All That Glitters / Worried About Europe? You Should Be

Anyone working at a company that exports or is involved in international activities will probably be quite concerned.

How does an Israeli feel about the economic crisis hitting Europe? As far as we know, no such survey has been conducted, but several assumptions could be made based on the principle: "Tell me where you work and I'll tell you what you think."

Anyone working at a company that exports or is involved in international activities will probably be quite concerned. If the crisis in the euro zone persists, it will weaken the global economy and affect him directly.

employment agency in Spain - Bloomberg - 15112011

Anyone dealing with the local market will probably be less concerned, presuming perhaps that it's all very remote.

That's a mistake: The moment thousands of Israelis earning a living directly or indirectly from exports start feeling the pinch, everyone else will have it tougher too.

Those included among the hundreds of thousands of secure, well-connected Israelis working at government agencies and large monopolies are probably blase about the matter: They think they're immune to such events, as evidenced by the 2008 crisis.

People working for the ports, the Israel Electric Corporation, banks, monopolies, the civil service and the defense establishment think their jobs and salaries are guaranteed. They might even view the European crisis as an opportunity - like a cheaper deal on their next ski trip to Europe.

But the complacent local market operators, the indifferent well-connected employees, as well as the politicians and decision-makers are ignoring another grave danger: The crisis in Europe could wreak long-term damage on Israel.

A need to restore growth

Europe is now at a crossroads. One possibility is a breakup of the euro zone back into its constituent parts, with a resurgence of national and economic rivalries and an even further deepening of the crisis. This scenario could only worsen the situation for everyone worldwide, including Israelis. The other option, more reasonable, is for European countries to buckle down and deal with at least some of their ailments, economize - and set off on a new path.

Most economists today agree on at least one thing: Digging out of the severe debt and unemployment crisis gripping some of Europe's countries requires them to restore growth. To do this, they need to be more efficient, open up closed markets, and change substantial parts of their socioeconomic structures.

In Spain, for example, the older and graying generation of civil servants enjoys high wages and total economic security, meaning they can't be fired. In 2009, their real income rose 3.2%, while the country's economy shrunk by 3.7%, according to The Economist. Meanwhile, half the people there under 30 years old who can work can't find any.

It is said that in Rome, Italy's capital, there are more lawyers than in all of France. Despite this, they claim, the legal system is so slow that "they throw you in jail when you're charged and release you when you're convicted."

How can growth be restored? Through far-reaching reforms and a drastic increase in efficiency in both the public sector and extensive parts of the private sector that benefit from special conditions under government sponsorship.

The only medicine for the ailing Europe known to economists and historians is reduced public spending, in combination with reforms and increasing efficiency - including updating the welfare state model that many of Europe's countries adopted in the second half of the 20th century.

The ability of European countries to introduce the changes, however, is uncertain. These will hurt the connected classes who, as every Israeli knows, don't like the idea of losing their privileges and can be expected to exercise all their political clout to keep reforms at bay.

At this point, it seems Europe is starting to internalize the need to economize: The prime ministers of Greece and Italy resigned last week, and technocrats whose job it is to fix the economy were chosen to replace them. Surveys in Spain project a conservative party with a stringent economic agenda soon taking power.

Europe could become more efficient

This shouldn't surprise anyone: In 1985, Israel, in the midst of an economic crisis and triple-digit inflation, put together an economic plan that achieved much since then. Sweden built a new financial system that successfully weathered the 2008 global crisis after suffering a deep banking crisis in the early 1990s.

Where does this leave Israel?

One possible outcome is that Europe will become efficient and enjoy economic expansion after a period of reorganization and reforms, while Israel remains at a standstill, allowing its problems to fester until finding itself, once again, left behind. It won't be the first time: That was the situation in the 1980s and 1990s, and also in the first half of the last decade.

The tent protests and giant rallies in Tel Aviv, combined with the situation in Europe and the United States, should have given us a sense of urgency. But the well-connected and special interests have managed to distract public opinion in the meantime - by playing up threats to national security, for example.

If a survey were to be conducted, it would probably find that most Israelis think the protests haven't led to any substantial change in the country and that everything will remain the same. If this is true, then apparently the crisis wasn't severe enough. All the inevitable reforms and required changes will come only after the next crisis, which will be stronger, deeper and more painful.