EU gives Palestinians ultimatum by linking aid to financial ties with Israel

European Union leaders have told the Palestinian Authority they will refuse to provide any additional financial aid as long as the Palestinians refuse to accept tax revenues collected by Israel, European diplomats and Israeli officials tell me.

Why it matters: The unprecedented ultimatum is another indication that frustration with leaders in Ramallah is growing, even among staunch supporters of the Palestinians.

The big picture: The current standoff was triggered by Israeli Prime Minister Benjamin Netanyahu's vow that his new government would move forward with the annexation of parts of the West Bank.

• Outraged by that pledge, Palestinian President Mahmoud Abbas announced in May that he considered all agreements with Israel and the U.S. to be void, and he would cut off security and civilian coordination with Israel until it reversed its annexation plans.
• As part of that new position, the Palestinian Authority stopped accepting tax revenues amounting to $15o million per month that are collected on its behalf by Israel.
• That decision, combined with the pandemic, has contributed to a financial crisis in the West Bank. The Palestinian Authority has struggled to pay the salaries of officials and members of the security forces, and it's been taking loans from private banks.
• Abbas has not reversed the decision even after Israel backtracked on annexation as part of its normalization deal with the UAE.

Driving the news: In recent weeks, the Palestinian Authority has asked the EU — as well as several European countries — for urgent loans to pay salaries, Israeli officials and European diplomats say.

• But the EU, France, Germany, the U.K. and Norway made clear that they consider annexation to now be off the table, and thus the Palestinians should accept the $750 million in revenues now held by the Israeli Ministry of Finance.
• Abbas said he'd refuse to do so unless Israel provided a written commitment that annexation is off the table. That's something Netanyahu — who insists annexation remains on the table, if not in the short term — has not agreed to do.

Behind the scenes: After lower-level pressure on the Palestinians didn’t bear fruit, EU foreign policy chief Josep Borrell called Abbas last Wednesday.

• He repeated the same message in the call, European diplomats say: Until the Palestinians resume the acceptance of tax revenues from Israel, the EU will not provide new loans or other financial assistance.
• Borrell also urged Abbas to relaunch security and civilian coordination with Israel, but Abbas was noncommittal, the diplomats say.
• Jordan and Egypt have passed similar messages to Abbas about the tax revenues and coordination with Israel, according to Israeli officials.

What to watch: Some Palestinian officials around Abbas think his decision to suspend all ties with Israel and the U.S. is self-defeating.

• But Abbas has so far fended off that pressure. He's betting that Joe Biden will win in November and bring with him a much different set of policies toward the Israeli-Palestinian issue.