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Israel’s Brexit Fears

Israel’s Brexit Fears

Weighing the political and economic fallout.

Tel Aviv — When the votes on the Brexit referendum had all been counted, the Brits’ surprise decision to leave the European Union left Israelis in the same boat as the rest of the world: scrambling to figure out what it means for their own foreign relations.

According to experts, it appears to be a mixed bag that reflects the complicated and strained ties of late between Israel and the European Union over the stalled Israeli-Palestinian peace process. But the bottom line, said Bar-Ilan University political science professor Gerald Steinberg, is that the potential instability brought about by a British exit from the European Union is not good for Israel.

“Israel needs stability in an unstable world,” he said. “In the local region, we see the Netanyahu government trying to strengthen ties with Turkey and other regional powers to promote stability. What is happening in Europe is promoting global chaos.

“In terms of global processes, a united Europe hasn’t played a significant role in stabilizing Syria and other Middle East flashpoints, but Brexit will make it more difficult to adopt a common policy to deal with issues faced by Israel, like terrorism.”

As far as the Israeli economy is concerned, Israel’s Finance Ministry announced that officials expect the impact of Brexit to be minimal and that it might actually open new markets for Israeli products.

Steinberg and others see the vote as energizing a trend toward polarization in Europe, in which extremist forces at the margins of the political spectrum are finding traction.

“Some of the nationalist and populist movements in Europe that are now celebrating the outcome of the referendum in Britain — from Poland to Austria, from Finland to France, from Italy to Holland — in the past have had an anti-Semitic background,” wrote Sever Plocker in the Yediot Ahronot newspaper.

“Now their leaders are careful to stress that they have nothing against the Jews. There are still more than enough other groups to defame and incite against. But this will not last forever. When they run out of people to blame, and when the situation does not improve — and it will not improve — these movements will also turn against the Jews of Europe.”

Just as the United Kingdom often serves as an entry point for U.S. interests in Europe, the British withdrawal from the EU would also leave Israel with one less influential ally within the 28-member group.

“With the exit of Britain, Israel will lose a friendly and moderating force within the EU,” wrote Ron Prosor, a former Israeli ambassador to the UK, in Yediot Ahronot. “That is likely to lead to European Union positions that are more critical” toward Israel.

Analysts noted that the British are usually sympathetic to Israel’s national security and counterterrorism concerns when it comes to Middle East issues.

“The negative fallout might be political, because the government of Great Britain was a supporter of Israel: the prime minister has fought BDS and anti-Semitism,” said Colette Avital, the Foreign Ministry’s former deputy director general for Western Europe. “This has an impact on the common policy of the EU. Britain was one voice that supported Israel, and opposed measures that might be taken against Israel. This might jeopardize certain efforts if Israel has to neutralize sanctions against Israel.”

While the withdrawal of the British will shift the weight in the European Union toward countries that are more sympathetic toward the Palestinians, analysts pointed out that the new crisis will leave the European Union with less ability to assert itself in the Middle East.

In a sense, that’s good news for the Israeli government, which has been fighting European Union initiatives that run counter to its policies.

Most recently, the EU endorsed a French plan for an international peace conference that Israel fears will eventually lead to the imposition of a series of international principles on the solution to the Palestinian-Israeli conflict. Last year, the European body implemented a series of guidelines aimed at requiring the labeling of products imported from Jewish settlements in the West Bank.

Both the peace plan and the labeling policies infuriated Prime Minister Benjamin Netanyahu. But with the British leaving the EU, some observers predict that Europe’s focus will shift from foreign policy to internal issues.

“With Britain leaving, it means there’s less time for the peace process,” said Jonathan Rynhold, a political science professor at Bar Ilan University. “The EU has got so many other important issues than the Israel-Palestinian issue. There are just so many other things that are more pressing.”

The European Union will be preoccupied with blocking the momentum for disintegration, wrote Oded Eran and Vera Michlin Shapir in a policy paper for the Institute for National Security Studies, a Tel Aviv University think tank.

“Therefore, Israel need not be perturbed by Britain’s succession,” they wrote. “On the other hand, Israel’s concern about the increasing support for Muslim fundamentalist forces in Europe and growing anti-Semitism on the continent led it to be more involved in fighting this phenomenon in concert with NATO and the EU. Israel will continue to function in the sub-bodies of the EU, but its influence will be weakened following the British exit.”

The financial implications for Israel may not necessarily be negative, according to an analysis issued by Israel’s Ministry of Finance. It pointed out that Israel’s exports to the UK are less than $5 billion — $4 billion in goods and $800 million in services.

“If we assume that the pound sterling devaluation is permanent, and the elasticity of Israel exports to the UK with respect to the shekel-pound exchange rate is 0.2, the negative effect on Israeli exports will be small — less than 0.1 percent,” it said.

If growth in the UK and the EU suffers, the ministry analysis says that demand for Israeli exports could also decline. On the other hand, it said, “It is possible that the UK’s exit from the EU will improve Israel’s ability to compete in the European market (which is a major destination for Israeli exported goods).”

In this scenario, the ministry analysis said Israel could see increased demand for exports to Europe of its high-productivity goods, such as pharmaceuticals, electronic machinery and equipment, and optical equipment. Britain currently has a significant share of exports of such products to Europe.

At the same time, the Finance Ministry report speculated, Israel could experience an increase in demand from Britain for Israeli products as the United Kingdom turns away from European markets for such things as pharmaceuticals. Israeli exports presently constitute 40 percent of the total British imports in this sector.

The ministry admitted that there is great uncertainty about the economic consequences of the vote, but that the consequences are primarily political, with worldwide concern focused on a possible domino effect in which other European countries also pull out of the EU.

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