'With All Guns Blazing'

Has Yuval Steinitz's first year as finance minister been a success? Depends on whom you ask. One thing is clear: This iconoclastic former philosophy professor knows how to play the political game.

Finance Minister Yuval Steinitz came to the Azrieli Center in Tel Aviv last Wednesday. He was expecting to attend an introductory meeting at a restaurant with Nochi Dankner, chairman of the IDB Group conglomerate. When the minister and his people arrived, they learned the meeting would not be held at the restaurant, rather at Dankner's office in the triangular tower.

Steinitz's bureau chief, David Sharan, endured a scolding from his superior for what seems to have been an embarrassing misunderstanding, in light of IDB's version of events: According to that version, there never was a plan for the two to have lunch, and the fact that light refreshments were served at the meeting was proof of that.

Steinitz, who is 51, entered politics from academia and had no prior experience of managing a government ministry or a large company. He had no idea that a man like Dankner would never arrange to meet a senior public figure at a restaurant. Mishaps of this sort, according to treasury staff, are not unusual at the minister's bureau.

"He has trouble even at the most basic level with summaries, keeping tabs, scheduling, and post-meeting follow-ups. These things require experience, which he lacks," says a former senior treasury official. "He is intelligent to a very impressive extent, but that doesn't help him to manage the ministry, or himself. On the other hand, he is highly sensitive to the media. That is accentuated in him to an extreme."

The more serious problem, say the minister's critics, is that Steinitz - who holds a Ph.D. in philosophy - does not really offer a vision. Nor, for example, has he proposed any big moves, thanks to which the public would pay less on cell-phone bills, the party at the Israel Electric Corporation would be over, or Israel's workers would feel their taxes are going where they need to go.

Instead, Steinitz gets entangled in media brawls: At an economic conference a month ago, he launched a vicious attack on the Supreme Court because of rulings that he claims do not take budgetary considerations into account; during a hearing last week of the State Control Committee, he lashed out at the state comptroller and even insinuated that his successor will someday have to review the actions of the incumbent. His bureau later issued a clarification.

In response to U.S. Mideast envoy George Mitchell's suggestion last week in a television interview that the United States might withhold loan guarantees if Israel doesn't make sufficient concessions in negotiations with the Palestinians, Steinitz said on Sunday, "[The country] does not need to use these guarantees, and we are doing quite well" - a comment that some regarded as "macho" and as an attempt by the finance minister to burnish his hawkish image.

"What we have here is a situation where it's the finance minister against the rest of the world," says MK Yoel Hasson (Kadima), chairman of the State Control Committee. "Steinitz's assaults, both on the comptroller and on [Bank of Israel Governor] Stanley Fischer, cover up a lack of knowledge and of in-depth understanding of the details."

Steinitz did not consult the Bank of Israel governor before deciding to lower the value added tax by 0.5 percent two days before the end of the year. A senior Israel Tax Authority official called the decision scandalous on Israel Radio, and said the authority had not been involved in it. The director of the authority himself, as Steinitz's associates concede, was informed of the decision just three hours before it was made public.

"This really is an odd story. The entire maneuver seems irrational," adds another former senior official. "Nearly NIS 2 billion - a colossal fortune - will be missed out on. The manner in which this was done is unreasonable for an orderly system. It's a pity, a waste. A number of major things could be pushed forward now. Steinitz could introduce reforms - at the Electric Corp., and at the cell-phone companies. There's a feeling that more goals could be scored, but that is not being done."

Steinitz mainly talks, or "badgers," as even his supporters at the treasury attest. People there say that he holds tiresome discussions in which he cites Aristotle and Plato, the philosophers he specialized in during his days in academia. Occasionally, evil tongues remind us, he takes an afternoon nap on the couch in his office, without which he has difficulty getting through the day.

"He is quite brilliant at philosophy, and is therefore certain that he's got a handle on matters, but a lot of times, when he doesn't, he says things that are not profound or professional," says a former senior treasury official.

