You had to rub your eyes in disbelief at the announcement by the Finance Ministry last week: We are postponing, actually waiving, the cut in vacation pay in the public sector. Behind the announcement stood the finance minister and his senior staff, who believe that our economic condition is hale and hearty, and no external threat faces us, no danger whatsoever. So they have no problem giving in to the unions to the tune of several hundred million shekels and increasing spending without doing the math.
The way they see it, we don't have to save, cut back or retrench anymore, as the foolish other countries of the world are doing. We can do exactly the opposite: Spend, expand, eat and be merry, because people love leaders who hand out goodies, even if the storerooms are empty. In Greece they also loved such leaders terribly. Until the collapse.
It's no wonder that the head of the Histadrut trade union federation, Ofer Eini, declares that "the repercussions of the economic crisis have already passed." After all, if you are negotiating with three kind and generous people like Finance Minister Yuval Steinitz, budget director Udi Nissan and wages supervisor Ilan Levin, and they hand the big bucks over to you so easily, why not believe that you've landed in paradise?
Just this week, Steinitz said at the cabinet meeting that "we see countries like Greece, Portugal, Spain and Ireland that are cutting public-sector wages, but the government believes in the Israeli economy's strength, and it will increase spending in the coming year."
It's clear that Steinitz knows more about economics than all the other finance ministers of the world. Those dopes are cutting, and he's expanding. He's so kindhearted that he poses a problem to Knesset members like Shelly Yachimovich (Labor ) and Miri Regev (Likud ), who always want more. But now, with the finance minister dishing out hundreds of millions, maybe they'll have to cross the aisle and begin demanding responsibility and frugality. Before the ship hits an iceberg and sinks, someone up there on the bridge will have to wake up.
What Steinitz doesn't get is that when he becomes a "Yes, I have" minister, this inevitably means endless demands from all corners of the economy, from the manufacturers, Shas and MK Amir Peretz (Labor ), who's demanding an increase in the minimum wage.
At the same cabinet meeting this week, Prime Minister Benjamin Netanyahu said that "Israel's condition is relatively better than that of other developed countries." This is true. But it's a result of the responsible policies of the previous government, which never dared to waste and never gave in to pressure from tycoons. The Olmert/Bar-On government maintained a 1.7 percent increase in the budget and a low deficit, which sent the ratio of debt to gross domestic product lower. That's the exact opposite of the policy Netanyahu is implementing today.
Currently, every economist is worried about what is happening in Europe. Cutbacks and tax hikes are being carried out there that will harm Israeli exports and growth. There's also a campaign against us underway there, with Swedish dockworkers refusing to unload Israeli ships, various organizations boycotting Israeli goods and French cinemas canceling the screening of Israeli films. And there's the damage of the lost Turkish markets.
In this new constellation, it is veritable economic suicide to increase the budget by 2.7 percent and create a hefty deficit of 3 percent of GDP. This means a blow to growth and a dangerously high debt level of 78 percent of 2011's GDP.
If we had a responsible finance minister and a prime minister who wanted to help the country and not just his own political prospects, they would be putting together an emergency plan for getting public debt down to 50 percent within five years. But they prefer being popular in the long term.
Unfortunately, in economics, there are no free lunches, or dinners or breakfasts for that matter. One day, during one military operation or another, the markets will stop believing that we can honor our enormous debt. So we'll be in a deep financial crisis that will produce a steep rise in interest rates, layoffs, unemployment and an urgent need for cutbacks. On that day, we'll remember to call the emergency plan that they adopt the "Netanyahu-Steinitz Plan," because they are planting its seeds right here and now in 2010.
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