Black Wednesday

This Wednesday will be remembered as one of the worst days in the history of Israel's economy. On that day, the Knesset approved the state's draft budget (in its first reading) for the coming two years.

This Wednesday will be remembered as one of the worst days in the history of Israel's economy. On that day, the Knesset approved the state's draft budget (in its first reading) for the coming two years.

This is a revolutionary law - in the worst sense. That is because, starting from today, there is no longer any need to decrease government expenditure. From today it is necessary merely to expand, increase, waste and throw away as much money as possible on anything that moves. Because "the fat man is already thin enough," as Finance Minister Yuval Steinitz said about the public sector, without blushing.

From the point of view of Steinitz and Prime Minister Benjamin Netanyahu, all that has to be done is sit at the table, loosen belts and start gobbling everything down. The budget for 2011 will increase by 2.6 percent (instead of 1.7 percent), and that will make it possible for the government to distribute another NIS 2.5 billion to the coalition partners. In 2012, the budgetary expansion will stand at 2.8 percent (another NIS 2.7 billion) and then the rate will increase to 3.1 percent, and so on and so forth - until their stomachs burst.

The sad part of the story is that all the politicians and the financial professionals have fallen into the expansion trap. Bank of Israel Governor Stanley Fischer is supporting it. Prof. Eugene Kandel, head of the National Economic Council, voted for it. The Adva Institute , which advocates for social equality, is enthusiastically in favor. Minister Avishay Braverman is celebrating. Eli Yishai is delighted. Even Udi Nissan, the Finance Ministry's budget director, is in favor of expansion. So who is left to protect the economy from the plunderers? No one.

This is precisely what happened to Greece when it lost its bearings at the beginning of the century. There, too, there was no one to shout: "Are you crazy? Get off your high horse." There, too, the budget division fell asleep at the wheel. The result was that the Greek budget deficit rose to a level of between 4 percent and 7 percent of the GDP, and to a record 12 percent in 2010. The public debt escalated to 120 percent of the GDP - until the crisis arrived. Because that is what getting fat is all about - it is easy to put on a kilo but very difficult to shed it.

On the other hand, Ireland, despite having a deficit of 12 percent of the GDP, is not suffering from a similar crisis. That's because Ireland conducted a responsible policy for the entire past decade. It had a negligible deficit and a restrained budget. That is why the world markets are prepared to give it credit, that is why it is able to raise capital with ease, and that is the why today it is reaping the fruits of budgetary responsibility in the past.

Israel, too, is enjoying the fruits of the responsible budgetary policy that has been conducted since the economic plan of 1985, and more seriously since 2004. But it must be remembered that in the past seven years, all the good people mentioned above wanted to increase government expenditure. The politicians wanted it, and so did the Bank of Israel, the National Economic Council and the Adva Institute; Braverman wanted it and so did Yishai. However, two people stood in front of them, year after year, plugging the dike: the finance minister and the budget director. These used to be Roni Bar-On and Ram Belinkov. They guarded the coffers and saved us from looters.

This is the main reason for the fact that today we are getting through the world crisis with relative ease. That is the reason all the international economic institutions are applauding. That is the reason the accountant general can now raise cheap money in Europe. And that is the reason why the economy is flourishing and unemployment is low.

But the moment the two guards at the gate left their post on Wednesday and crossed over to the side of the good supporters of expansion, there was no one left to watch the coffers. No one will be the bad treasurer. No one will guard the public's money.

Udi Nissan agrees with the claim that there are large pockets of inefficiency in the government that need to be dealt with. If so, then why should the "fat man" get an additional budget? Because it is difficult cut back and make things more efficient. This involves a struggle with the parties, labor committees and capital owners. And that is really not pleasant.

It is a fact that Nissan and Steinitz cannot coerce the Israel Defense Forces into raising the retirement age of people serving in the standing army or introducing a genuine efficiency program. It is a fact that they cannot make cuts in the excessive levels of management in the Education Ministry. It is a fact that they do not make the ministry get rid of some districts and dismiss inspectors. It is a fact that they have not succeeded in preventing the approval of grandiose plans for laying railway lines that lead to nowhere. It is a fact that they do not touch the Israel Electric Corporation, the Ports Authority or the Airports Authority. It is a fact that they are not able to unite local authorities. It is a fact that there is a gigantic excess of manpower in government offices. It is a fact that there are no reforms and no revolutions.

Many billions of shekels are available that have to be collected and used for other matters - but that is difficult. It's much easier to add.

This is precisely how they acted in Greece - they supplemented instead of becoming more efficient. That is why they are paying the price today - a loss of credibility, rise in interest rates, decrease in wages, pension cuts, high unemployment and violent demonstrations.

And that is exactly what we can expect in the future, on the heels of Black Wednesday.