Fears are growing in Israel that recent divestment steps by individual European firms could mushroom into a trend that harms the Jewish state’s economy – and ends up pinching the pocket of the Israeli consumer.

The steps from firms within the European Union – which is Israel’s largest trading partner – have most recently included the Dutch pension fund PGGM divesting from five Israeli banks which are involved in construction in settlements in the occupied West Bank, and Dutch and Italian infrastructure firms pulling out of tenders for expanding Israeli ports.

Concerns regarding the European policies were voiced during a visit to Brussels on Wednesday by the Israeli Economics Minister Naftali Bennet, who addressed an EU conference on encouraging small businesses in the Mediterranean basin and met EU leaders before heading to London, where he was due to meet with leaders of the Jewish community.

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Both the left and right have focused attention on the handful of divestments, the left in the hope that fears of a full-scale boycott will muster pressure on the government to stop building at the settlements and reach a deal with Palestinian President Mahmoud Abbas ending the 47 year old occupation.

For the right, the steps fit in with the view that the whole world is against Israel, is perhaps anti- Semitic, and that a hard line approach is necessary to withstand the pressure and defend Israeli interests.

It was only a week ago that Mr Bennet, wearing his hat as leader of the far-right Jewish Home party, led a walk-out of an address to the Knesset, the Israeli parliament, by the German President of the European parliament, Martin Shultz, after the latter began raising criticisms of Israeli policies in the West Bank and towards the Gaza Strip.

Mr Shultz also told the Knesset that the EU would always stand by Israel’s side and touched on the importance of remembering the Holocaust.

But Israeli media reports of his speech focused mainly on his recollection of a young Palestinian who had asked him why an Israeli person can use seventy cubic litres of water daily and a Palestinian person only seventeen.

“I haven’t checked the data, I’m asking you if its correct,” he said.

Mr Bennet, who advocates annexing most of the West Bank to Israel, could not resist playing the Nazi card as he reacted in a subsequent post on Facebook. “I will not tolerate duplicitous propaganda against Israel in the Knesset – especially in German,” he wrote.

But the Finance Minister, Yair Lapid, from the centrist Yesh Atid party, is pulling in a different direction than Mr Bennet. Mr Lapid said in a speech on Sunday that diplomatic stalemate with the Palestinians “endangers us because it causes mounting damage in our relations with the US and the world”.

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He indicated the divestment situation could get worse if the peace talks with the Palestinians fail.

“I will not detail here the type of sanctions Israel could face but the results are liable to be nothing less than destructive to the private welfare of each Israeli citizen,” Mr Lapid said.

Alon Liel, a former director-general of the foreign ministry known for his dovish views, added: “The new Israeli society is very standard-of-living oriented and even if there is a marginal impact of 5 or 10 per cent on people, a lot of Israelis are not willing to pay the price. Today’s youngsters don’t want Europe to hit them in the pocket.”

The Israeli government believes that the EU policies and rhetoric are contributing to a climate in which individual firms in Europe may divest. In particular, they cite the advancement of new guidelines in the EU’s Horizon 2020 science research program agreed in November that bar funding to entities in the occupied territories.

Foreign ministry spokesman Yigal Palmor also criticised EU advocacy of labelling products that originate on settlements. “This is a completely biased singling out. There should have been a universal regulation on products from conflict zones to Europe. The proposed regulation is anything but universal.’’

“Our concern is that the EU is creating a negative atmosphere and is sending the wrong message and so will deter people from doing business in places the EU wants to encourage,” Mr Palmor said.

“On the one hand the EU speaks of enhancing partnership and on the other it seriously encourages discrimination [against Israel]. Will the real EU stand up?”

A European diplomat, who spoke on the condition of anonymity, responded: “The guidelines were an enforcement of existing practice. Yes, we apply a different policy to products over the Green Line (the old border between Israel and the West Bank), but goods are traded.

“Professors at the Hebrew University who live in settlements participate in EU programmes. We are not encouraging a process of boycott,” he added.

The diplomat went on to say that a failure of the current peace mediation efforts by United States Secretary of State John Kerry “will have consequences for our relations with both parties, Israeli and Palestinian”.