Kerry’s Progress so Far

Pieria 7/8/13

After John Kerry was appointed Secretary of State, he made the Middle East Peace Process his personal mission. Post the President’s visit, John Kerry has visited Israel and Palestine 5 times trying to get the parties back to the negotiating table. Below is a short review of what Kerry has achieved and where the sticking points have been in trying to get the negotiations back on track*.

It was clear from the start that Kerry wanted to use Jordan as an additional mediator in the eventual negotiations and use the framework of the Arab Peace Initiative as the regional support for the talks themselves. In this way he could avoid the mistakes of the 2000 Camp David accords. Starting off on his first trip he listened to the demands of each side and quickly got a ‘negotiation’ deposit from each. Israel would release the tax revenues to the PA and in return the PA would not go to the ICC or the UN. Abbas gave Kerry a three month guarantee on this (the time running out somewhere in mid-June.) In addition he negotiated with the Arab League to accept small border swaps to the API’s language.

Over the next few visits Kerry clarified the various demands of each party and split the negotiations into three tracks. The political he took full control over. Economically he has put together a $4 billion incentive package to help build Palestine through the private sector and has asked Tony Blair to lead. On the security track he has appointed General Allen to work with the Israelis on their concerns with the hope of answering many of them and, ultimately, taking them off the negotiation table.

So far the leaks seem to indicate that General Allen is getting a cold shoulder from the Israelis who are distrustful of international peace keeping forces. Meanwhile, at the World Economic Forum in Jordan Kerry revealed that there was an economic track in place but has not revealed any additional information apart from the $4 billion price tag.

On the political track Netanyahu has maintained that he is willing to negotiate without any pre-conditions, though he has indicated that the conflict is around the Palestinians accepting Israel as a Jewish State. Abbas has laid out three conditions to rejoin the talks:

  1. A settlement freeze
  2. Release of the Pre-Oslo Prisoners (approx. 120)
  3. Netanyahu to accept that the 67 borders form the starting point for the discussion (or for Netanyahu to present a map)

On Kerry’s last visit to the region (end of June) he spent three days trying to hammer out a compromise position from each party on these issues in order to get the talks started in Amman. Abbas has agreed to hold off with international moves until September, but each party is keen to produce some progress by the start of Ramadan (July 8th) where a prisoner release would be significant.

Abbas was demanding that all 120 prisoners be released at the launch of the talks. In return he would accept a full settlement freeze outside the ‘blocs’ and a partial freeze inside the blocs and East Jerusalem. He would also accept John Kerry’s commitment to the ‘67 lines being the basis rather than Netanyahu making the commitment.

Netanyahu agreed to all of the above it seems except the number of prisoners to be released. He feared that if he were to release all 120 upfront there would be nothing to keep the Palestinians from abandoning the talks and going to the UN in September anyway. Over three days the number the US negotiators managed to get Netanyahu to was 60, of which 20 would be released at the start of the talks, the other forty during.

Abbas rejected this and said that if there were not 120 then he would need a full settlement freeze and Netanyahu to personally accept the ‘67 lines. He feared he would look weak and compromising with only a minibus of 20 prisoners to Hamas’s 1000 prisoners that were freed in exchange for Gilad Schalit.  Netanyahu responded saying that if he was going to say ‘67 lines that Abbas would have to accept all of the Israeli security arrangements as is, including a long term military arrangement in the Jordan valley at the start of the process.

Kerry did not manage to break through this Gordian knot and has left two of his advisors in the region to see if they can fashion together a bridging proposal to get the talks started. In general it seems that the Palestinians are very clear with Kerry about pre-conditions and their final positions on all the key issues. Israel is focused on incentive packages to get the negotiations started and some vague language around the different issues. They are refusing to negotiate outside the negotiations themselves.

After all of his efforts remains totally unclear whether, even if the parties do agree to negotiations, a zone of possible agreement actually exists.

*This information is correct as of July 1st 2013 and is based off public forms of information.

UPDATE 7/21/13

Kerry announced that he had managed to get an agreement on the basis to have talks. Rather then having Bibi and Abbas speak to each other directly, Livni and Erekat will lead each team meeting in Washington DC this week with the hope of an announcement to follow.

