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The Price of Imprudence: The Cost of an Unnecessary and Inopportune Diplomatic Conflict

During the last few days, the national and international media have been reporting on the generation -in our humble opinion, unnecessary and inopportune- by the outgoing and incoming Presidents -both rotating- of the EU, of a serious diplomatic conflict, the economic consequences of which we will now report.

In particular, the indignation of the State attacked by the criticisms publicly expressed by both politicians at the same time as the congratulations of the terrorist aggressor group to the rotating and outgoing EU President make up a scenario of unusual gravity in international relations that already has and will have in the immediate future damaging consequences for the EU in the field of international financial markets. In this entry we proceed to offer a telegraphic synthesis of what we envisage.

We must remind our readers that with this entry we continue to square the financial balance of the infamy of the Kingdom of Spain that we have been carrying out -with work and sorrow- in the last few days following the ignominious political process that most of the Spanish citizens have been witnessing -astounded-. Therefore, this entry follows the sad path of the three previous ones on «the price of inequality» and «the price of Balkanization» and «the price of discredit».

Two assumptions; confidence and risk in international financial markets

Let us start with two basic and essential ideas for a proper regulatory and financial approach to the issue:

a) The first is that international financial markets are based on a factor as subtle and difficult to verify -both in terms of its existence and its loss (as seems to us to be the case)- as confidence or credit. The reader should note that the DRAE defines confidence -in its first meaning. As «firm hope that one has of someone or something» and credit as «the amount of money, or something equivalent, that someone owes to a person or entity, and that the creditor has the right to demand and collect«, as «reputation, fame, authority» and -this is the meaning that seems to us financially more relevant- as «the opinion that someone enjoys that he will punctually fulfill the commitments that he contracts».

b) The second is that the consequences for the EU economy of this diplomatic conflict – in our opinion, serious, unnecessary and inopportune – in the international financial markets can only be assessed, to date, in terms of risk, i.e., the probability of occurrence of disasters or incidents harmful to the EU’s financing. We would like to warn our readers that this risk approach dominates the regulatory mechanisms in place in the EU in the financial sphere. We warn our readers that this risk approach dominates the regulatory mechanisms in place in the EU in the financial area (e.g. DORA) and in general (e.g. AI).

The diplomatic incident: a mistake in three acts

A hasty reading of the headlines of the national press (ABC, El Diario.es, El Mundo) allows us to periodize the diplomatic incident in three successive and qualitatively different phases or moments:

a) The first phase: The visit, the statements and the reaction

We can summarize this first phase by reproducing the following headlines that echo the two positions: «Sánchez opens a crisis with Israel at the most critical moment of the conflict. The Foreign Ministry calls Tel Aviv’s accusations «false, misplaced and unacceptable». «Israel accuses Sanchez «of supporting terrorism» with his «false statements» about the offensive in Gaza. Israeli Foreign Minister summons Spanish and Belgian ambassadors after Sanchez and De Croo’s trip to the Middle East. Netanyahu’s government revolts against the criticism and assures that it is complying with humanitarian law despite the siege of Gaza, which has left thousands of innocent people dead, while the Spanish Foreign Minister describes their accusations as «false and unacceptable«.

b) The second phase: The awkward congratulations

We also summarize this second phase by referring to the following headlines that we limit ourselves to reproduce and echo the uncomfortable gratitude: «Hamas thanks the «clear and audacious position» of Sánchez on the war in Gaza, The gratitude of the jihadist group to the words of Sánchez increases the discomfort of the Israeli Foreign Ministry. «Hamas praises Sanchez’s «clear and bold stance» on Gaza and Feijóo accuses him of going to Israel to «sow discord» A statement from the terrorist group praises the statements of the Spanish and Belgian leaders and the Israeli foreign minister calls it a «disgrace».«

c) The third phase: the continuation of the error

This morning, when in our innocence, we thought that, in view of the frustrated Barcelona Summit, prudence would be recovered; we came across press reports (ABC) that read: «Sanchez maintains the pulse with Israel in a meeting of self-affirmation with Zapatero: Nine thousand militants arrived yesterday at Ifema in Madrid for a great meeting of socialist worship to the figures of Pedro Sanchez and Jose Luis Rodriguez Zapatero. The communion between the two was total and was manifested in the two central themes of the rally: amnesty and criticism of Israel. Sanchez again accused Israel of «indiscriminate killing of civilians» in Gaza and asked the PP to support his position, wrapping it in respect for human rights. The president insisted on deepening the diplomatic conflict he provoked on Friday with Israel and which has earned him the congratulations of the Hamas terrorist group”.

