Bottom Shekel / A vote for a rough divorce lawyer

The conflict between Israel and Gaza ahead of the elections was a pivotal issue for most Israelis as they headed for the polls, yet the markets failed to reflect worry.

The outcome of the elections indicates that Israelis view the "peace process" with the Palestinians as a divorce process. As their unwilling embrace was arranged by global forces, so apparently will be their separation. Think of it as severance of an arranged marriage, and the vote Israelis cast last week was for what they perceive as the roughest, toughest divorce lawyer in town.

In other words, the majority vote was cast for a leadership - the right wing - that the public thinks can end the relationship with the most assets for Israelis and preferably no alimony at all for the spouse.

There are of course many different ways the process could play out because of the many narrow-interest parties driving the process, plus the impact of external factors such as oil prices and global unemployment.

Tellingly, what wasn't on the agenda in the 2009 general election was Israel's economy. As Kadima essentially stemmed from Likud, the two parties share a similar economic outlook. They are both on the conservative side, with both focusing on tax cuts, infrastructure investment, education reform and land management. Their common economic platform is an important upside because it improves the chances that long-needed economic steps will be taken.

Once a budget for 2009 is approved, whoever is at the helm, we can expect the new government to quickly embrace two critical steps: to guarantee bank loans to industry, and to invest in infrastructure, by merit and to combat unemployment. Even if Likud or Kadima end up in the opposition, the economy will probably not be their main field of battle. Given the economic outlook, neither is likely to cut income or corporate tax, though a reduction in VAT is possible as are credits to companies that refrain from downsizing their workforce.

So far Israel and the local equity market have weathered the storm well. The benchmark TA-100 index gained 14.2% from January 1 to the end of last week, while the S&P-500 index lost 3.8% and Japan's Nikkei index lost 8.8%. In large part, Israelis can thank the major gas reservoir discovered in the Mediterranean Sea, which reduces the country's dependence on imported energy. Also, the government passed a relief package aimed at reducing the imbalance in the corporate bond markets.

The Bank of Israel reported that investment by foreign investors increased to $584 million in December, higher than the monthly average over the preceding two years. That indicates that investors are not overly worried about the uncertainties in the coalition negotiations. Yet the discord with the Palestinians hangs over everything.

Israel's divorce from the Palestinians may be ugly and not represent the long-awaited peace agreement, but it still holds the promise of a happy ending.

If the international community does manage to arrange a separation, the peace premium for the region could be exactly the medicine the doctor would prescribe to prevent the epidemic afflicting the global markets from hitting the region.

The writer is the business development manager at I.B.I.