Jackson Free Press

JERUSALEM (AP) — Israel has the tools to limit the damage of any economic boycott, a senior official said Thursday, dismissing new warnings that the economy would suffer badly if U.S.-led peace talks with the Palestinians fail.

The comments signaled that after years of being a fringe issue, concerns about a boycott and what it could entail have become central to Israel's public discourse.

European officials have warned that Israel could face deepening economic isolation if it presses forward with the construction of Jewish settlements in the West Bank and east Jerusalem, war-won lands that the Palestinians seek for a future state.

A small but growing number of European companies and pension funds have already ended or limited trade with Israeli firms doing business in the settlements.

On Wednesday, Finance Minister Yair Lapid warned that Israel will lose markets in Europe, a key trading partner, if it fails to strike an agreement with the Palestinians.

"When you say to Israelis 'European boycott,' they think it means that this year they won't get Camembert cheese on time," Lapid told a security conference in Tel Aviv.

"That is not the case," he said. Lapid said the issue is much more serious. "Europe is our main market, 33 percent of Israeli trade is with the European Union," he said.

In case there is no deal and a boycott ensues, Lapid predicted that "exports will be damaged by about 20 billion shekels ($5.7 billion) each year, the GDP will be damaged by about 11 billion shekels ($3.1 billion) each year, and 9,800 workers will immediately be fired."

According to World Bank figures, Israel's GDP was $258.2 billion in 2011.

Lapid also said prices will "dramatically increase."

Lapid, who heads the centrist Yesh Atid party, said the Treasury prepared various boycott scenarios and that he was presenting the "medium-range scenario."

In a response to Lapid, Intelligence Minister Yuval Steinitz from Prime Minister Benjamin Netanyahu's hard-line Likud Party played down the boycott risks.

Israel "has the tools to prevent boycotts," Steinitz told Israel Radio on Thursday. He said his office is preparing a campaign "against the boycotts and de-legitimization of Israel" but did not elaborate.

Steinitz said any deal that endangers Israel's security would do more economic damage than a boycott.

If Israel withdraws from most of the West Bank without sufficient security guarantees, it would become more vulnerable to possible attacks by Palestinian militants, he said.

Such attacks would cost the economy more than any boycott, he said, pointing to the example of the Gaza Strip.

Israel withdrew from that territory unilaterally in 2005. Two years later, Gaza was overrun by Hamas militants and became a staging ground for rocket attacks on Israel.

The comments by Lapid and Steinitz are part of an increasingly heated domestic debate over whether Israel should accept U.S. Secretary of State John Kerry's anticipated framework for the terms of a Palestinian state in most of the West Bank, Gaza and east Jerusalem.

Kerry has not revealed his ideas, but is expected to propose an Israeli withdrawal from most of the West Bank and parts of east Jerusalem, coupled with stringent security arrangements to shield Israel against attack.