The double disengagement plan
With any luck, Sharon and Netanyahu will reach a double political agreement: both a disengagement from the Gaza Strip and a disengagement from the provident funds. The economy and the peace process are intertwined such that this double disengagement will yield double profits - both for society and for the economy.
The political system these days resembles a "catch as catch can" wrestling match: the rebels are holding Prime Minister Ariel Sharon by the throat, Sharon is grasping Finance Minister Benjamin Netanyahu by the neck, and Netanyahu is attempting the same hold on Sharon - and everyone is waiting to see who gets strangled first.
The situation is particularly complex and sensitive because the prime minister does not trust his finance minister. Sharon is certain that Netanyahu is striving to replace him as soon as possible, and therefore, is waging a battle against him for every forward movement. Sharon views the disengagement as the crowning jewel of his term as prime minister, while Netanyahu views the bank reforms as his main test.
This has spawned the idea of an exchange deal: "disengagement for disengagement." Sharon will support the banks' disengagement from their provident and mutual funds if Netanyahu supports the disengagement from the Gaza Strip - completely and without any tricks.
On Wednesday, after an extended year and a half gestation, the Bachar Commission submitted its recommendations on reforms in the banking system and the capital market to Netanyahu. The recommendations address the two fundamental problems of the banks and the capital market: excessive concentration (the two large banks control two thirds of the capital market's activity) and conflicts of interest.
The Bachar Commission's main recommendations are to force the banks to sell their provident and mutual funds and remove underwriting activities (stock issues) from the large banks. If these things happen, a non-banking capital market will open up to compete with the banks, interest rates will fall, depositors will get better returns, the economy will grow faster, and unemployment will decline - for the benefit of all Israelis.
This is a reform that is well overdue. Over 20 years ago, in October 1983, the bank shares crash occurred due to monopolistic "regulation." As a result, the Beisky Commission was appointed, and in 1986 it recommended reducing the banks' activities and power in the capital market. That commission's most important recommendations have not been implemented to this day, except very marginally, because the power of the banks prevented them time after time. They operated mainly among the Knesset members and finance ministers (like Avraham Shochat), and convinced them that what is good for the banks is good for the country. MK Amir Peretz (One Nation) and other members of the Labor Party considered the banks' large workers committees, which have substantial strength in the party bureau, to be more important than the poor people who pay sky-high interest and thieving service charges to the banks.
Last week, at a meeting of the Israeli union of banks, Bank Hapoalim chairman Shlomo Nehama and Bank Leumi chairman Eitan Raff said that personal pressure had to be exerted on Netanyahu, because he is a coward and vulnerable to pressure. They said that public opinion surveys mean everything to Netanyahu, so the public must be convinced that what he is proposing is bad - then Netanyahu will back down.
"The bank's campaign will not sway me," responded Netanyahu. "They can aim all their assaults at me. It will not change anything. They can pour all their money into such a campaign, but nothing will deter us from doing the right thing for the Israeli economy."
We now have a one-time window of opportunity, when a finance minister believes that the reforms with all his heart and is willing to take risks for them. The reforms also have a majority in the Knesset, because the MKs (excluding Labor) understand that the banks need to have their wings clipped.
With any luck, therefore, Sharon and Netanyahu will reach a double political agreement: both a disengagement from the Gaza Strip and a disengagement from the provident funds. The economy and the peace process are intertwined such that this double disengagement will yield double profits - both for society and for the economy.
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