Fighting to duck the blame
Anyone at the Finance Ministry or Prime Minister's Office who is pleased about the possibility that the governor of the Bank of Israeli will announce his retirement after being hurt by media reports this week is in for a big disappointment. David Klein is not even remotely dreaming about retirement. He has never given up in the battles he has waged and is also preparing this time to fight for his views, thus promising us additional headlines, accusations, articles and speeches in the battle betw
Anyone at the Finance Ministry or Prime Minister's Office who is pleased about the possibility that the governor of the Bank of Israeli will announce his retirement after being hurt by media reports this week is in for a big disappointment. David Klein is not even remotely dreaming about retirement. He has never given up in the battles he has waged and is also preparing this time to fight for his views, thus promising us additional headlines, accusations, articles and speeches in the battle between the Bank of Israel and the treasury.
The battle runs much deeper than it appears on the surface. It is not merely a matter of the level of interest rates and the structure of the council of governors. Nor does the battle center around the language of the revised Bank of Israel Law. The dispute is political and personal: Who will be judged responsible for the serious economic slowdown in 2001 - Klein (due to his interest rate policy) or Finance Minister Silvan Shalom (due his budgetary policy and failure to implement reforms).
As part of this struggle, dramatic headlines were leaked from the discussion held this week between the prime minister and top treasury officials. Much commentary was devoted to the fact that Klein was not invited to this discussion. But, alas, Klein recently met to discuss these same issues with Sharon. The prime minister's meeting with the treasury officials was thus part of a routine process of formulating his policy positions.
The headlines also spoke about changing the goals of the Bank of Israel. Instead of maintaining price stability as the central aim, as recommended by the Levin Committee, the Finance Ministry is proposing several concurrent goals: growth and employment, in addition to price stability. But growth and employment are already identified as goals, along with price stability, in the existing law. Has this ever prevented a Bank of Israel governor from raising or lowering interest rates as he sees fit? After all, the governor can always say that only this or that particular rate of interest will bring price stability, which is a necessary condition for sustained, long-term growth. In this way, the governor can cover two goals in a single elegant sentence.
The headlines reporting that the governor will be stripped of his veto power over appointments to the new council of governors are also very exaggerated. The Levin Committee's recommendations (which Klein accepts) never suggested that the governor have such veto power. The Committee determined that appointments to the council of governors should be made "in coordination" with the governor.
When the Committee's recommendations were presented in late 1998, the prime minister at the time, Benjamin Netanyahu, immediately asked Dov Levin what was meant by "in coordination." Levin responded that the Committee had devoted considerable thought to choosing the right word. The intention, Levin explained, is "until the white smoke appears." That is, the government would nominate candidates and hold discussions with the governor until a consensus is reached, "since, after all, they are intelligent people," Levin told Netanyahu.
So, instead of finally adopting the Levin Committee's recommendations and updating the outdated Bank of Israel Law of 1954, Silvan Shalom and Ariel Sharon are trying to appear in the media as leaders of a battle against the Bank of Israel and its governor. One must not forget that an important struggle for image is at stake: Who will the public blame for the economic slowdown and unemployment?
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