Echoing the US, the European Union (EU) on Tuesday condemned Israel’s decision to freeze the transfer of taxes collected for the Palestinian Authority (PA) as a penalty for joining the International Criminal Court (ICC).

The EU called on both sides to avoid steps that could undermine “peace efforts,” after Israel froze around $127 million in tax revenue after the PA applied last Friday to join the ICC.

The tax freeze “runs counter to Israel’s obligations” agreed in 1994 following the Oslo Accords, European Union foreign affairs head Federica Mogherini said – it is worth noting that the PA’s unilateral application to the ICC is itself a breach of the Oslo Accords, although Mogherini did not mention the PA move.

“An effective Palestinian Authority, committed to non-violence and a peaceful resolution of the conflict, is a key element for a two-state solution,” Mogherini said in a statement.

She added that the EU was a major source of financial assistance for the PA, which is saddled in massive debt due to chronic mismanagement. Israel and the US have reportedly considered pulling their funding in response for the ICC move, which would effectively collapse the PA.

The EU criticized Israel for “not meeting obligations regarding the timely and transparent transfer of tax and custom revenues.”

Without directly mentioning the unilateral PA attempt to join the ICC, Mogherini said that “recent steps taken…could aggravate the already tense situation on the ground and bring them further away from a negotiated solution.”

“Both sides should refrain from taking actions which could raise obstacles to the rapid return to the negotiations,” she added.

The European criticism follows comments by US State Department spokesperson Jen Psaki, who said Monday “this step is one that raises tensions as others do.” She added that PA lawsuits for “war crimes” against Israel at the ICC would have “implications.”

Israel’s freezing of funds has been used as a tactic to press the PA not to take unilateral action in the past, and is made all the more effective due to the fact that the PA is wallowing in at least $4.8 billion in debt, with a massive amount of that debt being to Israel including over 1.4 billion shekels (over $360 million) in unpaid electric bills.

The PA has regularly failed to stand by its agreements including numerous breaches of the Oslo Accords, most recently by turning to the UN Security Council for recognition, a move that was shot down last week leading to the ICC move.

AFP contributed to this report.