Kerry has insisted on upmost secrecy in these talks so it is hard to work out what has been agreed and what has not. What we know so far is that Israel has agreed to release prisoners. The figure 350 is being pushed around and that all the pre Olso prisoners who are not Israeli Citizens will be released. Some of these prisoners will be released at the start of the talks and the rest in stages.

It is unclear if the Linvi Erekat talks are the talks themselves, or if they are talks to lead to more talks. Martin Indyk has been tapped to lead the talks as envoy for the US with both Abbas and Bibi agreeing.

On 67 lines and settlement freeze it seems that Kerry used the two letter system. To the Palestinians he wrote in his invite that the 67 lines would form the basis. To the Israelis he did not write that this would be a framework. To both parties he wrote a technical description of the talks. Within the technical description both parties promised to not make moves that would disrupt the talks (read settlements and international moves). They also agreed that only Kerry and a select few would be authorized to speak on the talks.

The secrecy seems necessary to get the parties on board, yet has led to much confusion on the ground on what has actually been agreed to, with the PLO saying that these are talks before the talks and that these have not been fully agreed to yet while the Israelis are reporting that these are the actual talks. While secrecy is important, the fear will be that rumors can fill the void that can damage the ability of the teams to negotiate. There is no good way to solve this issue.

The EU decree on settlements seems to have allowed Abbas to save face, create a stick for the Israelis and come at the right time to push the parties together. Whether the move was coordinated or a happy coincidence has not been resolved.

It seems that Abbas has staked his own reputation and that of the talks on prisoner releases hoping that getting something tangible will help bring public support for the talks. For Bibi it was the best of all bad options.

We wait to see when talks start in DC and if these will be able to make progress in order to have Bibi and Abbas in the same room. The timeframe people are looking at is between 6-9 months.

I will continue to update this post as things contiune.

UPDATE 7/29/13

The State department announced the preliminary talks to take place tonight between Livni, Molho (Bibi’s personal envoy) and Erekat and Shatyyeh. The hope is that by Tuesday there will be an announcement of the frames of the talks to last around 9 months.

The talks started after Bibi convinced his cabinet to release all of the 104 pre-Oslo prisoners. In an unpopular move Bibi won the cabinet vote with the prisoners being released in 4 stages.Most controversial were the Arab citizens of Israel and the Jerusalem residents who were on the agreed list. Many balked at the PA dictating terms for Israel’s own citizens.

A comprise deal was put on the table where all the Arab Citizens of Israel and Jerusalem residents would be in the last round of releases. Bibi, Boogie, Livni, Piron and Aaronovitch make up a 5 member committee that will over see this process.

Bibi also fast tracked a referendum law that would mean that any peace deal would be subject to a popular vote.

In Ramallah there were small demonstrations against the return to negotiations.

Martin Indyk was named today as the special envoy for the talks.

UPDATE 7/30/13

The first joint press conference between Livni, Erekat and Kerry happened following a dinner, a meeting with Obama and Biden and some more talks.

Kerry announced that there will be a 9 month process where everything will be on the table – all final status issues and all core issues. The next round of talks will happen in two weeks in either Israel of the West Bank. In the coming days Israel will ease conditions in West Bank and Gaza. Kerry is the only person authorized to speak about the talks – he urged everyone not to believe any thing that he does not say – and he stressed he would be saying little.

He also mentioned that the Quartet econ track would continue alongside as would General Allen’s security track with the Israelis. He stressed the mutually beneficial things that can come from reasonable principled compromises.

He finished by saying that there is no alternative to 2 States and that time was running out to get there.

Erekat made a short statement thanking the US and stating that no one benefits more from a deal then Palestinians.

Livni made a slightly longer statement about the sacrifices Israel has made to get to this point and hopes to get to a historic breakthrough.



Why there is an economic argument for peace

6/21/13 Pieria 

Sometimes articles are written that are perverse enough to allow even a non-economically minded analyst such as myself to question them. A few weeks ago, at Stanley Fisher’s final Knesset hearing, he made a pitch for peace with the Palestinians. He did this from his position of central bank wizard who kept the Israeli economy growing through war and global recession.

Remarking on his remarks David Rosenberg decided to publish a piece on Ha’aretz claiming there was no economic argument for peace. There were of course legal and political reasons, but the economic peace dividend that Secretary Kerry and others have spoken of is a myth.

