Why EU won't suspend aid to Palestinians after Hamas attacks

Reeling from the shock of terrorist group Hamas' devastating assault inside Israeli territory over the weekend, the European Union's Palestinian policy quickly fell into disarray after comments from European Neighborhood Commissioner Oliver Varhelyi.

Varhelyi, who is responsible for overseeing relations with nearby states, took to X (formerly Twitter) on Monday to announce that €691 million ($732 million) of development aid for Palestinians would be suspended.

"The scale of terror and brutality against Israel and its people is a turning point," Varhelyi wrote.

The official Israeli death toll climbed to 1,200 on Wednesday, plus Hamas seized dozens of hostages.

By Gaza's official count, 900 Palestinians have been killed amid retaliatory Israeli airstrikes.

Varhelyi's apparently rogue announcement on aid prompted protest from member states Ireland, Spain and Luxembourg. The European Commission quickly issued clarifying statements that essentially amounted to a major backtrack.

No humanitarian aid would be suspended, the EU executive branch wrote in a press release hours later, though there would be an urgent review of development aid to ensure, "no EU funding indirectly enables any terrorist organization to carry out attacks against Israel" — in other words, Hamas.

Condemning Hamas but no 'collective punishment'

After an emergency foreign ministers' meeting on Tuesday, EU foreign affairs chief Josep Borrell said the EU would continue to work with its partner the Palestinian Authority (PA), which rules parts of the Israeli-occupied West Bank. An overwhelming majority of the 27 member states agreed with this stance, he said.

The EU squarely condemned the terror attacks carried out by Hamas, which controls Gaza, and expressed solidarity with Israel, "not all the Palestinian people are terrorists, so a collective punishment against all Palestinians will be unfair and unproductive," Borrell told reporters at a press conference in Oman.

The bloc's money does not go to Hamas — which Israel, the United States and the EU have designated a terrorist group — the top EU diplomat said. The development aid review, he said, would now check this once again.

In the past, Israel has accused the EU of inadvertently funding the group, though the bloc has always maintained the money is very tightly controlled.

So what does EU money actually do in the Israeli-occupied Palestinian territories of Gaza and the West Bank?

Where does the EU's money go?

The EU is one of the main development and humanitarian donors to the Palestinian people. Last year for example, it earmarked around €300 million for financial assistance, with €200 million supporting the PA's expenditures on social and medical costs, salaries and pensions, and other projects. Around €100 million also went to the UN service for Palestinian refugees, UNRWA.

In addition, the EU channels funds to Palestinian human rights groups, with this money being the most fiercely contested by the closest backers of Israel within the EU.

On top of all this EU money comes donations from individual EU states.

The underlying logic of all EU development aid is to help work towards a two-state solution, supporting the establishment of "an independent and sovereign state of Palestine, living side by side with Israel in peace and security," according to the EU's representation office in the West Bank and Gaza.

As Hugh Lovatt of the European Council on Foreign Relations explained to DW, the PA is highly dependent on these funds.

"The PA is in a deep financial crisis. It has a deep deficit, not to mention its myriad other problems, lack of legitimacy, lack of standing," he said, describing the body as authoritarian and unrepresentative. There have been no elections in the Palestinian territories since 2006.

Halting EU funding would be dangerous, analysts warn

Nonetheless, halting development aid benefitting the PA would be a big mistake, Lovatt believes. Social and economic aid in particular "is actually doing quite a bit to stabilize the West Bank and actually doing quite a bit to avoid an explosion of violence that would also hurt Israel."

Ultimately, cutting EU funding would push Palestinians further away, potentially towards violence. "Actually, Hamas would be quite happy with this decision," said Lovatt, noting that Hamas and the PA are enemies.

A number of EU states have announced individual reviews of the money they send to the Palestinian territories. But Lovatt said it would be so destabilizing for the West Bank to retract aid that it was nonsensical for European governments to even consider doing so. Moreover, he said, there had never been credible evidence that EU money flowed to Hamas.

Joost Hiltermann, an analyst from the International Crisis Group think tank in Brussels, also said cutting aid would send a poor message to Palestinians: "Withholding [aid] would have a huge impact in the sense that Palestinians will feel abandoned by the EU at a time when they need the political support. Now they see the EU placing itself behind Israel, and no longer being sort of nonpartisan."

While the EU settles on collective positions as a group, certain member states tend to sympathize more with Palestinians (such as Ireland, the Netherlands and Luxembourg) while others tend to back Israel (Hungary, Austria).

EU cash is important, but it certainly doesn't prop up Palestinian society, Hiltermann said. In a way, it has enabled the continuing Israeli occupation of Palestinian territories, he argued. "Of course, it's to the benefit of Israel as the two-state solution has faded, because Israel has expanded its settlements," Hiltermann told DW.

Despite that, he still wouldn't support cutting aid, which he said made a significant difference to the lives of the most vulnerable.

What comes next?

As the conflict escalates, the EU must be careful to equally condemn any war crimes carried out by Hamas or Israel to be credible in the eyes of Palestinians, said ICR analyst Hiltermann. "I think that there cannot be any moral ambiguity here or double standards."

On Tuesday, Borrell got a little tougher on Israel than other senior EU officials in previous days, while still expressing solidarity.

Israel had a legitimate right to defend itself but "some decisions are contrary to international law," he stressed, referring to the total blockade on the delivery of food, water, medicine, fuel and electricity to Gaza.

Palestinian refugee agency UNRWA counted some 175,500 internally displaced people in Gaza already sheltering in schools as of Tuesday night.

Lovatt said one of the EU's priorities must be to ensure humanitarian corridors for Gaza via neighboring Egypt. The bloc should also work to stop the conflict from spreading to the West Bank or the northern border with Lebanon.

While it did seem that the EU had aligned itself more closely with Israel in recent years, it could well harden its tone as the conflict intensifies, Lovatt argued.

"I think at some point when European leaders and officials do see the scale of carnage in Gaza, which happens every time — it's even worse this time — things tend to shift back."

Both analysts agree on one thing, as Hiltermann summed up: "Everybody knows there is no military solution to this conflict."

Edited by: Jon Shelton