Wednesday, March 29, 2006

Whither Israel: Back Into the Red?

The big question arising from the results of the Israeli election is why the Israeli electorate "punished" Bibi Netanyahu by only giving Likud 11 seats.

The most compelling answer is that Bibi was the person most identifiable as being to blame for Israel's free market reforms, the same reforms which had greatly benefitted the Israeli economy as a whole, though impacting the financial status of some individuals, particularly pensioners, in a negative manner.

Netanyahu, if you recall, stayed in Sharon's government just until his economic reforms were completed.
[A] Likud figure said that during a Tuesday faction meeting numerous people, "yelled at Bibi for harming the elderly and pensioners with his economic plan. He never learned that people don't forget when their income is hurt. Now we are seeing the results. The four senior members [Silvan Shalom, Limor Livnat, Danny Naveh and Yisrael Katz] didn't show up yesterday - and that says everything."
Knesset Speaker Reuven Rivlin (Likud) told Army Radio that Netanyahu's economic policies caused the party's collapse at the polls.
In reaction to the election news and the fact that the Labor Party, led by former union leader Amir Peretz, is now going to be back in the Government, the Israeli stock market took a plunge on fears for the future. And not surprisingly, now that it emerges that Kadima might have to yield the Finance Portfolio to socialist-leaning Labor.
Major banks held center stage today after reporting record results for 2005. But they, too, closed down after share sell offs by foreign investors who refused to take the election results in their stride.

Fears over the future took their toll on the Tel Aviv Stock Exchange (TASE) today which closed down as a result...
Trading on the TASE was conducted against the backdrop of the final election results which came through in the early hours of the morning.
It's as if the vital Thatcher-era economic reforms had been accomplished in Britain, only for the Conservatives to be voted out immediately afterwards.
Olmert said Wednesday that Kadima would not give up any of the three senior portfolios - the Foreign Ministry, the Defense Ministry or the Finance Ministry. But Kadima Minister Meir Sheetrit speculated earlier in the day that the party would have to yield one of the three, given the limited number of seats Kadima won.

Over at Labor, Peretz met Wednesday with party director-general MK Eitan Cabel and faction whip Ephraim Sneh to discuss the party's coalition negotiating team.

Labor sources told Haaretz that either Cabel or former justice minister David Libai will probably head the team, which is likely to consist of MKs Isaac Herzog, Yuli Tamir and Benjamin Ben-Eliezer.

In the coalition talks between Kadima and Labor, which began in an unofficial capacity Tuesday night, Peretz is expected to demand one senior portfolio, most likely the Finance Ministry.

Even so, the Labor leader could be willing to take the defense portfolio if he receives Kadima's promise to push through socio-economic legislation, including a hike in the minimum wage and universal pensions. A veto on the next state budget is also likely to be one of his conditions.

Sheetrit said Wednesday that it would be possible to form a government without Labor, and did not rule out the possibility of incorporating Likud and Yisrael Beiteinu into the coalition. He noted, however, that right-wing governments oppose Olmert's plan for unilateral withdrawal from the West Bank, giving them a slim chance of being invited into the government.

Other reactions:

David Bernstein at the Volokh Conspiracy:
[T]there is bad news for those of us who believe that Israel's inept and corrupt version of social democracy has been stifling economic growth there for years. The new "Pensioners Party" won 7 out of the 120 seats. I don't know much about this party, but I've seen it described as "socialist." Even if it's not, the last thing Israel needs is a domestic equivalent of the AARP holding decisive votes in the Knesset. Meanwhile, the Labor Party, led by former union leader Amir Peretz, did better than expected with 20 seats, running largely on a "social justice" (i.e., big government) platform. The religious Separdic Shas Party, which made increased transfer payments from the government its major issue, won 13 seats.

The Likud Party, meanwhile, garnered only around 11 seats, in part, analysts seem to agree, because voters chose to punish party leader Benjamin Netanyahu, who as finance minister pushed through free-market economic reforms and budget cuts that rescued the Israeli economy from a nasty Intifada and tech-collapse induced recession.

Stephen Pollard observes:

The main sense in which Israel has turned left, however, has little to do with issues of security and foreign policy. Likud collapsed not because of its stance vis-a-vis the West Bank and the Palestinians, but because it was led by Bibi Netanyahu, who as finance minister was responsible for some hugely unpopular (but wholly necessaary and successful) reforms to the economy. Labour ran a campaign under Amir Peretz, the former Histradut Trade Union federation leader, almost wholly focussed on those reforms and the economy.

Israel, it must never be forgotten, was founded as a socialist country, and in its heart largely remains that. Labour's tactics were thus bound to strike a chord with many voters who disliked the more bracing economic world which Netanyahu recognised needed to be acknowledged. I was in Israel during part of the campaign, and this was an obvious factor.

And here's some news about Rafi Eitan, the head of the Pensioner's Party, that I did not know:
The biggest winners last night were niche interest groups, such as a party lobbying for retirees' rights headed by a former Mossad agent, 79-year-old Rafi Eitan. Seen largely as a protest vote against belt-tightening fiscal policies, the Retiree Party won eight Knesset seats, turning it into a necessary linchpin in any coalition government.

But many of its voters, which, according to exit polls, included some young people who sympathized with the plight of retirees whose incomes were cut, were unaware that Mr. Eitan has become wealthy through doing business in Cuba, where profits must be shared with the communist dictator Fidel Castro. Mr. Eitan turned to Cuba after being barred from even visiting America, where he is wanted for his role in the Jonathan Pollard spying scandal.

For a lengthy recent interview with Rafi Eitan on his involvement with Jonathan Pollard, see this story in YNET.

As for Netanyahu's fate, I sure would not count him out prematurely. I remember all too clearly the days when the conventional wisdom was that Sharon was finished forever politically.

Linked with Outside the Beltway


At 1:56 PM, Blogger amechad said...

Nice analysis. I'm linking to it. My blog is full of analysis of the elections and especially from the perspective of the economy and Bibi's free market reforms

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