Analysis

How Lieberman’s Resignation – and Early Elections – Could Save Israel’s Economy

From the moment that Lieberman resigned, the financial professionals have been watching with concern: a stressed prime minister, and an even more stressed finance minister, are not an auspicious way to start the year

Israeli Defense Minister Avigdor Lieberman speaks during a press conference at the Knesset in Jerusalem on November 14, 2018.
Menahem Kahana/AFP

Avigdor Lieberman did what he thought was necessary, and resigned.

For Lieberman, the timing couldn’t have been better: One day after a cease-fire was reached with Hamas in the Gaza Strip, the defense minister’s announcement hit Prime Minister Benjamin Netanyahu from the right, as Lieberman presents himself as a “politician with principles.”

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Less than a day after his associate Moshe Leon was elected mayor of Jerusalem, Lieberman is departing as a politician who scored an important accomplishment, and after managing to strike a political deal with the ultra-Orthodox parties. Whether that partnership will hold up once the interests in Jerusalem are no longer relevant is yet to be seen.

Lieberman is leaving behind a lot of rubble that will need to be cleared. Uncertainty raged, and Netanyahu is just as likely to call immediate elections as he is to continue in his coalition with a paper-thin majority and to hold the defense portfolio himself.

It’s best that he call elections now. In any case the political establishment has spent months waiting for elections to be called; no one believes the government will hold out until the official election day in November 2019. Lieberman is only expediting a foregone conclusion.

It’s also the best choice for Israel’s economy. The uncertainty regarding the timing of the next national election will end, and the competition between politicians over who can propose the craziest, least responsible bills and cabinet resolutions will end.

The other option, of the current government plodding on, seems less reasonable, even though this seems to be Netanyahu’s preference. Netanyahu is very much against having Lieberman set the timing of elections for him, and being forced into an election campaign where he’s painted as weak and capitulating to Hamas.

This latter option is causing Israel’s budget and finance professionals to loose sleep, since this would mean the government losing all restraint in its financial decisions.

Here are only some of the government’s irresponsible decisions: Enabling a chicken cartel, enabling mortgages of up to 90%, preventing competitive cement imports, giving in to the police’s salary demands, and significantly increasing the defense budget in order to restore Netanyahu’s image as “Mr. Defense” — all these are liable to make 2019 an endless election year as all limits are breached. The damage to Israel’s economy could be massive. Meanwhile, the politicians have stopped worrying about adhering to the budget deficit target.

For this reason, from the moment that Lieberman resigned, the financial professionals have been watching with concern. A stressed prime minister, and an even more stressed finance minister, are not an auspicious way to start the year. Israel may be overshooting its deficit target for 2018, at 3.1% to 3.3% of gross domestic product. We may yet miss that figure next year.