Stanley Fischer
Bank of Israel Governor Stanley Fischer. Photo by Olivier Fitoussi / BauBau
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Bank of Israel Governor Stanley Fischer may be losing interest in his job. This is not altogether surprising, as he is reminded daily that politicians, rather than economists, are the ones that make economic decisions. He has been mentioned as a possible replacement for President Shimon Peres, but the latter is in no rush to retire. People close to Fischer say his dream is to be Israel's foreign minister.

This is an interesting proposition, since Fischer has a better international reputation than any other potential candidate. He could open doors and achieve things others could not. This may be realistic, since Prime Minister Benjamin Netanyahu was the one who brought him here from the United States. This will depend on the results of the next elections and on Netanyahu's ability to appoint someone not supported by Knesset members. Fischer, who has been mentioned as a candidate for very senior positions at the International Monetary Fund and the World Bank, will not comment on a position that has not been offered. Spearheading the economy while eyeing other positions, as well as his dependence on Netanyahu, may weaken his status in the eyes of politicians. Fischer recently delivered a harsh warning about the impending economic crisis in Israel and cited the need for urgent measures. This was followed by severe budget cuts and a hike in taxes. Despite some loss in stature, his warnings can still impel the government to act. Regarding the defense budget, he supports Netanyahu and Defense Minister Ehud Barak, further strengthening the defense establishment. His public support eroded in the wake of rising housing prices and his reluctance to cut banking fees and open banking services to competition, preferring instead to maintain stability.

The coming year will be critical. A local security crisis or a European economic crisis will produce a severe recession. He will need to implement monetary tools to maintain liquidity in the markets and to help the government minimize budget deficits caused by declining tax revenues. The year will require planning for catastrophic scenarios, rather than embarking on reforms. Although Fischer has recognized the dangers of Israel's high degree of economic concentration and the local tycoons, he has not sided with the social protesters. His worldview is still elitist. In contrast to other economists, he does not view the income disparity between the top 1% of the population and the other 99% as a key problem of the 21st century. Barring a major catastrophe, Fischer's public status will be determined by the real estate market. He cannot control supply, which is determined by government policy, but he can definitely affect demand, for instance, by raising interest rates. Whether the housing market is already in a bubble or simply on its way to one, Fischer must decide if and when to prick it.