Europe's lifeline to Palestine will not fix its bleeding economy

Arab News

a day ago

https://arab.news/p7zb5
The European Commission's allocation last month of a €202 million ($238 million) aid package to support the Palestinian Authority and the UN Relief and Works Agency for Palestine Refugees comes as a rare moment of good news amid a sea of economic despair and political paralysis in Palestine. But while welcome, the European aid barely scratches the surface of a deepening fiscal crisis, exacerbated by both internal dysfunction and relentless external pressure, chief among them the destructive policies of the current Israeli government.
Of the total package, €150 million is earmarked for supporting the PA in providing essential services, from teachers' salaries to public healthcare and civil administration. That might seem like a lifeline, but it is a frayed rope that risks snapping under the weight of political strings and mounting debt.
Moayad Afaneh, an economist and adviser to several Palestinian governments, has been reported as saying that the aid is not a 'breakthrough,' but rather it is part of a larger EU commitment of €300 million for 2025, which is trickling through at a rate of just €20 million a month — only enough to pay a fraction of public servants' wages. Most PA employees currently receive only about 35 percent of their salaries.
Palestinian Foreign Minister Varsen Aghabekian Shahin, newly sworn in on June 19, struck a cautious tone, saying that the EU package partially covers the gap in the Palestinian treasury. 'Our treasury is suffering extremely due to the unlawful decision by the Israeli finance minister to withhold funds collected on our behalf,' she said.
These funds — taxes on goods entering the Occupied Territories through Israeli-controlled ports — are a key pillar of the Palestinian economy. Under the 1994 Paris Protocol, Israel is obligated to transfer these customs and VAT revenues to the PA. But in recent years, Finance Minister Bezalel Smotrich has chosen to withhold a significant portion of these funds, citing opposition to PA stipends paid to the families of Palestinians killed or imprisoned by Israel.
It might help pay off the salary backlog, but it cannot stem the tide of an economy that is collapsing under siege
Daoud Kuttab
This Israeli financial chokehold is not a new tactic, but it is being wielded with renewed cruelty. Smotrich's decisions are crippling the PA's ability to operate, even at a bare minimum level. Most dangerously, he last month refused to renew a banking waiver that enabled financial transactions between Palestinian and Israeli banks, threatening to paralyze already-strained Palestinian financial institutions.
To be clear, this is not just an economic dispute. It is a calculated form of collective punishment, wielded not only against the PA but against millions of Palestinians who rely on public services, employment and stability. In an already volatile environment — one in which the war in Gaza has reignited flames of violence across the West Bank — such financial strangulation is akin to throwing fuel on the fire.
Palestinian businessman Samir Hulileh, a former Cabinet secretary, stressed that the financial crisis is as much political as it is economic. A high-profile Saudi-French UN conference, in which Riyadh and others were expected to announce renewed aid, was last month postponed due to Israel's war with Iran.
So, Europe's €202 million must be seen in this sobering context. It might help pay off the salary backlog, but it cannot stem the tide of an economy that is collapsing under siege. Nor can it address the deep structural problems within the Palestinian political apparatus itself.
The EU and Arab countries correctly conditioned aid on reforms: governance improvements, anticorruption measures and, crucially, leadership succession. The appointment of Hussein Al-Sheikh as vice president to President Mahmoud Abbas in April was one such step. But without elections or the meaningful rejuvenation of Palestinian institutions, the PA remains politically stagnant and increasingly disconnected from the people it claims to serve.
Meanwhile, the violence on the ground is escalating.
Israeli settler attacks in the West Bank — often coordinated or shielded by the Israeli military — have intensified in both frequency and brutality. At least four Palestinians were killed last month alone, including three in Kafr Malik, northeast of Ramallah, on June 25, when settlers opened fire on villagers. Despite five settlers being arrested, all were released without charge. More than 80 such attacks reportedly occurred in the space of a week — many involving arson, destruction of property and physical assaults.
The Palestinian economy is buckling under the weight of inflation, liquidity imbalances and currency distortions
Daoud Kuttab
Al-Sheikh has appealed for urgent international intervention and the UN has expressed grave concern, calling on Israel to protect civilians and hold perpetrators accountable. But words are not enough. The international community cannot remain a passive observer while armed settlers terrorize Palestinian communities with impunity in areas like Masafer Yatta and the Jordan Valley, regions long targeted for forced displacement.
At the same time, the Palestinian economy is buckling under the weight of inflation, liquidity imbalances and currency distortions. The Israeli society's shift toward digital payments has left Palestinian banks overwhelmed with physical shekels, while Palestinians themselves remain largely cash-reliant. Price disparities are further distorting the market: cigarettes and gasoline are cheaper in the West Bank than in Israel, spurring cross-border cash purchases that deepen economic instability.
All this unfolded as the US Supreme Court ruled that lawsuits against the PA and the Palestine Liberation Organization could proceed in American courts, adding yet another financial and legal threat to an already beleaguered government.
So, while Europe's €202 million package is certainly appreciated — and desperately needed — it must not become a substitute for sustained international political engagement. Nor should it obscure the core truth: the PA is not merely mismanaged or inefficient, it is besieged — politically, economically and now physically.
True resilience for Palestine will not come from short-term aid alone, but from ending the deliberate policies of economic sabotage, settler violence and diplomatic marginalization that are bleeding the Palestinian people of hope.
If Europe, the US and the Arab world want to see a stable and peaceful region, they must move beyond charity and toward accountability. That means confronting Israeli policies head-on and upholding the international agreements and laws they so often invoke.
Without justice, no amount of aid will bring lasting peace.