James Wolfensohn, the special envoy for the “quartet” (Russia, the U.S., EU and UN) that is attempting to mediate the Middle East “Peace Process,” has warned that the Palestinian Authority (PA) could quickly face financial collapse.

The situation has come after Israel decided to cut off all tax transfers (which account for $50 to $55 million in monthly revenue for the PA) to the PA in response to the Hamas election victory in January.

Mr. Wolfensohn, a former World Bank president, projected that the PA will be short $100 million for February, and up to $70 million in March, largely due to the Israeli decision.

He went on to say that the PA would need $60 to $80 million immediately just to begin to pay wages for February.

“I know I do not need to tell each of you that the failure to pay salaries may have wide-ranging consequences—not only for the Palestinian economy but also for security and stability for both the Palestinians and the Israelis,” Mr. Wolfensohn said.

The EU has since stepped forward and said it would release an emergency aid package worth €120 million ($142 million).

All of this comes at a time when the PA government is in transition. It is expected that Hamas will not form a cabinet for another month or so.

In the meantime, at issue is the question of whether aid should continue for the time being, and more importantly, what will happen when Hamas actually takes the reins of government?

Source: The International Herald Tribune; Financial Times