The German government is conditioning continued grants to Israeli high-tech companies, as well as the renewal of a scientific cooperation agreement, on the inclusion of a territorial clause stating that Israeli entities located in West Bank settlements or East Jerusalem will not be eligible for funding. Israel fears the German move will lead other European Union member states to follow suit.

The German decision represents a significant escalation in European measures against the settlements. While the Horizon 2020 scientific cooperation agreement, which Israel signed with the European Union a few weeks ago, prohibited EU funding for academic research conducted in the settlements, Berlin has now extended the funding ban to private companies located over the Green Line. Moreover, the boycott against the settlements has now spread from EU institutions in Brussels to individual EU members.

A senior Foreign Ministry official said that given the “special relationship” between Israel and Germany and the fact that Germany is considered Israel’s best friend in Europe, any Israeli consent to Germany’s demands is liable to set a precedent for all of Europe. “Germany will set an example for the rest of the world,” he said.

“We also want to prevent a situation in which every decision made by the European Commission in Brussels is automatically adopted by all 28 member states,” he added, referring to the commission’s insistence on a territorial clause in Horizon 2020. Since the Horizon agreement was signed two months ago, Germany is the first country to demand a similar clause in its bilateral agreements with Israel.

Senior Israeli government officials, who asked to remain anonymous, said Jerusalem is currently negotiating with Berlin over two agreements that would funnel money from Germany’s Federal Ministry of Education and Research to Israeli academic institutions and high-tech companies.

The first agreement, which promotes cooperation between German and Israeli scientists, was signed in the 1970s and has been periodically renewed ever since. Under this agreement, Germany awards 12 million shekels ($3.4 million) in grants to joint projects conducted by researchers at German and Israeli universities.

However, something major has changed since the agreement was last renewed: Israel upgraded an institution located in the West Bank settlement of Ariel from a college to a university. Senior German officials informed their Israeli colleagues several months ago that German universities had been pressuring the federal ministry not to cooperate with Israeli research institutions in the West Bank.

Due to this pressure, the ministry decided that when the agreement came up for renewal, it would demand a new clause forbidding any money to be given to academic institutions in the settlements. In other words, researchers from Ariel University won’t be able to apply for grants, and this must be made clear to them, the German officials told their Israeli counterparts.

The clause Berlin wants to add to the agreement already exists in another bilateral agreement – the 1986 pact that established the German-Israeli Foundation for Scientific Research and Development. That clause says: “Projects sponsored by the Foundation in Israel shall be conducted only within the geographic areas under the jurisdiction of the State of Israel prior to June 5, 1967.”

The Germans also want to include this clause in another bilateral agreement that involves much more substantial sums of money. This agreement, between the German federal ministry and Israel’s Economy Ministry, provides German funding for industrial and applied research and development – in other words, funding for private Israeli high-tech firms and start-ups.

This agreement in fact isn’t up for renewal anytime soon, but the Germans are nevertheless demanding the immediate inclusion of a territorial clause in the calls for applications that would forbid grants to companies with any connection to West Bank settlements or East Jerusalem. Last week, representatives from the German ministry met with Economy Ministry officials to discuss the issue.

Thus far, Israel has refused to add the 1986 clause to either agreement. As an alternative, the Germans proposed using the wording included in Horizon 2020 to prohibit funding for activities in the territories. They also agreed that the revised pact could include the same Israeli reservation that was appended to Horizon 2020 – that the agreement doesn’t predetermine the final-status borders, as these are subject to Israeli-Palestinian negotiations. But Israel has so far rejected this suggestion, too, fearing it would set a precedent for bilateral agreements that would quickly be adopted by the European Union’s other 27 members, and by other countries as well.

Deputy Foreign Minister Zeev Elkin has ordered his ministry’s staff to begin intensive negotiations with the German government, first on the scientific cooperation agreement and then on the high-tech agreement. The goal is to complete the negotiations within a few weeks, before the joint meeting of the Israeli and German cabinets that is due to take place in Jerusalem in about a month.

“Our goal is to find a different solution than that of Horizon 2020, and to obtain softened wording,” the senior Foreign Ministry official said.

Meretz Chairwoman Zahava Gal-On responded to the news with a warning to Netanyahu, calling on him to freeze settlement construction.

"The Netanyahu government is celebrating like they are on the Titanic and ignoring the huge European iceberg that's coming at them – and it's an irritable iceberg," began Gal-On, "Every so often the Europeans warn Netanyahu that continued settlement construction and expansion is against international law, and as a result of that it is likely to exacerbate the European boycott policy, which will severely hurt the Israeli economy and exports."