Steinitz's associates at the treasury first of all note the strong standing of the Israeli economy, in the face of the global financial crisis. The country began 2009 with a negative growth of 3.4 percent in the first quarter, and apparently has finished the year, in the last quarter, with growth of 4.1 percent.

"Keep in mind that if the economy were in bad shape, everyone would be pointing an accusatory finger at Steinitz," says Improvement of Government Services Minister Michael Eitan, a fellow member of Steinitz's Likud faction. "If the economy is moving in the right direction, the finance minister deserves the credit for that."

It is on his watch, associates point out, that Bank Leumi will finally be sold, after he managed to persuade all those concerned that there is no need to sell the bank with a controlling interest. In the same manner, Steinitz was able to reach a decision regarding construction of a hospital in Ashdod, a move that failed to be implemented for years. Mandatory pension plans for self-employed workers, finalization of the Bank of Israel Law, and the "green" taxation reform are processes Steinitz will complete this year. An achievement that has already happened is the creation of a unit for combating economic crime.

Don't forget, the aides say, that Steinitz was responsible for staffing the top Finance Ministry posts with consummate professionals: Haim Shani as director-general, Udi Nissan as budgets director, Doron Cohen as head of the Government Companies Authority, and the most recent appointment, Prof. Oded Sarig, as commissioner of capital markets.

Steinitz, say sources close to him, believes he has made more important decisions as finance minister than any of his three predecessors - Ehud Olmert, Abraham Hirchson, and Roni Bar-On - primarily thanks to the move involving passage of a biennial budget. He received fairly copious praise for that decision, which he himself views as historic. As the greatest achievement of the Israeli economy in the past generation. Even bigger, in certain respects, than the stabilization program of 1985, since we are talking about an international precedent: A biennial budgeting process does not exist anywhere else in the world.

However, Prof. Avi Ben-Bassat, former director-general of the Finance Ministry and a member of the "council of sages" - a forum of 20 prominent economists whom Steinitz consults unofficially - criticizes the move: "Building a budget is a commitment regarding future income. It is hard to predict for the coming year, let alone for more than a year. That is the meaning of economic uncertainty. In Israel, this is compounded by security uncertainty, and in the past decade alone we have had three major security events. In particular, I would not pass a biennial budget during an era of global crisis. Canada tried it and abolished it. This year they had to add funds to the budget after it was approved. Revisions of this sort only undermine its credibility."

Expelled from high school

Steinitz was born and raised on Moshav Ramot Hashavim. Today, he lives in Mevasseret Zion outside Jerusalem with his wife, Gila Canfy-Steinitz, a Jerusalem District Court judge, and their three children. They do not have a television set at home, a decision they made as a young couple, before proceeding to build a home that became known as a bastion of book reading.

From childhood, Steinitz has gone against the grain. He does not hesitate to say, sometimes in a childish and deliberate manner, precisely the opposite of what everyone else thinks. The term "philosopher," in every sense of the word, attached itself to him as far back as second grade, because of his insistence on repeatedly asking questions about things that seemed to be self-explanatory.

In the biology track at Katznelson High School in Kfar Sava, teachers and parents of classmates complained that it was impossible to conduct classes when Steinitz was present: Every statement by the teacher became an exhausting Socratic performance of posing questions and answers, which disrupted the regular flow of the class. At a certain point, Steinitz was asked to sign a document promising that he would stop the behavior. When he refused, he was expelled from school, and wound up completing his matriculation exams externally.

He did his mandatory military service in the Golani Brigade, and as a reservist was wounded in battle during the first Lebanon War - which led Steinitz to the protest rallies organized by Peace Now. Indeed, he was wounded a second time, from fragments of the grenade with which Yona Avrushmi killed Emil Grunzweig during a 1983 Peace Now demonstration in Jerusalem.