The risks for the financing of the Kingdom of Spain and the EU

It is worth starting by noting that, in 2022, 31.9% of the goods imported by Israel came from the EU, which in turn received 25.6% of Israeli exports. In turn, Israel is the EU’s 25th largest trading partner, accounting for 0.8% of the EU’s total trade in goods in 2022.

Specifically, the European Commission’s website states, with respect to «EU trade relations with Israel. Facts, figures and latest developments» the following: «Trade issues. Negotiations and agreements. Trade policy. The legal basis for the EU’s trade relations with Israel is the EU-Israel Association Agreement, which entered into force in June 2000. The Agreement aims to provide an appropriate legal and institutional framework for political dialogue and economic cooperation between the EU and Israel. Trade Overview. Israel is the EU’s 25th largest trading partner, accounting for 0.8% of the EU’s total merchandise trade in 2022. It is also among the EU’s main trading partners in the Mediterranean area. The EU is Israel’s largest trading partner, accounting for 28.8% of its merchandise trade in 2022. 31.9% of Israel’s imports came from the EU, and 25.6% of the country’s exports went to the EU. Total goods trade between the EU and Israel in 2022 amounted to €46.8 billion. EU imports from Israel amounted to €17.5 billion and were led by machinery and transport equipment (€7.6 billion, 43.5%), chemicals (€3.5 billion, 20.1%) and other manufactured goods (€1.9 billion, 11.1%). EU exports to Israel amounted to €12.2 billion and were dominated by machinery and transport equipment (€12.3 billion, 41.9%), chemicals (€5.1 billion, 17.6%) and other manufactured goods (€3.5 billion, 12.1%). Bilateral services trade between the EU and Israel amounted to €16.7 billion in 2021. EU services imports accounted for €6.9 billion, while exports accounted for €9.8 billion.»

For its part, the website of the Ministry of Industry, Trade and Tourism of the Government of Spain, in the section dedicated to «EU Trade Policy» and the «General framework of EU-North Africa relations» states: «At the trade level, significant progress has been made, with the entry into force of Association Agreements with Algeria, Egypt, Jordan, Israel, Lebanon, Morocco, the Palestinian Authority and Tunisia. These Association Agreements contain a trade pillar that establishes a reciprocal and asymmetric preferential regime in favor of the EU’s Mediterranean partners (…) Israel: The legal basis for the EU’s trade relations with Israel is the EU-Israel Association Agreement, which entered into force in June 2000, and which provides for the progressive creation of a free trade area between the two partners. The objective of this agreement is to provide an appropriate framework for political dialogue and economic cooperation between the EU and Israel».

We must remember that, together with these quantitative commercial data, no observer of the international financial markets is unaware of an essentially qualitative fact, which is the decisive importance of Israeli capital in the international financial markets both in the form of direct global financing and investments and through the USA. This fact should be carefully fixed in our memory when calculating the international financing risks of both the EU as a whole and, especially, of the Kingdom of Spain.

Conclusion: the obvious economic risks of imprudent diplomatic action

«Imprudence usually precedes calamity.»

Apianus

Greek historian

Year 477 A.D.

Since it seems to us that both the data on trade relations between the EU and the State of Israel and the decisive importance of Israeli capital in the international financial markets that we have just transcribed -which, let us recall, come from the official web pages of the European Commission and the Ministry of Industry, Trade and Tourism of the Spanish Government- are sufficient for any objective observer to be able to infer the economic risks generated by the serious diplomatic conflict caused -we insist that, in our modest opinion, in an unnecessary and unnecessary manner- by the serious diplomatic conflict; by the outgoing and incoming Presidents -both rotating- of the EU and given that we trust in the perspicacity of the readers of this blog; given the lack of time and space to carry out a detailed examination of such risks (which seem to us to be absolutely evident) and the convenience of being telegraphic; we put an end to this entry by reproducing the first two meanings of the term prudence in the DRAE as «temperance, caution, moderation» and «good sense, good judgment» and paraphrasing the famous expression of forensic interrogations: «No further questions, your honor».