree set aside, at least for the – and probably will not be implemented.
09:07So there – I don't think that you could say that there's been a reduction necessarily in investment because of the war.
09:17However, there is a general crisis in the tech sector that's happening in the United States as well, and Israel is highly exposed to that.
09:27So what you've seen is – if you look at it in terms of all the threats and all the challenges and, you know, the war with Iran and all the rest of it, Israel's economy –
09:39it's right to say that Israel's economy is enormously resilient, but still it's suffering.
09:45This war is very costly.
09:46It's led already to a decrease in the standard of living because we have a young and growing population.
09:53And so even if the economy is merely flatlining, that means that on a per capita basis we're losing ground.
10:02There's an acceptance that long-term defense spending is going to have to go up.
10:07It had reached a steady state of officially 4.5 percent, but it was always a little bit higher than the official statistics.
10:15We're now talking about a steady state of something like 7 percent, and of course that comes at the expense of something else.
10:22Again, I mean, the other thing I should just mention about the speech is it came in the context of a report that was issued about another scandal that probably isn't getting enough coverage.
10:37Having to do with the purchase of German submarines and the way he handled that.
10:42And part of the context for the speech was there was a lot of criticism of his behavior and the way he sort of made these decisions without any input from anybody else and hid a lot of these decisions.
10:58And he was trying, I think, to create a kind of post-harp justification for the way he, for the decisions, the decision processes that were being criticized.
11:10And of course, in this particular case, usually he's very, very self-confident.
11:15He's an excellent repetition in both Hebrew and English.
11:17But this time he really kind of misspoke.
11:23And again, he had to walk it back last night.
11:27OK, well, thank you very much indeed for your thoughts and your insights, Michael Ben-Gadd.
11:33I'm afraid we're going to have to leave it there.
11:34We are we are out of time.
11:35But thank you so much for giving us your time here on France 24.
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