Among Israelis who care about the country’s liberal democracy and disgusted by tawdriness in high places, the results of this week’s elections can only be a cause for long overdue cheer. They don’t yet spell the end of the Netanyahu era, but they bring us tantalizingly close. What is harder to explain is why investors and the business community are sharing in the celebration.
The most evident sign of that were the gains on the Tel Aviv Stock Exchange the day after the election. The broadest indices rose about 0.5% and were continuing higher on Thursday while the banking index – widely regarded as a benchmark for the state of the economy – rose no less than 2.3%. Prices for medium- and long-term government bonds advanced more than 1%.
Without besmirching the individual good names of the people who trade securities, the stock market as a whole isn’t driven by ethical values – if war breaks out and shares fall it isn’t because the market is upset over the impending loss of human life but because of its impact on the economy and corporate profits. An investor may not like war, but that is not going to cause him to tearfully sell his shares.
There is ample reason to believe that market players on the TASE are happy on a personal level to see Bibi packing his bags, yet the real reason they are happy with the election results is that it raises the prospect of a national unity government. A unity government, they reason, won’t be blackmailed into making budget-busting promises to its multiple coalition partners and is more likely to adopt long-term policies for the benefit of the economy, especially if it enjoys a big Knesset majority.
All of that could happen, but a day after the election it adds up to a lot of highly premature bullishness. The short-term problem is that Bibi is stubbornly refusing to cede control of the prime minister’s job he’s had for 10 years and seems to regard as his God-given right to keep. I would still give a national unity government the best odds of emerging from the election stalemate. But I would give the second-best odds to going into a third round of elections.
Netanyahu has emerged weaker in election 2.0, but Benny Gantz and Kahol Lavan aren’t appreciably stronger: The center-left has no realistic option of forming a government without Likud and that gives Bibi considerable bargaining power. A third election means many more months of the political paralysis that began when the first election was called last December. It will almost certainly undermine people’s faith and confidence in a democratic system that is preoccupied with running for office rather than governing.
But the markets should be even more concerned, long term, about the impending exit of Netanyahu. The election results that gave no victory to either the left or the right aren’t just a story of bye-bye Bibi; they are a story about a divided Israeli electorate that points distressingly to a new era of long-term political chaos.
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Israel has been a lucky country. We were barely affected by the Great Recession of 2008-09 and didn’t suffer the political fallout in the years that followed. While countries like Britain, Italy, Spain and Greece, and even the United States, have been racked by populist movements and political stalemates, Israel’s politics were a relative sea of serenity. Ten years of Netanyahu may have been too long for many Israelis, but on the practical level of ensuring effective government they look a lot better than suffering the politics of Brexit or Spain’s four elections and four stalemates over four years.
Israel’s strong economic performance is to a large degree responsible for the political quiet we’ve enjoyed. But Bibi is also part of the equation. By virtue of his mastery of the political game, he was able to glide over the divisions in Israel on fundamental issues like religion and state, the Palestinians, the status of Israeli Arabs and the courts.
Those two parts of the equation are at risk of coming to an end.
The global economy is heading into a slowdown that may yet morph into something worse. The problem is magnified by the lack of global leadership (Trump, a Europe preoccupied by internal problems and a China at odds with the U.S.) and the fact that governments and central banks have exhausted the tools they would normally employ to offset a downturn. The next Great Recession is by no means an assured thing, but if it does arrive it stands a good chance of reaching Israel.
Bibi’s exit from the political scene is no less dangerous. Partly due to his keeping a near monopoly on power all these years, no one is waiting in the wings to assume the mantle of leadership inside the Likud or out. Maybe Benny Gantz will prove to have the same political skills Netanyahu has to contain the Israeli ferment. The odds are there isn’t such a person, or that it will take time for him or her to emerge.
In the meantime, in the best of circumstances we may well have a national unity government but one that is drifting and leaderless at a time when the global economy (not to mention the perpetual crisis of regional security) demands action.