Despite the warning signs, the world was shocked. It was nothing less than an economic earthquake. Because if the United States' credit rating goes down, what can Greece, Spain, Italy and France say? And what will happen here at home?
But after warning the United States in April, Standard and Poor's downgraded the greatest power in the world's credit rating, for the first time, from a perfect AAA to AA +. The move adds a frightening dimension to the debt crisis in the euro zone - in Greece, Spain, Italy and even France, which is also moving too slowly to reduce its chronic deficit.
We have seen the crisis reflected in the world's stock markets this year, but mainly over the past week - on Wall Street, in Europe, in Asia, and in Tel Aviv, too.
It comes at the most inopportune time for the tent protests on Rothschild Boulevard and throughout the country, because Israel's economy is partly built on exports, and if there is a crisis and a recession in the United States and Europe, it could hit economic activity and tax revenues. And that of course will affect the government's ability to meet the tent protesters' demands.
This is because of the enormity of these demands. They involve the construction of affordable housing, free education from the age of 3 months, an extension of maternity leave, a recognition of day care fees, a reduction of VAT on food, a reduction of water prices, a reduction of excise tax on gasoline, and the list goes on.
Finance Minister Yuval Steinitz said yesterday that "the lowering of the U.S. credit rating is a warning bell that reminds us all that we are still piloting the ship of the Israeli economy through stormy waters." But the finance minister and the prime minister must both state that any plan submitted to the special panel of ministers established today must be balanced as far as the budget is concerned. Under no circumstances must the deficit grow.
On the one hand, expenses will increase to benefit the middle class, and tax revenues from that class will decline. On the other hand, the finance minister must explain that there will be budget cuts and increased taxes; for example, on exporters, whose taxes were inordinately slashed to only 6 to 12 percent. Because we don't want to find ourselves in a debt crisis with a concomitant recession, unemployment and sharp budget cuts.
Everyone must remember that the debt crisis in the United States was worsened because President Barack Obama submitted a very expensive recovery plan in 2008 and increased government spending on social outlays and health without raising taxes. But instead of rising to the challenge and cutting the budget, Congress this week voted to raise the debt ceiling with only modest cuts, which led Standard and Poor's to downgrade the credit rating.
We all want to live in a "welfare state" that provides proper education and health care to all. But no one wants to reach unemployment of 20 percent as in Spain or a recession as in Greece.
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