Netanyahu: Israel Has No Need to Overhaul Economic Policies

Prime minister pledges caps on fiscal spending while breaking up cartels; visiting OECD chief says he is bullish on Israel

Prime Minister Benjamin Netanyahu said yesterday the policies that have kept the economy growing faster than the OECD average remain the right ones for the future.

"Israel up to now has done better than most of the OECD countries, indeed than most countries .... We've done better because we maintained the right policies. We had greater growth than the OECD. We have much lower unemployment. We added 250,000 jobs in three years," Netanyahu told a press conference attended by OECD Secretary-General Angel Gurria.

"The policies that have worked for us so far are the policies that will work for us in the future: control spending, be careful and responsible, encourage growth, enact reforms."

Netanyahu, Finance Minister Yuval Steinitz and Gurria met to discuss the world economy and developments in Israel. Gurria also met with President Shimon Peres and the governor of the Bank of Israel, Stanley Fischer.

Netanyahu did not provide specifics about his plans for the 2013 budget or say whether tax increases were in the works, but he said his policies would continue. "Break up cartels, break up monopolies, control government spending, and don't tax yourself to a recession," he said.

Netanyahu also talked about implementing reforms to lower the cost of living. "There's no contradiction whatsoever between the right growth market policies ... and social justice. They go hand in hand," he said. "The greatest danger that I see in Israel is the thinking that says that there is a contradiction."

According to Steinitz, "We received a very severe warning that the global crisis has not only not disappeared, but there is a very real danger that it will [worsen] and that the threat to our national economy and to the citizens of Israel still exists. Therefore, our main mission was and remains ... reasonable growth ... along with low unemployment."

Referring to advice given by Gurria, including a reasonable deficit that remains under control, Steinitz added: "If you do not maintain budgetary responsibility ... you will endanger Israel's economy and its citizens."

Gurria praised his hosts. "They have done very well, exceptionally well, in a very, very difficult world economy. The fact that you grew at all in a year like 2009 - you were in decline and then you recovered very fast to close to 5% in 2010 and 2011. You're going to be above 3% this year, closer to 4% next year. This is quite exceptional, and it is double or triple, depending on which part of the world you see, in terms of speed," Gurria said.

"We are also looking at relatively tame inflation numbers. The unemployment rate is coming down. You just saw what happened with the United States last week. It went up. In Europe, unfortunately, it is still going up, closer to 11% in the euro area on average," he said, noting the particularly bad youth unemployment in some OECD countries.

Hope for Europe?

Spain and Italy are doing all the right things and there is no reason they should be paying such high interest rates, Gurria said. He said Europe would end up stronger at the end of the debt crisis.

"There is no reason why Spain should be paying 7%; there is no reason why Italy should be paying 6 1/2% for their money when they are taking all the right decisions in terms of the constitutional budget amendment," he said.

"They are working on their flexibility in their labor markets; they have increased their retirement age."

Spain's borrowing costs have soared to around 6.6% for 10-year bonds with the risk premium over safe haven German Bunds reaching a euro zone record. Italian yields also passed 6% recently on benchmark 10-year debt at auction.

The Europeans "created a common currency, they did not create a common fiscal mechanism. Now they go back to fix that question and now they are trying to deal with the consequences," Gurria said.

"So I think Europe will in the end be stronger than it is today and will have stronger institutions. It is the meantime that we have to deal with."