Now David Rosenberg is not anti-peace – the end of his piece is clear that peace is imperative. But his economic reasoning is flawed.

Starting from the top, Rosenberg claims that none of the four major economic threats have to do with the political situation or a bloated defense spending:

“The four big problems the economy faces today, as acknowledged by Fischer in his finance committee remarks, are income inequality and poverty, a poor education system, business concentration and low productivity. None of them can be directly blamed on Israel’s high defense burden or political uncertainty.”

Income inequality and poverty has direct connections to the current political situation as does education to a lesser extent. There is a race to the bottom of the economic tree by both the ultra-orthodox community and the Arab sector in Israel. The ultra-orthodox community by 2023 will make up 33% of all Israeli Jewish kindergarteners (around 26% of the total Israeli population). The Arab community makes up roughly 20% of the total population.

There are issues of systemic discrimination in development or the Arab sector from both the amount of State funds the community receives as well as from institutional discrimination from much of the private sector. There are of course programs that have been set up to try and monitor and improve the situation but to pretend that Israel’s conflict with the Palestinians has no effect on the economic wellbeing of the Palestinian citizens of Israel is insane. The inability for 20% of the population to feel part of their society has big economic effects.

Within education, Israel has three different state school tracts; Arab, Religious and Secular. Within this system the conflict of course is less of a direct cause for underdevelopment (outside of the general discrimination that the Arab sector faces) but the ongoing conflict makes it doing anything within education an absolute minefield.

The current Israeli government is fixed on the ultra-orthodox, getting them into the work place and trying to sort out their schools. The Arab sector however is, sadly, for more of a hot topic to deal with. So to pretend that resolving the conflict will have no effect within these two domestic areas is ignoring the political facts of the matter.

Moving on the article continues to belittle the economic fruits a peace deal could bring:

“Little if any of this is ever likely to happen given the growing Islamization and chaos in the region. But even if some of the elements came into place, Israel would have little leeway to trim its defense spending and it is doubtful that for the foreseeable future the risk premium on our debt would change much either. Even Fischer acknowledges that we live in “unsafe and uncertain surroundings.”

The advantages of trade and economic cooperation that Peres used to market as the “new Middle East” have diminished over the years. We no longer need their capital or their energy because there is no shortage of investment funds and we are drowning in natural gas. The Arab world never needed our high tech because their economies are too low-tech, or our human capital because the countries that are wealthy enough to need it can source it from Europe and Asia. Israel’s natural economic partners are in North America, Europe and the Far East, not in the Gulf or North Africa.

Israel’s tourism industry would benefit from a peaceful Middle East, but is that what we really want? For every manager and marketing executive the industry needs, it employs far more waiters and chambermaids — low-paid, unskilled jobs that will inevitably be filled by foreign labor. Policymakers would do better to focus on creating jobs in high tech and financial services.”

Let’s go point by point.

Is there no need currently for Arab investment within Israel? Within the Israeli Jewish sector I am sure that some firms would love Gulf money and there is plenty of infrastructures where PPP relationships would definitely benefit from the Gulf.  Israel’s 20% Arab population would definitely welcome the ability to attract fellow Arab investments and could act as a bridge from the Arab world  the West.

The natural gas finds in Israel are definitely something to celebrate. Israel yesterday declared that it would export 40% of the gas. The economics of the situation however would be far more favorable if Israel were able to extract the gas and Pipe it directly to Turkey. The inability to progress on the political tract has greatly harmed the chances of Israel piping the gas through Turkey and into the market.

Apparently the Arab world will never need Israeli high tech as their economies are too low tech. The world is changing and will continue to change. To assume that having access to a market of hundreds of millions of people that are on your doorstep is irrelevant makes much of this piece irrelevant.

While I agree that much of human capital that Israel could offer the region would not be taken up immediately but huge sweeping statements that declare that there will be no market opportunity show the poverty of ambition that might live with David Rosenberg, but not with the Israeli business community I know.