Steinitz, who had never been a major activist in that organization, held left-wing views until the mid-1990s. Then he began composing memos about the dangers inherent in establishing a Palestinian state alongside Israel. He earned his bachelor's and master's degrees in philosophy from the Hebrew University of Jerusalem, and a doctorate from Tel Aviv University. At the age of 29, he published his book "Hazmana Lefilosofia" ("Invitation to Philosophy" in English), which became the best-selling philosophy book in Israel and was reprinted more than 40 times. He was appointed to a senior lecturer post at the University of Haifa in the mid-'90s, immediately upon completing his Ph.D.

Steinitz first ran for the Likud's Knesset list in 1999, after several years of party activity. He won the 20th spot after running on the regional list, and got into the Knesset after his political patron, Benjamin Netanyahu, resigned following his electoral defeat.

Four years later, when Netanyahu was finance minister in Ariel Sharon's government, he offered Steinitz the position of deputy minister, but Steinitz preferred to head the Knesset Foreign Affairs and Defense Committee. In general, foreign affairs and security are the topics he dealt with during his Knesset career, and he was regarded highly during the time he chaired the committee.

These days Steinitz does not speak up frequently on political matters, but when he does, he's not reluctant to take an unpopular stance. He is one of the only ministers willing to state publicly that he is against releasing terrorists convicted of murder, in a prisoner exchange for Gilad Shalit.

After the election last February, he was in charge of the "first 100 days" team for the Netanyahu government, a period that enabled him to learn his future job.

"He went into the Finance Ministry with the balls of an ox, without understanding almost anything about economics," says one confidant. "Only a finance minister without skeletons in his closet or vested interests is capable of saying these things about the Supreme Court. That is the difference between Steinitz and other politicians."

His tendency to stubbornly reject the consensus will be put to the test in the coming weeks on the question of whether to extend Stanley Fischer's mandate as Bank of Israel governor for a second term. If Steinitz thinks Fischer is not the right man, he will not hesitate to oppose extending his tenure, even though Fischer is a prominent economist who is admired greatly in Israel and abroad. The big question is whether Steinitz, as a politician and neophyte minister, would dare butt heads on this matter with his prime minister, who apparently favors a second term for Fischer.

So far, Steinitz has not issued a clear announcement in support of extending Fischer's mandate, and there is speculation that he is not in favor.

Tense relations

Relations between the treasury and the Bank of Israel - the two central players in shaping economic policy - have always been tense. Steinitz has an inherent disadvantage in this arm-wrestling match.

"It's tough to be in Fischer's shadow, and under Netanyahu, and with treasury officials breathing down your neck," says a senior economic official. "Steinitz's level of understanding - there's no way around this - is not great, yet he comes in with all guns blazing and makes economic pronouncements. It causes embarrassment."

The governor and minister disagree on a series of issues: the VAT rate; where the capital market department belongs - whether at the treasury or the Bank of Israel; the Bank of Israel Law; and even on the seemingly marginal question of who should appear on the banknotes issued by the Bank of Israel.

The two men meet every two weeks at the Atara Cafe in Mevasseret Zion, near Steinitz's home. Steinitz's associates say the tension between him and Fischer can be attributed to problems with credibility and trust, which they link to several instances in which the Bank of Israel violated agreements that had been reached with the treasury.

"Ultimately, this is a political battle between two people with egos," says a source close to Steinitz. "Our governor has grown a bit cocky. It could be that the State of Israel is his second choice. If he gets a better offer - he'll take it. If not, he'll stay."

Steinitz's confidants also say that he recommended to Fischer back in July to raise interest rates, in addition to emphasizing that Fischer must buy dollars irregularly, so as to surprise the market.

"That's a laugh. Do you think that the governor is influenced by political pressures in making monetary decisions?" a source close to the Bank of Israel said this week.

