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Single mothers, the disabled, and other casualties of the treasury's budget cuts are converging on Jerusalem. The growing crowd is a cutting reminder for anybody bedazzled by the recent stock market gains that the economic situation of most of Israel's citizens is crumbling, and that the crisis is far from over.

In a few weeks, when the debate over the 2004 budget starts, we can expect another reminder of how distant economic recovery really is.

One key reason for the surge on the capital market is the American promise to extend $9 billion in loan guarantees to support Israeli debt issues abroad. It's a tremendous amount, bigger even than the uniquely elephantine deficit the government is running in 2003. The guarantees, which are supposed to be given in three installments, come with economic strings, more formally known as covenants, that Israel must fulfill, lest it lose the perk.

To this day, the treasury has oddly, yet staunchly, refused to disclose the precise total of guarantees agreed on with the American government. It is willing to say that the covenants are starkly simple. The Americans looked at the treasury's economic program, as presented to them, and said: Great. Now execute it.

The sky's the limit

The whole thing is reminiscent of the jape venture capitalists love to pull on start-ups that show up with excessively ornate business plans. Sure we'll finance you, they promise, if you meet the goals you yourself wrote in that pretty Power-Point presentation.

Ostensibly, the Americans made things easy for us. They accepted our economic program, without a peep of extra demands. But, in practice, the terms are dreadfully stringent, given the Israeli government's history of failing to meet its own economic goals.

According to the treasury's program, its deficit is supposed to drop back in 2004. Meanwhile, it is shooting up to a record for the decade - of 6 percent of GDP - this year. And, according to the economic program that the Americans agreed to accept, the fixed deficit target is only 2.5-3 percent.

It will be extraordinarily hard to comply with the deficit target for 2004. Even if we assume the economy expands next year, the budget will have to be reduced by at least NIS 10-12 billion more in order to meet the goals set out in the economic program, and guarantees agreement.

And that NIS 10-12 billion budget cut is based on another optimistic assumption, namely that the treasury implements each and every one of its budget cuts in 2003, despite the firepower aimed at it from every direction.

The cut required in the 2004 budget would be the biggest ever, in terms of percent. The government would have to cut its spending by 4 to 5 percent.

For comparison, the massive cuts in 2003 are supposed to reduce government expenditure by 2 to 3 percent. The famous budget cuts instituted last year by Silvan Shalom, the former finance minister, still left government budget spending 1 percent greater in 2002 than in 2001.

Taking on the wealthy and powerful

After the last four rounds of budget cuts, is there anything left to reduce? Of course there is. Israel's public sector is still bloated and flabby.

So, how easy would it be for Netanyahu to reduce the budget? Not easy at all. The next round of budget cuts can't target allowances to the poor. It will have to tackle powerful elements, led first and foremost by the military.

Is there any chance the budget can be cut enough for the government to comply with its deficit target? Apparently not.

Which leads us to three possible scenarios. The optimistic one is that the peace process progresses quickly, ushering in a period of accelerated economic growth. The medium scenario is that the deficit will balloon and the Americans will finance it, even though we missed our goals. The third scenario is that the past four months will go down in history as a short economic hudna, and that when the respite ends, the economic down-spiral will resume.