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Israel's Coronavirus Recovery Is in Peril From the 'Emergency' Regime

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Benny Gantz, left, and Prime Minister Benjamin Netanyahu signing the unity government agreement
Benny Gantz, left, and Prime Minister Benjamin Netanyahu signing the unity government agreement, April 20, 2020Credit: Prime Minister's Office Spokesperson

It’s bad enough that everyone had to spend Independence Day cooped up at home with the same people they’ve been cooped up with for last few weeks. But even though we’re more or less out again in the fresh air, our problems are just beginning.

The entire world faces a big economic downturn due to the coronavirus, but Israel has an added problem: The very national unity government that was supposedly formed to cope with it.

How bad is this problem? Just before the holiday, the treasury and two credit rating agencies warned that Israel faces many months of negative economic growth and high unemployment and government without the resources to do anything about it.

Of the three, the treasury adopted the gloomiest line, forecasting a 5.4% decline on gross domestic product and perhaps as much as 6.5% under the worst-case scenario this year. Unemployment could reach 13% to 14% including people on unpaid leave, many of whom are expected to ultimately lose their jobs. The budget deficit in 2020 could reach as much as 12.4% and even in the best of circumstances will be more than 11% – figures that would have been considered disastrous in the pre-coronavirus world.

You might be inclined to discount the treasury’s most dire forecasts as part of the policy battle it’s fighting with the Health Ministry over how quickly to ease the lockdown. Warning of disaster can only help its case.

But the fact is the two ratings agencies weren’t much more sanguine. According to Fitch, Israel’s economy will contract 5.9% this year, even if the lockdown ends pretty soon, and the pandemic’s impact will “linger” into 2021. The jobless rate will be 10% even by the end of the year, three times its pre-crisis level.

Moody’s sees a more modest 4% contraction for the economy shrinking, with budget deficits of 9% in 2020 and 5.5% in 2021, long after the coronavirus crisis should be behind us.

But in a critical way, the Moody’s forecast was the most worrying of all.

Numbers game in terra incognita

The fact is that economists are playing a numbers game these days. Their job is to provide forecasts, but the pandemic and the lockdown are terra incognita. We’re in unexplored a deep forest without a map or compass. Even the most experienced guide who states authoritatively that the way out is only X miles away is talking through his hat.

What makes the Moody’s report so worrying isn’t its numbers but what it has to say about Israel’s political situation.

We’re supposed to believe that Kahol Lavan leader Benny Gantz agreed to join a national unity government with Benjamin Netanyahu in order to tackle the coronavirus emergency. The coalition agreement even deems the government in the next six months a “coronavirus emergency government.”

Combo photo: Benny Gantz, left, and Benjamin Netanyahu (taken March 1, 2020)Credit: AMIR COHEN/ REUTERS

Some emergency. On the eve of the Six-Day War, Levi Eshkol had a unity government up and running with Menachem Begin and Moshe Dayan within a couple of days. If the coronavirus is an emergency too, how have Netanyahu and Gantz had the leisure to conduct weeks of negotiations over cabinet appointments, annexation and legal mechanisms? Why two months into an unprecedented economic crisis do we still have a lame-duck finance minister, namely Moshe Kahlon, who is quitting politics when the new government is finally formed?

It is neither a government of emergency nor of unity. What we’re getting, as the coalition agreement makes clear, is a Government of Salvation, the salvation part being saving Bibi from jail time.

Dubious goals

Vis-à-vis the economy, the government has two tasks. The first is to mitigate the worst effects of the lockdown by proving aid to business and workers; the second is to ensure that the costs of the first don’t bankrupt the economy. Neither job is easy and they require not only a government with a full array of powers but one that isn’t peopled by political foes determined to make their enemies look bad ahead of the next election, which Moody’s says could be called after the six-month emergency ends.

No wonder Moody’s warns, “The domestic political environment in Israel will remain more polarized than in the past and, while a major shift in policy direction remains unlikely, is likely to continue to pose a headwind to prompt and decisive fiscal policy.”

Israel came into the pandemic in an enviable position. The budget deficit was relatively low, as was our debt burden. The economy was strong, unemployment low and the current account in surplus. Fortunately for Israel, compared to most of the developed world that should mitigate the economic downturn and give a boost to the recovery that follows.

The economy isn’t the problem – it’s the government. It’s hard to imagine Netanyahu’s national unity government making reasoned, much less tough, decisions on policy and the budget. Not in such an atmosphere of distrust and division.

It’s for that reason that all the forecasters see Israeli public finances deteriorating so rapidly, more rapidly than many other countries suffering the same coronavirus shock. If we are unlucky and the coronavirus returns in a second or a third wave, Israel won't be starting from the same robust position of resources.

The coronavirus crisis could have been the time for Netanyahu to demonstrate real leadership at the head of authentic, mission-focused national unity government. To Israel’s misfortune, it seems Netanyahu some time ago jettisoned his Churchillian side for his Nixonian one. An economic crisis is going to be made worse by needless polarization and political maneuvering.

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