What’s happening to the Israeli economy?

It has been over a week since Israel’s Prime Minister and Finance Minister jointly announced that the budget deficit would be allowed to rise from 1.5% to 3% of GDP. It is worth recalling that Prime Minister Netanyahu was the previous finance minister, who just over a decade ago launched a period of unprecedented economic revival, which continues today in Israel.

So if the PM and his financial mate are in agreement, why are Bank of Israel Governor, Stanley Fischer,  and Treasury Budgets’ Director, Gal Hershkovitz,  up in arms? Why are they demanding that the upper ceiling remain at 2.5%?

Back to Netanyahu: He looks out of his bathroom window and sees a lynch. Directly in front, steep monetary demands from his Defence Minister, which cannot be ignored. To the left, a downturn in tax revenues, beyond what was expected. To the right, social demands left over from 2011’s protests and rapidly linking up with the need to launch “election economics” early in 2013. Bottom line: the PM needs more coins – lots of them and fast.

However, the financial and international credentials of Fischer arguably far outweigh those of his boss. Fischer has made several public addresses in the past few days demanding budgetary and monetary responsibility. Specifically, he is looking for an immediate 1% rise in VAT and a smaller deficit. (To be fair,  higher taxes have not been ruled out, but they are not expected to be harsh).

Fischer is also facing a squeeze. Quarterly economic growth has fallen off from a high of 7.5% in 4Q2010 to around 2.9% for 1Q2012. The central rate of interest is 2.25%, about as low as it can drop, without leaving the shekel exposed to external speculation. Unemployment is set to rise steeply from all-time low. And of course, Israel is highly vulnerable to any fall out from the possible collapse of the European economy.

So who is right? To state the obvious, time will tell. Unfortunately, the nature of the Prime Minister’s statements appear to indicate that today he is influenced more by political considerations than by the potential opportunities offered from a long-term economic strategy. There again, when Netanyahu made his name as a reliable Finance Minister, he was much younger and his ego could allow him to be patient.

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4 Comments on “What’s happening to the Israeli economy?”

  1. My Homepage Says:

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    […] Informations on that Topic: michaelhoresh.wordpress.com/2012/07/06/whats-happening-to-the-israeli-economy/ […]…

  2. offshore bank account Says:

    It has been over a week since Israel’s Prime Minister and Finance Minister jointly announced that the budget deficit would be allowed to rise from 1.5% to 3% of GDP. It is worth recalling that Prime Minister Netanyahu was the previous finance minister, who just over a decade ago launched a period of unprecedented economic revival, which continues today in Israel.

  3. Clemencia Says:

    I believe everything wrote was actually very logical. However, what about this? what if you added a little content? I ain’t saying your information is not good, however what if you added a post title that grabbed people’s attention? I mean What’s happening to the Israeli economy? Afternoon Tea In Jerusalem is a little vanilla. You could look at Yahoo’s front page and watch how they create news headlines to grab viewers interested. You might add a video or a related picture or two to grab readers excited about everything’ve got to say. In my opinion, it would bring your posts a little bit more interesting.

  4. gold account Says:

    He said his views on taxation have not changed since he was finance minister from 2003-2005, when he lowered tax rates.


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