Steinitz also has a complicated relationship, albeit in a different way, with Netanyahu, who ever since he appointed himself supra-minister of economic strategy above the finance minister, has continued to diminish his status. For example, two weeks ago, after treasury officials had spent weeks on setting up a committee to draw lessons from the world economic crisis, Netanyahu's bureau leaked to Yedioth Ahronoth its intention to establish the committee under the auspices of the Prime Minister's Office.

This was not the first time Netanyahu had bypassed Steinitz. The latter actively sought to impose VAT on fruit and vegetables only to discover that Netanyahu had rescinded that decision. According to one treasury official, the decision to raise water rates was also made, in effect, by Netanyahu.

"The prime minister makes decisions over his head, the top-level bureaucrats do not have regard for him, he is weak both inwardly and outwardly," a treasury official says. "He is not very good at asking the right questions, and so the bureaucracy, particularly the budgets department, leads him where they want. Eyal Gabai, the director-general of the Prime Minister's Office, also intervenes in all sorts of matters and asks questions."

Steinitz's formative event was finalizing the package budget deal last May. It contained several essential matters: employee consent to reforming the Israel Lands Administration and the sea ports, and to promoting structural change at the Israel Electric Corp; the consent of public sector employees to a 50-percent cut in vacation pay (dmei havra'a) in 2009 and 2010; a decision that employee wages would not be harmed, and that several new labor laws would be passed to make it easier for workers to organize in the workplace; and a decision that the government would provide export guarantees and increase grants to small businesses. Steinitz views this as one of the important initiatives that brought the economy out of crisis, but quite a few people think he played only the role of an extra in it. The one who really called the shots was Uri Yogev, Netanyahu's economic adviser, who had a mandate from the prime minister to settle matters with the chairman of the Histadrut labor federation, Ofer Eini.

Politician vs. activist

Steinitz is a more successful politician as an activist in the Likud Party Central Committee. A candle-lighting event in Or Yehuda this past Hanukkah drew 1,500 party activists. Afterward, political commentators began outlining a possible future contest for the Likud leadership between Steinitz and Education Minister Gideon Sa'ar.

"He is a very, very political man, deals with it an awful lot, and devotes time to going to gatherings and events, even though he is publicly perceived as a gentle guy who has nothing to do with these sorts of things," says one senior government official. "His standard mode is saying things that are unpopular and politically incorrect, and he cares deeply about what goes on in Likud."

Sources close to Steinitz think that although he is a politician who wants to get elected, many of his moves have actually harmed him politically.

When he was starting out in politics, he got help from his brother-in-law, Jerry Hakim, a veteran member of the Likud central committee.

"Steinitz knows that there are difficult people in the committee, but he knows how to conduct himself there wisely and with integrity," Hakim says. "Within Likud he is viewed as a man who has a different style, one who knows how to give it to you straight, not talk in cliches. He is appreciated for being a person who is not afraid to express himself." Hakim adds that Steinitz is no "puppet" to Netanyahu.

Says lawyer David Narodetsky, another member of the central committee: "Steinitz may lack charisma, but he is a person who knows how to visit small party branches like Yavne'el or Rehovot, does his homework about what's bothering people, and tells them what they want to hear. As much as he is the antithesis of a Likudnik - Ashkenazi, secular, university lecturer - he has succeeded thanks to working thoroughly, like they do in academia, to understand the field," he says.

Lately criticism has been directed at Hakim and Steinitz within Likud circles, alleging that Hakim, who is a businessman, has been increasingly involved in Finance Ministry affairs, something that has been denied by both parties.

"Steinitz's conduct is different from his image as a philosopher who sits in his ivory tower and analyzes macro moves," says a source close to Likud circles. "Steinitz is no sucker. He is one of the ministers most plugged in to the field, second only to Moshe Kahlon, the communications minister, in this regard. He had to rebuild himself after what happened to him in the package deal. He is like a synthetic diamond: Looks very clean, but was created by artificial means."