Can election economics work? Israel as a case study

Last week, leaders of Israel’s banking club met up with the Minister of Finance. One financier was reported as saying: “In 2008, we were well prepared for the global crisis. Today the situation is far more complex”

How so? The list of issues is multiple and all require major resources to resolve them.

  1. There is a gaping and growing budget deficit prompted by weak tax revenues and by heavy demands from the defense sector – currently all of Israel’s borders face new threats, not to mention the Iranian question.
  2. Growth was marked at 5.1% for the first six months of 2011. A year later, that figure is 1.3%. This may be better than many in the OECD but still not enough.
  3. Israel has several business tycoons. At least three of them, and especially Nochi Dankner, are in severe trouble. Dankner himself owns a major domestic bank. Together, they are threatening to strain those financial  groups that have leant large amounts of investors’ savings. And if one of them could not survive the strain……..
  4. Despite a series of measures from the Bank of Israel, the property market is still on the verge of over heating. First time buyers are being priced out. In parallel, there is a concern that too many new mortgages are being offered without sufficiently checking the financial capabilities of the clients. The fear of America 2008 looms large.
  5. There is genuine concern that Israel’s famed start up industry is running out of stream. Attracting foreign investment to the Holy Land is proving to be an erratic proposition compared to 2011.

And then add to all of this the political issue. Within the next twelve months, Parliament (The Kenesset) will be dissolved and an election will be called. This is potentially disastrous for the country’s economy. First, even once the election is called, the process can take months up to and including when a new coalition has been formed, that is a long period of uncertainty and lack of leadership, which financial markets dislike. Second, the experience over decades is that Israeli governments will exploit all the handouts (a.k.a  electoral bribes) they can find in order to hold on to power. Not good.

In fact, really bad. However, there is one exception to thsi process. In late 2008, an election was declared. There had been no time to draw up a budget for 2009. In such a situation, the law dictates that until Parliament decrees otherwise, the country’s budget remains that of the previous year, simply divided up equally over twelve months. The upshot was that while governments around the world tried to spend themselves out of the global debt crisis, Israel’s coffers remained relatively full.

Back to September 2012, when in-depth preparations for the 2013 budget are effectively quite shallow, if not on total hold. That means, it will be difficult for the current government to pass a budget before December. And if an election was called before that, the government could not spend its way to victory. In that case, who would win at the polls remains an open question, but the economy could emerge as a major beneficiary. A miracle?

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3 Comments on “Can election economics work? Israel as a case study”

  1. Amedar Consulting Says:

    I have been reading out some of your stories and i must say nice stuff. I will definitely bookmark your site.

  2. autocuiseur Says:

    autocuiseur vapeur…

    Can election economics work? Israel as a case study « Afternoon Tea In Jerusalem…


  3. […] is  nearly a month since I raised the hypothesis that a general election campaign could herald an unexpected benefit to Israel’s economy. […]


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