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Last update - 02:45 07/10/2008
Crisis pushes Barak, Livni together
By TheMarker Staff and News Agencies , By Mazal Mualem and Tal Levy
Tags: Israel News, Tzipi Livni 

Stock markets tumbled worldwide, pulling down Tel Aviv stocks too as fears of a global financial crisis escalated after a pan-European bailout plan never even left the starting gate.

The fallout of the mounting market panic was palpable in Israeli politics too, helping Labor Party chair and Defense Minister Ehud Barak to draw closer to forming a government with Foreign Minister and prime minister-designate Tzipi Livni.

Barak stated Monday that during a financial crisis, the most urgent priority is to deal with the situation. In this way Barak was seen as lowering Labor's demands for increased social spending in next year's budget.
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However, at the end of a meeting he held with Histadrut labor federation chair Ofer Eini and the president of the Manufacturers Association, Shraga Brosh, in his Tel Aviv Defense Ministry office, Barak said he still thinks the budget can be expanded in favor of increased old-age pensions, higher education and certain security issues.

Even if there is a sense that the economic crisis is bringing Barak closer to joining a Livni government, there has been no real change related to Labor's demands, say his close advisers. No agreement has yet been reached with Kadima on the halting of Justice Minister Daniel Friedmann's initiatives, on the establishment of procedures for cooperation between Livni and Barak, or as to Labor's seniority over other coalition members.

Labor insiders therefore predicted Monday that only after Barak makes a final decision about entering the new government would it be possible to bridge the gaps between Labor and Kadima, and for the two leaders to reach an agreement. Only then, they said, would Livni realize that the moment of truth had arrived, and she must not pass up this chance to become prime minister without having to go through an election.

The negotiations between Labor and Kadima teams have not started, but Livni and Barak have been speaking directly on a daily basis, and the Kadima leader is also using the services of MK Tzachi Hangbi in talks with Barak.

Livni spoke about the financial crisis and the necessity of governmental stability Monday in a meeting with Tony Blair, the Quartet's Middle East peace envoy. She said Israel needs stability and quickly, and the proper way to deal with the crisis requires removing the existing uncertainty and creating political and economic stability, which would allow the government to prepare already and create the necessary plans.

Livni's advisers said that coalition negotiations would only pick up speed after the Yom Kippur fast on Thursday. Labor is the key to a new coalition, they said, and Shas is expected to wait to see how Labor acts.

While Barak may have become more flexible in his budgetary demands because of the economic crisis, Shas chair and Minister of Industry, Trade and Labor Eli Yishai said the world economic crisis actually clarifies the need to provide solutions for the needy. He added that if no such aid was made available now, Israel would pay the price in the future.

Within Shas, however, the word is that there has been no progress whatsoever in the coalition talks on economic matters. Another meeting was held Monday between the Shas negotiating team and Livni, but no new proposals were presented that would provide an alternative to Shas' demands for increased child allowances. And for the first time, Shas also presented Kadima with demands that the status of Jerusalem not be discussed in any form in the negotiations with the Palestinians, with the ultra-Orthodox party clarifying that it would be part of any government that included a willngness to discuss the status of Jerusalem on its agenda.

Olmert states faith in the banks as Israeli stocks tumble

As Israeli stocks were buffeted in the global storm, Prime Minister Ehud Olmert on Monday underscored his full faith in Israel's banking establishment. Speaking during an official visit to Russia, Olmert also suggested that the Shas party's demands to increase the 2009 budget as a condition for joining Tzipi Livni's coalition were unrealistic. "Changing the budget would not have positive results," Olmert said.

Monday, Finance Minister Roni Bar-On also took a stab at calming the roiling marketplace, saying that ministry officials were working together with the Bank of Israel and the commercial banks. "There is no reason for concern at this time," Bar-On commented. He also stated that the budget goals should not be changed. Bar-On spoke a number of times yesterday - and on Sunday - with Bank of Israel governor Stanley Fischer, but for now the two have not decided on any operative steps to be taken.

Meanwhile, as calls for government intervention continue to rise in volume, treasury officials are firm that such action still remains inconceivable. Speaking on Army Radio Monday morning, Finance Ministry director-general Yarom Ariav stated that at this point, government intervention is not necessary.

Israel had a better starting point than most in entering the crisis sweeping the globe, Ariav explained. It also has better chances of avoiding recession.

Perhaps the officials helped sway some sentiment in Tel Aviv. Local stocks lost ground Monday, and not a little bit of it. But they were relatively resilient compared with the debacle in other markets. The local benchmark index of blue chips, the TA-25 index, lost 3.2%, while Brazil's Sao Paolo, for instance, lost 15 percent, and Moscow yet again closed down its market to stem the stampede. It didn't help.

Back in Israel, among the hardest-hit stocks was one that had been quite the favorite among foreign investors - Israel Chemicals, which tumbled by 8 percent. Real estate came out of the doghouse: Investors have been frowning on companies associated with heavy borrowing, which certainly does characterize the sector. But investors proved selective Monday and while some industrial firms fell hard, the Real Estate-15 index actually finished half a percent in the green.

The banks, though Olmert professed his faith in them, did not have a good day on the capital market, however. Tel Aviv's Banks-5 index lost nearly 4 percent, led south by Bank Leumi, whose shares sank by 3.7 percent, and Bank Hapoalim, which lost 3.9 percent. But that compares favorably with, for example, Europe's Dexia, which saw its stock tumble by about 20 percent in Paris yesterday. In New York, Citigroup stock fell 5 percent. Perhaps investors felt unpersuaded by the reports that it had arrived at a truce with Wells Fargo over who gets to buy what part of Wachovia. The truce ends at high noon on Wednesday. Shares of Wachovia dropped another 7 percent Monday, whereas Wells Fargo lost 2.7%.

Related articles:
  • European countries ramp up deposit protection as stocks slump
  • Economic woes put a strain on coalition negotiations
  • Hard landing / The real crisis may not have hit yet
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      1.   When the Def. Minister focus`s on the Economy!!!!! 07:20  |  Ben Yeppi 07/10/08
      2.   if ol merde says the banks are ok its oy vey 07:41  |  victor hardman 07/10/08
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      8.   Livni is already showing proving she is different RIGHT ??? 17:58  |  M. S. 08/10/08
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