The European Commission should consider passing legislation to prevent finance generated within its member states being used to support illegal Israeli settlements in occupied territory, the bloc's top diplomats in Jerusalem and Ramallah have advised.
The proposal is made in a report warning that a new surge in Jewish settlement expansion in Arab East Jerusalem, among other policies, is "systematically undermining the Palestinian presence" in the city and making the prospect of it becoming the shared capital of two states "increasingly unlikely and unworkable".
The report argues that "attempts to emphasise the Jewish identity of the city at the expense of Muslim and Christian residents" – including outsourcing archaeology in sensitive sites close to the Old City to a powerful settler group, Elad – "threaten its religious diversity and provide fuel to those want further to radicalise the conflict with regional and global repercussions".
It makes an urgent call for the EU to adopt a more "active and visible" implementation of its policy. And it paints a bleak picture of how Israel is "perpetuating" its unilateral annexation of East Jerusalem after the 1967 war – a move never accepted as legal by European governments – in ways that are "increasingly undermining the two-state solution".
The report points out that 10 per cent of the city's resources are spent on services for Palestinians, who represent 37 per cent of the population. There are 200 planning permissions granted to Palestinians per year compared with the 1,500 they need, it adds, with a consequent wave of house demolitions. Up to 90,000 people live under threat of having their homes demolished.
The potentially radical proposal for "appropriate EU legislation to prevent/discourage financial transactions in support of settlement activity" is the first indication that some member states are seeking European divestment from businesses actively involved in the settlement enterprise.
The finance recommendation has been worded with deliberate vagueness to maintain a consensus among sharply differing views within the EU. But the clear implication is that some of the European Consuls General – ambassador-rank representatives to the Palestinians – want the Commission to consider for the first time whether it has an obligation to legislate on the grounds that the settlements contravene international law.
Under one interpretation of the proposal, the Commission would use legislation to force companies in Europe to break their links with businesses involved in settlement construction and commercial activities. This follows some high-profile voluntary examples like that of Deutsche Bahn, which last year pulled out of electrification of the Tel Aviv-Jerusalem rail link because it cut through the West Bank.
The report also says the Jerusalem municipality is failing in its obligation to provide schooling for all Palestinian children, with less than half now attending municipal schools.
Asaf Sharon, a member of the Israeli group Solidarity, which has been active in opposing evictions and demolitions in the Sheikh Jarrah district of East Jerusalem, said he was struck by the urgency with which the European diplomats regarded the situation in Jerusalem, compared with a lack of a similar sense in Israel itself. "I hope EU would act on the report's conclusions," he said. "Now they have to be proactive for all our sakes."
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