The European Union has recently warned Yasser Arafat that Europe would freeze the transfer of financial assistance to the Palestinian Authority if the PA does not explain the disappearance of funds sent over the last two years.

Sources in the European Parliament in Strasbourg told Ha’aretz that the ambiguous financial statements that the PA has presented have raised serious suspicions of embezzlement by Arafat’s close associates.

The sources disclosed that the freeze will be announced next week in Frankfort when the joint Palestinian-EU committee meets. Representatives of the PA are supposed to submit a report explaining the missing funds at the meeting. The EU’s senior representative on the committee, Minister Manuel Marin, has received instructions not to be lenient this time and immediately announce a freeze in funding if suspicions of misappropriation persist.

Marin, who serves as the minister for the EU’s relations with the Mediterranean region, is one of two ministers accused of wasteful budget management by the Parliament in Strasbourg.

The spokesmen for the EU’s Mediterranean desk, Bosco Esteroulas, confirmed to Ha’aretz yesterday that the EU is considering freezing its aid to the PA, but denied that Manuel Marin promised to halt all flow of funds to the Palestinian territory: “If someone contends that a decision has been made to cut off the European allocations, then he is confusing various budgets. What we are considering, and considering very seriously, is freezing assistance to the Palestinian Authority. But we will not freeze allocations to designated projects in the autonomous area, such as the construction of hospitals, since there we know exactly where the money is going. On the other hand, it is possible we will not continue to transfer salary payments for the police, for example, or for items described as ‘administrative expenses of the Authority.'”

The spokesman refused to comment on the suspicion of embezzlement and denied that Marin is taking a new approach to Mediterranean area funding as a result of the investigation being conducted against him.

Ha’aretz has learned that the EU has transfered some 195 million euros (NIS 916 million) to the PA during the past three years, while its total budgetary commitment is considerably greater, as much as 320 million euros (NIS 1.5 billion). The bulk of this larger sum includes funds directly transfered to the PA under vague budgetary titles such as “assistance to the Palestinian government” and “assistance to democratization in the autonomy.