Lastly David decides that while there will be a tourist boom, it is not something that Israel should want. It will just provide more low-paid jobs for foreign labor rather the high skilled jobs in high tech and financial services. Firstly an increase in Arab tourism can lead to an increase in the amount of jobs for the Arab community in Israel, that is in desperate need. Secondly the way you get people to open their markets to you, is to allow them to visit you. The two previous issues that David identified above could be greatly helped by having Arab entrepreneurs and investors visit Israel as tourists first.

It is important to state again that David is not anti-peace – he just believes there is not economic value to it. Having looked through his logic I don’t understand his argument. Why should Israel be different to every other country that has resolved its conflict and enjoy a peace dividend, why should it be exempt?

Fischer maintained throughout his tenure that peace would lead to a 5%-6% GDP bump. Nothing that David Rosenberg has written challenges this premise. Israel needs to make peace for many reasons – taking away the economic carrot is not smart, it’s just perverse.

Are Economics the Best Way to Get the Israelis to the Table?

Pieria 5/7/13

As Secretary of State John Kerry continues to pull rabbits out of his hat and get headlines in his attempt to get the Middle East Peace Process back on track, the parties involved seem less keen.

As predicted, the Palestinians did not react well to the economic levers that Kerry announced, seeing it as another attempt to trade Palestinian political rights for an economic peace. A question that needs to be answered is: does the use of economic levers in Israel/Palestine negotiations help or hinder their progress?

Linkage theory

While the Palestinian side of this dynamic has been well explored, for the Israelis there are still some false assumptions. In order to discover them, first we need to understand how the Israelis see the conflict.

The Israelis are keen to stress that the conflicts in Syria, and elsewhere in the Middle East, demonstrate that the so-called ‘linkage’ theory is disproven. ‘Linkage’ is the concept that by solving the Israeli Palestinian conflict you would create stability in the region and it is at the root cause of the majority of the problems the Middle East faces.

Many, including the Israeli government, dispute this analysis and instead point to the general instability in the Middle East as their main concern of making peace agreements with parties whose own political future is in question.

What the Israelis will point to, however, is that allowing daylight between the West and Israel on any issue in the diplomatic arena is a green light to Israel’s enemies. So while the Israelis will decry linkage as a reason to end the Israeli-Palestinian conflict, they do maintain that a diplomatic sanction aimed at their behavior towards the Palestinians directly affects all other parts of their security dynamic.

This complexity of the security picture that the Israelis face in a regional context is often forgotten due to the focus on the Israeli-Palestinian conflict. For the majority of the world, the frame of reference for the Israeli-Palestinian conflict is one of an asymmetric occupation. For the Israelis the frame is the Israeli-Arab conflict that puts Israel against almost all the countries of the Middle East.

These frames of reference matter. The tools available to those attempting to press Israel towards substantive negotiations depend to a large extent on which of these perspectives is adopted.

Falling value of economic leverage

It is in this light that we should view the common assumption within much of Europe that if the US put on the economic squeeze on the Israelis, they could get them to do what they wanted. Many point to the 90s, where the first President Bush suspended loan guarantees to push Israel into the Madrid Peace Conference.

Economic pressure has, over the past few years, been the favored tool of civil society that is critical of Israel and her actions towards the Palestinians. The Boycott, Divestment and Sanctions campaign is a non-violent strategy to change the status quo vis-a-vis Israel and the Palestinians. Various groups have different goals in their campaigns – but share the belief that economic pressure can force the Israelis to change their policies.

One of the major problems with this approach is that the country is not the same as it was in the early 90s. Israel is now a member of the OECD and has turned into a high tech powerhouse. The ‘start-up nation’ continues to be a magnet for direct foreign investment from huge multi-nationals and celebrity investors.  Add to this the new natural gas and potential tight oil finds and Israel’s economic future looks anything but bleak.

Yet with all this private sector success, Israel is still the largest recipient of foreign aid from the USA running at just over $3 billion a year. If only the US would put policy riders on this aid, the argument goes, then Israel could be forced into a more pro-peace position.

While this huge amount of aid may look like the perfect leverage, the current US and geo-political realities have made this far less clear.

Much of the aid is supplied in order to maintain Israel’s qualitative military edge in the region at large. For the majority of the supporters of this aid package, Israel is viewed in the context of the entire region.

Moreover even if John Kerry wanted to add conditions to the aid, it is not in his power to do so. It is up to the US Congress to allocate aid and at present it would be almost unthinkable for Congress to change its mind, given current events in the Middle East.

