A failure of the American peace initiative in the Middle East could cause a severe political crisis that will undermine both the economy and the stability of the Palestinian Authority.
TEL AVIV — Politics and economics go together in the Middle East too.
In a study published earlier this month, a panel of economists of the Palestinian Central Bureau of Statistics tried to measure the effects on the Palestinian economy if there is no real progress in the coming year in the peace process.
If the push for peace by Secretary of State John Kerry defies the odds, and advances are made, the study predicts as much as a 20% increase in financial support from donating countries, a loosening of the restrictions of movements between Israel and the territories and an increase in Palestinian workers in Israel. Furthermore, such a scenario would lead to increased taxes collected by the Palestinian authority, and a resulting reduction in the budget deficit and a 9% increase in public investments.
But the study ultimately offers a more pessimistic outlook, predicting a crash of the political and economic conditions in the West Bank and Gaza. This forecast sees impending cuts in foreign aid, troubles in the transfer of tax money from Israel and a decrease of tax collections in the territories.
The pessimists also put forward the possibility of worsening restrictions of movement from Israel, which would lead to a 28% increase in unemployment. The situation in Gaza, where already today yearly per capita income is half that of the West Bank, is predicted to be catastrophic.
The dominant opinion reigning in both Israel and the Palestinian Territory is that no political progress is expected to take place in the coming year. Moreover, there is a possibility of an open political crisis between Israel and the Palestinian Authority if the American initiative collapses.
In such a scenario, violent confrontations will spread, the Israeli security activity in the territories will increase and an international boycott on Israel will probably gain steam.
This prediction is certainly a bad one for the Palestinians, and their economy, but it does not bode well for Israelis either.