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Economic woes put a strain on coalition negotiations
By Barak Ravid, Mazal Mualem and Rotem Sella
Tags: Tzipi Livni, Israel News 

The global economic crisis has thrown a new monkey wrench into the ongoing coalition negotiations, with Labor Party chairman Ehud Barak demanding government intervention to shore up the plummeting stock and bond markets but Kadima chairwoman Tzipi Livni, the prime minister-designate, rejecting the idea.

The Tel Aviv Stock Exchange fell to its lowest level since September 2006 on Sunday. The blue-chip TA-25 index lost 6.3 percent to fall below 800 for the first time in two years, while the broader TA-100 lost 7 percent. The Real Estate-15 plunged 11 percent, completing a loss of more than two-thirds of its value since the start of the year.

As for corporate bonds, the blue chip TelBond-20 fell 4.3 percent, while the broader TelBond-40 recorded an almost unprecedented one-day loss of 7.5 percent.
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Barak, who is also defense minister, reacted to the collapse by telling Sunday's cabinet meeting: "We need initiated intervention by the government in dealing with the crisis. The Finance Ministry, the governor of the Bank of Israel, the Histadrut labor federation and the employers must all be involved in the solution."

Livni did not respond directly to this proposal at the cabinet meeting. But speaking later at a Foreign Ministry conference on policy and strategy, she indicated that she would oppose any substantial revision of the 2009 budget approved by the cabinet last month - which any major government intervention would presumably entail.

"Coping with the economic crisis will depend on the behavior of Israel's leadership," Livni said. "Israel's economy has thus far been strong and is demonstrating stamina despite the crisis ... [but] we need to maintain economic stability alongside political stability so we can deal with the various challenges."

Urging Labor and Shas to "rise above political needs and preserve economic stability," she continued: "Economic policy cannot be irresponsible and connected with the need to form a coalition. We need to maintain the [budget] framework, so Israel's citizens will know the government is rising above the political needs of some of the parties with which I'm conducting coalition negotiations."

Both Labor and Shas have said in the past that they would demand revisions of the 2009 budget as part of the coalition talks.

Finance Minister Roni Bar-On echoed Livni's message during the cabinet meeting. He said he is coordinating with the Bank of Israel and the commercial banks, and currently sees no reason to worry. However, he stressed, "We must not deviate from the budgetary goals we have set."

Barak also used the cabinet meeting to lash out at Likud chairman and opposition leader Benjamin Netanyahu. "Today, Netanyahu's reforms look problematic," he declared, referring to the reforms enacted during Netanyahu's term as finance minister in 2003-05. Welfare Minister Isaac Herzog and Histadrut Chairman Ofer Eini made similar comments.

But Likud officials were quick to counterattack, noting that Herzog voted in favor of Netanyahu's capital market reform and that Eini, as a senior Histadrut official, was partly responsible for the near-collapse of the labor federation's pension funds, which is what prompted Netanyahu's pension reform.

Netanyahu himself, in a television interview last Friday, said his reforms had ushered in five years of impressive profits for the pension funds.

With the global economic crisis now hammering the Tel Aviv market, all parties are trying to sharpen their economic messages, whether as part of the coalition negotiations or, should Livni fail to put together a government, in anticipation of the Knesset elections that would follow.

The Likud Central Committee, for instance, will meet in Tel Aviv on Monday for a rare discussion of socioeconomic issues, and the party is already preparing its message: that Livni lacks the skills to handle an economic crisis, and therefore, new elections that would usher in a Likud-led government are essential.

Shas, meanwhile, sees the crisis as a boon for the party's populist economic platform. "If we don't deal with the crisis now, it will lead to a social collapse," declared party chairman and industry minister Eli Yishai on Sunday.

Labor chiefs: Economic crisis will spur Livni, Barak to form gov't

The urgency of the global financial crisis will spur prime minister-designate Tzipi Livni and Defense Minister Ehud Barak to resolve their dispute over the state budget and establish a Livni-led government, top Labor Party officials said Sunday.

The Laborites were speaking after an economic discussion initiated by Livni and Barak - the heads of the Kadima and Labor parties - in an effort to reduce the differences in their positions on the budget.

Until now, Labor has been calling on the government to exceed the budget limits so it can allocate additional welfare supplements, while Livni wants to stick to the budget. Seven economists who participated in the Livni-Barak meeting said the budget limits were a minor issue compared with the economic crisis at Israel's doorstep.

Although the meeting was supposed to be about the state budget, it ended up focusing on the world economic crisis and its impact on the Israeli economy.

The economists in attendance - including Dan Ben-David, Avia Spivak, Yaakov Sheinin, Avi Ben-Bassat, Avi Tiomkin and Yoram Gabai - said the government had to act to reduce possible damage, not remain passive. Almost all of them came out against exceeding the budget limits for the sake of welfare supplements, but supported expanding the budget for growth engines such as infrastructure investment.

While Livni's backers used the discussion to reinforce her position that it would be irresponsible to exceed the budget limits during an economic crisis, Barak's supporters saw the debate as bolstering their argument that it is necessary to go beyond the funds allotted for the state budget.

The meeting took place at Barak's request; he invited the economists to participate. Both sides described the meeting as a good brainstorming session. Participants said the feeling after the meeting was that both sides need to be more flexible to form a new government due to the economic crisis.

Livni supporters said the meeting reinforced the need for stability, while a Labor minister said "there is no doubt that the economic crisis changes the picture."

"Both sides must do everything to form a government," the minister added. "It wouldn't be right to go to elections now. Barak and Livni need to be flexible on the budget issue."

Still, some Labor officials said the current coalition negotiations were going too slowly. As one of them put it, it was not clear why Livni was "taking her time, not establishing teams or returning to the Labor Party with answers."

Shas, meanwhile, said Livni has not given the party clear-cut responses to its demands to increase child supplements.

But according to a Livni supporter: "The coalition negotiations are taking place along all kinds of tracks, some of them secret, and not everyone knows everything."

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