The bad growth and employment figures published this week have sent the public into shock. It is always possible, of course, to attribute the reason for the crisis in the interest rate, the budget deficit, or major international events. It is also true that these do have their effect and are important, but all of these taken together are dwarfed by one key factor: the state of war.
The turning point for the Israeli economy was on September 13, 1993, when Yitzhak Rabin signed the Oslo agreement. Within a short time, the world changed its attitude toward Israel. From a state that appeared on the television screens as a country at war, Israel was transformed into a site of pilgrimage. The Arab boycott was canceled, 30 states renewed their diplomatic relations with Israel, foreign investments reached the level of several billion dollars a year, exports went to countries where Israel previously did not have a foothold and the Israeli economy began to grow at the dizzying rate of 7.0 percent in 1994 and 6.8 percent in 1995, with unemployment declining to a welcome low of 6.6 percent of the work force.
But all of this positive process was stopped when Benjamin Netanyahu became prime minister, in the middle of 1996. Shortly thereafter he opened the Western Wall tunnel in Jerusalem (at the advice of Mayor Ehud Olmert) and caused bloodshed - 15 soldiers and 70 Palestinians were killed - and the destruction of the trust that had been built up so laboriously between the two sides. Netanyahu did not implement the withdrawal to which Israel had agreed in the Oslo agreement, but rather he increased the rate of Jewish settlement in the territories until he was publicly scolded by the Americans.
The disturbances in the territories started up again, and Israel once again starred on television as a country at war. The result was a sharp change in the atmosphere in Israel, from euphoria - to depression. From increases in investments and personal consumption - to steep declines. Growth and development ground to a standstill, and the economy sank into a three-year recession: 2 to 3 percent growth in 1997-99 and a parallel increase in unemployment to the level of 8.9 percent in 1999 (see graph).
This difficult situation gave rise to Ehud Barak's election slogan: "300,000 new jobs." Indeed, the change of government in May 1999 caused a striking change in the atmosphere. In September, 1999, an agreement was signed with the Palestinians, and it looked as though Barak was about to achieve the implementation of the long-desired peace agreement. He even said that he intended to reach a peace agreement with Syria as well. The economy responded with a positive change in expectations, the smile returned, and growth soared at a dizzying rate. But all of this collapsed in the fourth quarter of 2000 with the renewed outbreak of the intifada.
Under the government of Prime Minister Ariel Sharon, during the past year, the economic situation has only got worse. There is no peace and there is no security, and there is also no chance that the situation will improve when most of the efforts are directed at the army and the territories. As far as the prime minister is concerned, the solution to terror is in the military realm. At the security cabinet meeting on Wednesday he demanded of the Israel Defense Forces "many more initiatives, all the time, that will give a deeper and more intensive continuum of actions." It goes without saying that he did not mention the Gordian knot entangling the state of war with the economic slump and the continuing rise in unemployment.
The alternative to Sharon's solution was presented this week, by means of a newspaper interview, by the heir to the Saudi throne, Abdullah ibn Abdulaziz, who is proposing a total withdrawal by Israel from all the territories in accordance with the UN resolutions, in return for peace and full normalization of relations between the Arab states and the Palestinians and Israel. This is a daring initiative, worthy of being accorded a positive response from the government of Israel. It is also the right medicine for the recession and the unemployment.
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