In his speech this week at the President's Residence, where he was entrusted with the task of forming the new government, Prime Minister Ariel Sharon continued to beg the Labor Party to join him in the driving seat. Old-time Likudniks may hardly know their own minds these days, to their shame; while Moshe Arens, a Likudnik to his very roots, claims that governing with Labor would not be advisable, as it would only disrupt the fight against terror.
But Sharon knows what Arens doesn't. Sharon knows that the economy is on the brink of the very worst crisis. He also knows that he, along with Finance Minister Silvan Shalom, has lost economic trust, so they cannot bring the economy out of the crisis on their own. The public simply has no faith in them and, therefore, if Labor keeps hitting them from the Opposition, they will not last long in government.
Sharon said in front of the president: "We have to sharply cut the budget, to change the order of national priorities, to introduce reforms."
And where has he been up till now? What was stopping him? Can we believe in someone who promised on live television to cancel the Negev laws and the Large Families Law, a promise that has yet to come through even today? Have we forgotten that he has changed no order of the day, but has kept divvying out more money for the settlements and Haredim at the expense of the collapsing infrastructure?
Five days after the Twin Towers tragedy, on September 16, 2001, when the economy was already on crutches, when all commentators had written that the next year would show negative growth and an enormous deficit, Sharon, with Shalom and the treasury chiefs, submitted a budget that assumed a fairy-tale growth rate of 4 percent in 2002 and a 4.5-percent increase (!) in tax revenues - a statistic that even then was completely baseless. Today, it sounds like a sorry, sad joke.
Faith in Shalom has eroded to next-to-nothing, and so has confidence in his staff, Ohad Marani and Nir Gilad. They presented us with a picture of having met the deficit target for 2002 by delaying VAT refunds, postponing payments and taking monies from the National Insurance. But everything blew up in their faces come January. They presented an unreal deficit for 2003 (just as they did with 2002), and now the budget is short by at least NIS 9 billion, while the defense budget can't be met, but has to wait for guarantees - if they should come at all.
Once credibility is lost, the economy pays a heavier price. The higher interest rates in the capital market and the falls on the stock exchange are testimony to this.
When the prime minister and his finance minister have the credibility, they are able, in any one year, to deviate from the deficit limit, promising that the following year, they will be back on track. But this time, they cannot deviate by even a tenth of a percentage point from the 3 percent of GDP as targeted for 2003; because if they do, Israel's credit rating will drop, the public will flock to the dollar, and the interest will reach the skies. As a result, the private sector will get a drumming, revenues from taxes will fall further, layoffs will increase, and the recession will deepen.
So Sharon and Shalom are caught in a trap - as is the Israeli economy.
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