When Europe Invests in Israel - A Comparison

January 7, 2007

The Funding for Peace Coalition (FPC) has consistently argued that European Community investment in Palestinian projects is prone to corruption.

The European Investment Bank (EIB), the financing arm of EU policies, announced that it intends to fund hundreds of environmental projects in Israel. This is the first such series of projects since 1995.

Philippe de Fontaine Vive, EIB Vice-President responsible for economic and financial support to the Euro-Mediterranean region, has approved two loan contracts. The first loan agreement of EUR 200 million was signed with the Israeli Ministry of Finance and will finance protection of the environment through municipal wastewater schemes. The second loan of EUR 75 million was signed with Israeli Bank Hapoalim and will underpin capital investment projects of private sector small and medium sized enterprises.

Officially, the EIB had halted its lending operations in Israel because per capita income in the Jewish state exceeded the bank's criteria. Behind the scenes, the cessation of activities was in protest at the actions of the Netanyahu government of the time. What the EIB has stressed, and continues to state, is its satisfaction with the competence of Israel's financial system.

The Europeans have previously announced their willingness to support huge aid packages for the Palestinians that only wait for the ruling elite to provide the sort of environment that allows such heavy investment in Israel. This strategy would exude messages of hope for the Palestinians and their future prosperity. And that, in turn, would send a strong positive message to other external investors.

Evidently, the money men are being asked to wait even longer.

What follows is a summary of the proposal as reported by the BBC.

EU bank ends Israel loans freeze

The European Investment Bank (EIB) says it will provide Israel with loans worth 275m euros (168m) to help promote businesses and environmental projects.

One loan is for 200m euros and aimed at 400 projects such as building recycling and waste water treatment plants.

A 75m-euro loan will finance expansion of small- and medium-sized firms in sectors including tourism and health.

The loans are the first to Israel in more than a decade by the EIB - part of the EU's investment operation.

Israeli Finance Minister Abraham Hirchson said: "The bank's commencement of activity in Israel and its allocation of credit convey the European Union's confidence in the Israeli economy."

He added that the deal signified that "an upgrade in economic relations between Israel and the EU".

Israel's $130bn (66bn) economy was on course to grow by more than 5% this year, before its invasion of southern Lebanon.

However, the economy is expected to have slowed because of a subsequent drop in tourism and manufacturing output.

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