One could be forgiven for a double-take at the news that the EU has this week upgraded diplomatic and trade ties with Israel. This is the same EU that just weeks ago castigated Israel for its policies in the West Bank. The explanation for this apparent volte face is cold economic logic.

The sinking European economic project has little choice but to do business with Israel. The Israeli economy has grown strongly throughout the global downturn, adding 250,000 jobs in the past three years. Last month Google chairman Eric Schmidt underlined that Israel will be key to the development of technology this century. Certainly, the picture is far from universally rosy.

Cost-of-living protests and self-immolations show that Israel has much work to do. But the EU move is a reflection of the country's underlying economic strength.