EU to boost financial support for Palestinian Authority for 'good governance'

High-level talks unlock €1.6bn as bloc tries to show it can engage equally with Palestinians and Israelis

Palestinian Prime Minister Mohammad Mustafa arrives to attend a high-level dialogue with the EU on Monday. AFP

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The EU on Monday announced a long-anticipated financial support package of €1.6 billion ($1.8 billion) for the Palestinian Authority at a meeting in Luxembourg between the bloc's 27 foreign ministers and Palestinian Prime Minister Mohammad Mustafa.

"The EU will invest in essential infrastructure while delivering humanitarian aid and support for refugees," EU foreign affairs chief Kaja Kallas wrote on X. "We are a long-standing partner for the PA."

Bloc officials said the PA would be expected to implement reforms for better governance and to show its ability to run not only the occupied West Bank but also Gaza, once the war there has ended.

Before a meeting with Mr Mustafa, Ms Kallas condemned Israeli strikes that destroyed part of Gaza city's last fully functioning hospital on Saturday night. A ceasefire brokered by the US, Egypt and Qatar ended when Israel resumed bombardment of Gaza on March 18.

"We really want the mediators to come back to the negotiation table," Ms Kallas said. "Israel has the right to defend itself but its current actions go beyond proportionate self defence."

About 51,000 Gazans have died in Israel's retaliatory offensive following the Hamas-led attacks that killed an estimated 1,200 people on October 7, 2023.

The reforms the EU expects the PA to implement in exchange for the 2025-2027 aid package include measures to ensure democratic governance and the development of the private sector. The funds include €620 million in grants in direct assistance to the PA's budget and €82 million for UNRWA, the UN's agency for Palestinian refugees.

"The Palestinian Authority is the only legitimate form of government in Palestine," said Ireland's Foreign Minister Simon Harris. "We need to strengthen it, and we need to prepare it for the work that needs to take place in terms of reconstruction and also trying to bring about a two-state solution."

EU Mediterranean Commissioner Dubravka Suica outlined support for the PA. AFP

Dubravka Suica, the European Commissioner for the Mediterranean, said the EU's priority was for the PA to reform its governance. "This is of the utmost importance, because we want to know how the Palestinian Authority will be governing not only the West Bank, but also Gaza," she said.

The PA has already pushed forward with important reforms, including in its education system, added Ms Suica. "They also passed a new social law. This is something we will be following and monitoring closely."

In March, Palestinian President Mahmoud Abbas ended a programme of allowances for families of killed or detained Palestinians known as "pay for slay" – a request made by the US, Israel, and some EU member states, which view it as a reward for attacks against Israel.

The package put forward by the EU Commission – the bloc's executive arm – also includes €576 million in recovery and stabilisation funds for the occupied West Bank and Gaza, and a €400 million loan from the European Investment Bank for the Palestinian private sector.

EU's crisis management chief says 'food is rotting' as aid to Gaza stalls

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'High-level dialogue'

In a symbolic shift, the first such gathering has been described as a "high-level dialogue", underscoring Brussels' attempt to project balanced diplomatic engagement with Palestinians and Israelis. Two months ago, the EU held an Association Council with Israel. A diplomat said: "We try to be balanced".

It is very important that Israel understands that they have to release tax revenues

Dubravka Suica,
European Commissioner for the Mediterranean

Association agreements mark close economic and political ties between the EU and non-member states. The PA has long sought to upgrade its 1997 interim agreement with the bloc to match the 2012 agreement with Israel.

The PA also hopes for recognition of Palestinian statehood, although this is opposed by most EU members. So far, 11 EU countries have recognised Palestine, a step endorsed by Ireland, Spain and Slovenia. France has signalled it could follow suit in June.

The expected aid comes amid a deepening fiscal crisis for the PA triggered by Israel's decision to withhold a significant portion of tax revenue it collects on the authority's behalf after the Hamas-led attacks on October 7, 2023.

The shortfall has left the PA struggling to pay civil servants and maintain basic services in the occupied West Bank, where Israel's far-right Finance Minister Bezalel Smotrich has pushed openly for annexation.

EU aid represents less than one-fifth of the PA's estimated $9-10 billion 2025-2027 budget. There are hopes that Arab states will also step in and that Israel will also release the estimated $2 billion in taxes that it has withheld.

Prime Minister of Palestine Mohammad Mustafa at the EU-Palestine meeting in Luxembourg. EPA

"It is very important that Israel understands that they have to release tax revenue ... I hope they will do it in the near future, because we badly need this in order to make this work," Ms Suica said.

The EU, which supports a two-state solution, remains the PA's most important donor, contributing nearly €1.2 billion between 2021 and 2024. Last July, the EU Commission and the PA signed a letter of intent outlining a strategy to address the PA's "critical budgetary and fiscal situation".

'Double standards'

The Commission disbursed $400 million in short-term aid as part of this strategy but the second phase, which was initially scheduled for September, was delayed until its announcement on Monday. The Commission has not addressed the delay publicly.

Stefano Sannino, who leads the EU's Middle East and North Africa department, visited Israel and the Palestinian territories last week to lay the groundwork for Monday's meeting.

The EU cannot alone financially compensate for withheld taxes and should instead have applied significant pressure on Israel at the meeting in February to deliver them to the PA, said Martin Konecny, director of the European Middle East Project think tank in Brussels. "We are compensating absence of political pressure on Israel by financing the PA," Mr Konecny said.

As the main donor to the PA, the EU should press to end arbitrary arrests, mistreatment and torture, Human Rights Watch said on Monday.

“Israeli authorities’ atrocities do not give the Palestinian Authority a free pass to arrest and torture critics and opponents.” said Claudio Francavilla, HRW's associate EU director.

“The EU should denounce the Palestinian Authority’s abuses but it won’t be taken seriously unless it ends its own double standards and addresses Israel’s apartheid and acts of genocide against the Palestinians.”

The term "genocide" to describe Israel's war against Gaza was found to be "plausible" last year by the International Court of Justice but is disputed by Israel and most of its western allies.