European Union flag flutters outside of the
European Union flag flutters outside of the Reuters

The European Union may take larger steps against Israel's economy after pushing ahead this week with its decision to label Israeli goods made in communities in Judea and Samaria. 

The European Council on Foreign Relations has argued, in a paper to be published on Wednesday, that the EU is violating its own law and must take firmer steps to differentiate its dealings with Israel from the "settlements" in Judea and Samaria. 

"Under its own regulations and principles, Europe cannot legally escape from its duty to differentiate between Israel and its activities in the occupied Palestinian territories," claims the report, titled "EU Differentiation and Israeli Settlements."

The reports calls on the EU to examine dealings between Israeli and European banks, particularly on issues such as loans and mortgages, to ensure "they comply with the EU requirement not to provide material support to the occupation."

The EU may also be violating its rules, the report asserts, in relation to tax-exempt European charities which are helping to support activities in Jewish communities in Judea and Samaria, considered illegal by the EU. 

The ECFR report also raises questions over whether Europe should accept qualifications from academic institutions based in Judea and Samaria, as well as Israel government institutions located in eastern Jerusalem. 

The authors of the paper claim distinguishing Israel from Judea and Samaria will force the Jewish state to determine what relationship it wants with Europe, as well as encourage it to return to peace talks with the Palestinians. 

"Differentiation is a legal prerequisite for the EU in order to avoid violating its own laws," one of the authors, Mattia Toaldo, said. "You have to do it legally and by the book, but it is also beneficial to the peace process because it changes the calculations by the Israelis."