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Prime Minister Benjamin Netanyahu. Photo by Daniel Bar-On
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If Israel had a serious finance minister and a courageous prime minister, they would convene the cabinet this very day and present a new economic plan in light of the unfolding Greek tragedy.

Yes, our situation is better than Greece’s and our budget deficit is smaller, but that doesn’t mean we’re out of the woods yet, that trouble might not be brewing on the horizon. There are many dangers ahead, some of which even Greece hasn’t known.

The story in Greece began years ago, as reckless governments drafted irresponsible budgets characterized by a remarkable aptitude for increasing spending. Each government strove to outdo its predecessor over who would grant workers bonuses equal to two months’ pay, or who would let them retire at 55. Since tax collection was lower than it should have been, government deficits ballooned, the public sector swelled to monstrous proportions and the private sector buckled under the load.

Take, for example, Greece’s current prime minister, George Papandreou, who won last year’s national election on a populist platform, promising bigger budgets, higher salaries and more generous unemployment benefits − all during the most serious economic crisis the world has seen in 80 years.

As the global economy caved, Greece entered a recession and tax revenues dropped. The deficit rose to 14 percent of GDP, and the national debt soared to a frightening 120 percent of GDP, or 300 million euros.

Then came the moment of truth, when no international creditor would lend Greece any more money, for fear that the country simply wouldn’t be able to return it. Imagine a family whose income was NIS 10,000 a month, but behaved as if it were making NIS 12,000. At first the bank might lend it the difference, but as its debt kept growing, one day the banker would cut it off. The family would, of course, find itself in a financial crisis, have to cut spending, simplify its lifestyle and start living in reality rather than fantasy.

The scene is sadder still in Greece, because a country’s economy functions differently than a household’s budget. The moment spending is cut, the recession will deepen, tax revenues will drop further and the budget deficit will increase even more. More cuts will then be required, deepening the recession further in an increasingly vicious cycle.

Worse, given that it is part of the euro zone, Greece has no monetary policy tools at its disposal − it can neither reduce interest rates nor increase the money supply, both tools to spur the economy, because these are the realm of the European Central Bank.
The primary conclusion from Greece’s experience is that we in Israel must not let ourselves fall victim to a similar catastrophe. Israel is vulnerable to all manner of regional crises − another intifada could paralyze the economy and reduce tax revenues, while war with Syria or Iran would demand that the security budget be significantly bolstered.

Finance Minister Yuval Steinitz and Prime Minister Benjamin Netanyahu must take preventative steps and slice the public debt. They must convene the cabinet and explain to the ministers that the global situation has changed, that the danger of a domestic crisis has risen. They must explain that Israel’s debt − 80 percent of GDP − is too large. Portugal, for example, has a debt of 85 percent and is in poor shape. They must make clear that government spending cannot rise by 2.6 percent next year as planned, and that an annual deficit of 3 to 4 percent of GDP is too much. The budget must grow by no more than 1 percent annually, and the deficit must be zero. All of this requires an entirely new economic plan.

Naturally, this will not be popular. Social-welfare organizations will cry foul, as will certain Knesset members. We will not be able to siphon off NIS 1 billion to Shas or raise public-sector salaries, and ministry budgets including that of the Defense Ministry will have to be decreased.

These cuts may hurt a little, but no more than an inoculation does. Even Steinitz and Netanyahu have to admit that it’s better to experience a slight, passing sting than a life-threatening illness a la Greece.