Shaffaf Exclusive
Lebanon is attempting to discuss peace while suffering one of the worst economic collapses in modern financial history. Six years after the sovereign default of 2020, the country remains trapped in paralysis. Around $80 billion of depositors’ money is still effectively frozen inside the banking system and at the Banque du Liban (BDL), while ordinary Lebanese citizens survive on fragmented withdrawal schemes that often amount to barely $1,000 a month from their own savings. Entire life fortunes have evaporated into financial limbo.
What makes the situation more dangerous is not simply the collapse itself, but the absence of any meaningful recovery plan. Since the default, successive governments have failed to deliver a credible restructuring programme, secure a comprehensive bailout or restore confidence in the banking sector. Instead, Lebanon has drifted from one geopolitical crisis to another. Regional wars, political paralysis and security tensions have repeatedly overtaken economic reform discussions, pushing the financial collapse into the background even as the social damage deepens.
Today, however, Lebanon finds itself approaching a historic turning point. Many Lebanese increasingly understand that the country no longer has the luxury of permanent confrontation. A generation exhausted by war, economic humiliation and emigration is beginning to see a peace agreement with Israel less as an ideological question and more as an economic necessity.
President Joseph Aoun has already taken politically courageous steps toward direct engagement. Lebanon has been represented in Washington direct talks with Israel by Ambassador Nada Hamadeh and more recently presidential appointed negotiator Simon Karam in discussions tied to regional diplomacy and hopefully peace. The significance of these moves should not be underestimated. For decades, even indirect discussions carried enormous political risk inside Lebanon.
But diplomacy alone will not carry a peace agreement across the finish line. Lebanon’s economic collapse has become so severe that any peace process now requires a financial rescue package substantial enough to create domestic political support for compromise.
The Lebanese public is exhausted. Citizens are living through collapsing infrastructure, intermittent electricity, weak state services, destroyed purchasing power and frozen bank accounts. Under such conditions, peace risks appearing abstract and disconnected from daily suffering unless it is accompanied by visible economic relief. If Lebanese citizens begin to feel tangible improvements in their lives — a stabilising currency, partial recovery of deposits, functioning public services and renewed economic activity- political resistance to peace would weaken considerably.
History shows that major peace agreements in the Middle East were never purely diplomatic arrangements. They were reinforced with enormous financial incentives.
When Egyptian President Anwar Sadat signed the Egypt-Israel peace treaty following the Camp David Accords, Egypt became one of the world’s largest recipients of American foreign assistance after Israel. The United States provided approximately $1.3 billion annually in military aid alongside nearly $1 billion annually in economic support during the early years after the agreement. The aid package was massive relative to Egypt’s economy at the time and helped stabilise the country after years of war and debt. Over subsequent decades, Egypt received more than $50 billion in military assistance in addition to tens of billions more in economic support.
Jordan followed a similar path after signing its peace treaty with Israel in 1994. American support to Amman rose dramatically in the years that followed, with annual US assistance eventually reaching roughly $1.5bn to $1.7bn annually through a mixture of direct budget support, economic aid and military financing. Washington viewed the aid not as charity, but as an investment in regional stability and in sustaining a strategic ally.
Lebanon’s case may now be even more urgent than Egypt’s or Jordan’s were at the time of their agreements. Unlike failed states, Lebanon still possesses functioning institutions, a globally connected private sector, a highly educated population and a government that, despite its weaknesses, continues to operate. It remains salvageable if external support arrives before total collapse.
This is why any peace initiative led by US President Donald Trump should include a substantial American-backed financial package for Lebanon. Such a package could include direct budgetary support, infrastructure financing, energy-sector investments and, crucially, support mechanisms for the Banque du Liban to stabilise currency reserves.
Today, BDL increasingly relies on absorbing dollars from Lebanon’s local foreign exchange market and money changers to sustain reserves and preserve monetary stability. That mechanism is fragile and unsustainable over the long term. A sizeable US-backed swap facility or reserve support mechanism for the central bank would dramatically reduce pressure on the dollar market and provide Lebanese policymakers with badly needed breathing room.
The economic dimension is also inseparable from Lebanon’s internal political struggle. Hezbollah has historically thrived during periods of state weakness and economic collapse, when parallel cash networks and foreign exchange operations become more powerful than formal institutions. As the Lebanese lira stabilised in recent months, pro-Hezbollah newspaper Al Akhbar intensified criticism surrounding monetary policy and the Lebanese currency, reflecting broader tensions over the direction of the economy. Many Lebanese policymakers privately fear that another sharp collapse of the lira would recreate the conditions in which political and financial chaos empower non-state actors and informal financial networks.
This is precisely why strengthening the Lebanese state economically has become a strategic necessity. A stronger lira, stabilised reserves and renewed confidence in formal institutions would weaken the ability of Hezbollah and affiliated networks to benefit from economic disorder. Currency collapse creates arbitrage opportunities, strengthens cash economies and undermines state authority. Stability does the opposite.
Even the prospect of a serious American financial package tied to peace negotiations could immediately strengthen the Lebanese pound. Markets react as much to political expectations as to economic fundamentals. The combination of diplomacy, reserve support and renewed international confidence would likely weaken speculative attacks against the lira and reduce opportunities for arbitrageurs betting on further collapse.
Most importantly, such a package would give President Aoun political room to negotiate. Peace agreements survive when populations feel they are benefiting materially from stability. Without that economic dividend, diplomacy risks becoming politically unsustainable.
The cost of supporting Lebanon today would almost certainly be lower than the cost of managing another decade of instability on Israel’s northern border and across the Eastern Mediterranean. Washington understood this principle with Egypt. It understood it with Jordan. Lebanon may now represent the next test of whether economic rescue can once again become the foundation for regional peace.