Nick Clegg's description this week of Israeli settlements as "deliberate vandalism" of the basic premise of peace negotiations drew a sharp response from Israel. Yet it was only exceptional in making public what every sentient minister across Europe knows to be true, but seldom dares to say. There is ample justification for his remarks in two recent internal EU reports covered in this newspaper. The latest, disclosed today, warns that Israel's actions are making the idea of Jerusalem as a shared capital – which the EU rightly regards as a sine qua non of a two-state solution – "increasingly unlikely and unworkable". The continued growth of settlements already housing 500,000 Israelis in occupied territory – almost 200,000 of them in East Jerusalem – is not the only such action, but is the biggest obstacle to successful negotiations.

Yet the EU's eloquent warnings that the "window is closing" on a two-state solution raise a disturbing question. What are European politicians going to do about them? Israel is all too used to repeated declarations of anguish from Washington, Brussels or London about relentless settlement growth, whether in Jerusalem or the West Bank, knowing that mere words change nothing.

To their credit, the reports make some concrete recommendations, including legislation to curb financial transactions which support settlements in Jerusalem. That could have far-reaching consequences. But will it happen?

As the largest donor to the Palestinians – over £3.26bn between 1994 and 2009 alone – the EU has a fiscal as well as a moral interest in ending the occupation which the settlements help to perpetuate. But it sorely needs practical steps to underpin its rhetoric. No EU member followed Britain's initiative to secure proper labelling of goods from the West Bank settlements. Yet labelling, and perhaps consideration of an actual ban on these imports, is surely overdue. Above all, a Europe-wide policy towards the occupation is needed that relies on more than hollow exhortation to persuade Israel to change course – in its own interest and that of the Palestinians. The logic of these reports, as of Mr Clegg's remarks, demands no less.