In Appointing the New Central Bank Chief, Bibi Just Followed the Media

The prime minister's chair is more important to Benjamin Netanyahu than the economy, and Israel's newspapers had turned against him.

Prime Minister Benjamin Netanyahu has done it again; as in the old Jewish proverb, he ate the stinking fish, got beaten up and was chased out of town.

He dragged the appointment of the new Bank of Israel governor on for four months, proving that his decision-making abilities are flawed. His actions have formed a pattern: What you can't put off to tomorrow, put off to the day after tomorrow.

He insulted three senior economists by forcing them to go through the ordeal of the committee vetting top civil-service candidates. He humiliated Karnit Flug by basically declaring that she wasn't a serious candidate, then he did a double backward somersault and appointed her to the post. He didn't even bother to tell Finance Minister Yair Lapid of the change, making a laughingstock of Lapid, who had declared on television Saturday that there was no chance Flug would be appointed the next day.

Now the Prime Minister's Office is spinning tales about the change Netanyahu underwent, but the truth is he didn't want Flug appointed even as he approved the move. All Netanyahu's moves in this farce were forced by default. He realized that the media was turning against him and that he had to cut his losses. The prime minister's chair is more important to him than the economy or the Bank of Israel governor, so when push came to shove, Flug was the only remaining candidate whom he and Lapid could agree on.

Netanyahu was against Flug for serious reasons. Their ideologies clash. Flug is one of those who believes in constantly increasing government spending, which requires tax rises. That strategy led to an exaggerated annual budget increase of 3.3 percent and a huge deficit that triggered a budget crisis. Netanyahu believes in the opposite: a small, efficient budget in which taxes are cut, not increased. That was his modus operandi when he was finance minister in 2003, as he cut taxes and made sure the budget didn't grow more than 1 percent annually.

Flug, who headed the central bank's research department at the time, opposed Netanyahu's program, which included reforms and privatizations. But the facts speak in favor of the plan, and the economy moved from recession to impressive annual growth of 5 percent.

Moreover, Flug's department didn't properly deal with the huge monopolies. She didn't investigate the damage caused to exports by the ports, or the problems afflicted by the Israel Electric Corporation's inefficiency, the airport monopoly, the Israel Land Administration's slowness in releasing land, and the eternal tenure of public-sector employees.

Such research was never carried out at the Bank of Israel because it too is a huge government monopoly whose employees enjoy lavish salaries and benefits. Naturally, they didn't want to rock the boat. There's the rub: Netanyahu still wants to reform the state-owned monopolies; that's the reason for the chasm between him and Flug.

Personally, Flug is honest, humble, experienced, hard-working and amiable. But she has specialized in the labor economy, not monetary policy. She's not particularly charismatic, she's not a leader and she's not a strong person. Can she grow with the post and resist the pressure? Can she stand up to business leaders when there's a need to raise interest rates?

We should wish her luck. If she fails, we'll be the ones eating the stinking fish, getting beaten up and being chased out of town.

Tomer Applebaum