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When putting together the 2003 budget, the Finance Ministry left a small reserve for a cost-of-living-allowance. Knowing that next year will be a difficult one economically, with zero and perhaps even negative growth, the treasury budgeted for a 1 percent allowance. The employers, who are facing a tough time, insisted on a one-off grant of NIS 750 instead of a cost-of-living-allowance.

Time passed, the strikes intensified and Prime Minister Ariel Sharon decided to step into the fray. On October 19, as if there were no finance minister, he invited Histadrut chairman Amir Peretz to meet him.

Sharon is guided by the fact that he needs to beat Benjamin Netanyahu in the primaries and then gain victory over the Labor candidate, and therefore it is important for him to "do good" by the general public. And if we find ourselves in a financial crisis later on? We'll deal with it when it happens.

When strikes go on for such a long time, the airport is closed and the garbage in the street piles higher and higher, claims are raised that there is no master of the house. The opposite is true in fact - a weak regime is one willing to give in and pay up today in order to buy a few months of precious quiet, until the next inevitable budget crisis comes along.

In any event, Sharon's intervention has strengthened the hand of Amir Peretz, who realized the position of Oded Tyrah and Silvan Shalom had been undermined.

Last week, Sharon urged manufacturing sector representatives to make compromises and end the strike. Until then, the manufacturers could have reached an agreement granting a 2.1 percent cost-of-living-allowance for 2002, but once Sharon pressed them to make concessions to the Histadrut they realized they had no backing and that the Prime Minister prefers social calm to economic sense.

Thus the Histadrut has achieved a cost-of-living-allowance that will probably stand at 3.4 percent, assuming that inflation in 2003 stands at 8 percent. If the agreement is signed then the budget will have been breached, interest rates will go up, investors will run for the dollar and unemployment will soar even further.

Sivan Shalom also bears responsibility for the situation. At the beginning of the strikes he said it would not be possible to pay a cost-of-living-allowance at the moment as it would lead to budget problems and redundancies in the private sector, but last week he declared that the allowance must be paid.

It would appear that the approaching elections have influenced him as well or perhaps he saw how Sharon wants to be "the good grandfather" and he didn't want to be stuck with the role of "the evil treasurer." However a finance minister's job is to mind the state coffers even at the price of his popularity - in the short term.

Shalom and senior treasury officials have also given up on the remainder of their grandiose plans, such as a cut in overtime in the state sector, a freeze in the state pay roll, and taxation of employer contributions to pension funds.

So what's the big surprise that the budget deficit has grown, the fear of a financial crisis has increased, and the public's confidence in the economy has plunged?