Opinion

Why Hasn’t the Bibi Brouhaha Brought Out the Stock Market’s Bears?

Netanyahu has been good for the Israeli economy and he will be sorely missed if he has to go, but no one thinks that's happening anytime soon

Prime Minister Benjamin Netanyahu at a local government conference, February 14, 2018: The PM remains popular with his base.
Ofer Vaknin

If you really want to know whether Israel faces political crisis anytime soon over the police recommendation to indict the prime minister,  pay less attention to your TV screens  and watch the Tel Aviv Stock Exchange or the shekel's exchange rate against the dollar.

Admittedly, it won’t be as exciting. The reaction of the financial markets on Wednesday could be summed up as “one big yawn.”

As of late afternoon Tuesday, the benchmark TA-125 index was up, albeit just 0.4%. The shekel slightly weakened against the dollar, which strengthened 0.2%, in keeping with the trend in recent weeks.

It's raining rockets

It’s true that Israeli markets don’t react to geopolitical events, as a rule. At least since the 2006 Lebanon War, the rule of thumb has been that no matter whether it’s Hamas rockets or the Israeli government that’s falling, it won’t fundamentally alter the state of the economy.

Since Israel began climbing out of our deepest recession ever in 2003, its economy has enjoyed nearly uninterrupted growth. Mind you, during that time, Israel fought four wars, held four elections and lost two prime ministers to corruption probes (Olmert) or sickness (Sharon) and the Middle East went up in flames during the Arab Spring and the global economy suffered the deepest recession since the 1930s.  

This Sunday, Israeli stocks dipped, but not because of worries about an imminent war with Iran. It was because of the pullback on Wall Street the week before.

Benjamin Netanyahu’s behavior, as documented in the police report, is nasty, to say the least, although none of it is surprising.

Like the hero of a good novel, Netanyahu has long contended with a tragic flaw: an overwhelming compulsion to enjoy the good life, preferably at someone else’s expense, and an obsession with his media image on par with an Instagram-addicted teenager. It’s corrupt but it’s penny-ante stuff.

Bibi is a tragic figure, but he should be given credit for what he did accomplish.

Israel’s economy is where it is today, not so much because of Startup Nation but for the much more prosaic reason that the government has kept its fiscal house in order. It has runmodest budget deficits and reduced its debt relative to GDP. The government has also been pretty good about opening markets to competition and getting more Israelis into the labor market. It’s building business and technology ties with the emerging world powers of China and India.

Netanyahu deserves as much credit as anyone for this.

It was on his watch as finance minister in the early 2000s that the government began to practice fiscal rectitude and bring social welfare spending under control. If he has lost interest in economic issues over the last few years, at least he has done nothing to disturb the principles he put into place. Meanwhile, Bibi has had the strategic foresight to cultivate India and China.

With Bibi gone

Israel without Bibi may be a better place from the point of view of ethical norms, although you have to look at the rest of the political establishment with rose-tinted glasses to honestly think that things will be much better.

It is harder to imagine that Israel will be better off from the point of view of the economy or geopolitics.

Netanyahu has done his best to ensure there’s no one waiting in the wings to take his place, so the transition to the post-Bibi era will not be easy, whenever it occurs, whether next week, six months down the road when the attorney general decides on an indictment, or year or more away when the inevitable elections occur.  There’s no obvious candidate on the political scene with the political and diplomatic skills Bibi brings to the job, nor the experience or political support.

So why aren’t the markets more nervous? It’s because they know the prime minister isn’t going anywhere anytime soon. He has said as much, but more importantly, no one in the Likud is anxious to topple him and his coalition partners have made it clear that unless he faces a full-fledged indictment, they are staying in government.

There could be an eruption of grassroots disgust over the prime minister’s behavior. Polls show that a majority of the public doesn’t buy Bibi’s line about the police being part of a leftist conspiracy designed to topple him. Most say that he should step down in the face of police recommendations.

Whether that will translate into active protests is another matter. Probably not, because when push comes to shove, the public values effectiveness in its politicians more than it does their ethical standing.

That doesn’t mean Israel belongs in the League of Moral Dunces. Like America, which is being led by someone whose life story is a tale of dubious behavior, the test of a country’s moral character isn’t the behavior of its president or prime minister. Rather, it’s whether its institutions –the police, the courts, its NGOs and its media – call out ethical failings when they happen and act effectively.

This is not a squishy matter of national niceness but whether a country operates according to the rule of law and can contain corruption. A functioning society and economy require both. So far, Israel is passing the test and for that reason alone, the stock market has no reason to be bearish.