For the vast majority of Congress, the aid is an easy way to make sure that a nation that shared the vast majority of its foreign policy objectives, as well as many of its overall values, can do so without US troops. As Israel has shown in Syria, it is happy to take the lead if it feels it needs to. In a rapidly changing strategically important region, a war weary US population may balk at withdrawing money from an ally who is willing to fight on the front lines.

A diplomatic approach

Given this, is there anything left in John Kerry’s bag of tricks to get the Peace Process rolling again?

To my mind the answer is not to focus on economic levers but to look at diplomatic ones instead. If Israel is keen on denying that ‘linkage’ exists, then Kerry’s team should detach their support for Israel in the context of the region as a whole from their support of Israel with regard to the Palestinians. By making it clear that the US will not have Israel’s back in the UN Security Council when it comes to settlement expansion they can demonstrate a clear stick within the Israeli-Palestinian frame of reference to Israel’s non-compliance.

This way they can maintain their support for Israel’s role within the wider Middle East, if they so wish, yet still create pressure within the narrower sphere of negotiations with the Palestinians.

Israel’s Achilles heel has morphed from economic to diplomatic dependency. With this being the case, Kerry’s team needs to adopt a complex view to its diplomatic relations with its number one ally in the region. Having Israel’s back in a hostile neighborhood is different from enabling it diplomatically to entrench its occupation of the Palestinians.

Kerry has set up the carrot of the Arab Peace Initiative, he now needs a diplomatic stick to help him guide the peace process back on track.

Why Economic Incentives are not Enough for Israel/Palestine

Pieria 16/4/13

There is a tendency to think that there is nothing new under the sun when it comes to the Middle East Peace Process. A new secretary of state but the same old shuttle diplomacy with the stated goals of getting the parties back to the negotiating table. If this was a film, someone somewhere would be charged with copywrite theft.

The ‘Groundhogs’ day phenomenon, however, is mistaken. Though the political situation has remained stagnant, the attitude of the populations has developed over the past twenty years, as have the facts on the ground. Peacemakers are faced with two populations who still agree in principle on the final outcome but who are incredulous on the ability to get there in their lifetime.

The basis of this lack of belief is a legitimate lack of trust both on a people to people level in addition to their leadership. Though the Israelis might at times make the correct noises, the settlements continue to grow. Security cooperation with the Palestinians might be the best they have ever been; yet there has been no preparation of the population for the compromises that will be necessary for a peace deal.

In order to coax the parties back to the table John Kerry and his team have been experimenting with different options. The most reported ‘confidence building measure’ has been a pledge to support the Palestinian economy, continuing the Salam Fayyad, the former Palestinian Prime Minster, paradigm of building Palestine despite the occupation.

Given that these measures have the ability to help the daily lives of Palestinians living in the West Bank, some observers have been surprised at the Palestinian pushback to these incentives.

The reason the Palestinians are not thrilled with a state building effort is due to the Israeli Prime Minister Binyamin Netanyahu’s concept of economic peace. Never a fan of the peace process, Netanyahu has long been the champion of replacing political rights in the West Bank with economic incentives.

While economics are a necessary factor to create a sustainable two-state solution, they are not sufficient. Through Netanyahu’s support for economic measures but opposition to political rights, the economic state building efforts themselves have become unpatriotic within Palestine. As long as it is perceived that the economics come as a replacement, rather then a supplement, to resistance to the occupation – economic incentives will not help bridge the gap to get the parties back to the table.

I was happy therefore to hear John Kerry’s joint press conference with Netanyahu after his recent visit to the region. Kerry opened his remarks stating that he had discussed many different options with Netanyahu including some economic ones. Netanyahu followed stressing that there were some good economic projects that he could support to improve the lives of the Palestinians. Kerry then went off script, and protocol, to put in a final word where he stressed that economic moves are no replacement for the political process. It was a message that he stressed again in his final remarks before he left the region.

Kerry’s early highlighting of this understanding provides a solid grounding for him to mount his effort. With the resignation of Prime Minster Fayyad and the Israelis apparent rejection of the majority of his suggested bridging proposals, a solid footing is about the most he can hope for at this early stage.