Opinion

Early Elections in Israel: It’s Not Just Hamas, Stupid

Bibi has retained his hold on power thanks to a strong economy. He should be grateful to Lieberman for forcing an election before it all goes bust

Prime Minister Benjamin Netanyahu and Finance Minister Moshe Kahlon, July 25, 2018.
Alex Kolomoisky

It’s easy to imagine a grimace on Netanyahu’s face as Avigdor Lieberman announced that Yisrael Beiteinu was leaving the coalition. It’s not just that Bibi lost a pliable defense minister and was left with a bare majority in Knesset; in addition, it almost certainly means early elections.

And not the kind of election Bibi wants. Lieberman gave nothing less than a campaign speech drawing a sharp line between himself and the prime minister about how to deal with Hamas. Logical and strategic as Bibi’s restraint may be, it’s enormously unpopular with the public and not the kind of issue he wants at the center of an election campaign.

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Worse still, whether or not Gaza will be on their minds hinges a lot on Hamas’ behavior. Incendiary balloons and a steady stream of rocket attacks will be enough to keep it on the agenda and leave the prime minister with the lose-lose proposition of continued restraint or risking a war that could hurt him politically, even more if it goes badly.

But there’s a good case to be made that Netanyahu should be grateful to Lieberman for pushing him into an election now.

Netanyahu sees himself first and foremost as a diplomat and statesman, and his record has been good. He guided Israel through the Arab Spring without getting us entangled in wars, he has finessed a warm relationship with Putin and fostered closer ties with China and India. More dubiously (but in any case successfully), he blocked Obama’s efforts as peace.

When it comes to economic policy, Bibi has been content to leave the work to a succession of finance ministers whose performance has been mediocre. Nevertheless, the economy has happily chugged along through most of the Netanyahu years.

The last time Israel experienced a real recession was more than 15 years ago. Unemployment is at a record low. Israel’s high-tech industry has been thriving. Housing is unaffordable, but for the majority of Israelis the Bibi years have been good ones – an era of unprecedented consumerism and wealth. Even many of the biggest blots on the economic record, like high rates of poverty and income inequality, have improved.

Because Israel’s economy has been such a reliable and consistent performer, it’s faded into the background. But prosperity has a lot to do with Netanyahu’s success. It’s enabled to him to win elections and to weather police probes, his wife’s and son’s misbehavior, and a deep suspicion from the right that he really isn’t one of them.

I even would argue that the economy has been a key reason why Israel hasn’t joined the wave of populist politics that has overtaken the United States and much of Europe.

Since 2017, Australia has been the world record holder for uninterrupted economic expansion, but Israel is certainly among the world leaders. Alas, it’s the nature of economics that prosperity can’t last forever.

Right now, there is little in Israel’s economic headline figures to cause much worry. The Bank of Israel predicts GDP will keep growing next year at the same pace is has in recent years, and the International Monetary Fund is similarly sanguine about the global economy.

It’s the nature of big institutions, on the record at least, to avoid dire predictions. In October 2007, for instance, when the world economy was on the edge of the precipice, this what the IMF had to say: “Although turbulence in financial markets has clouded prospects … the baseline projection for 2008 global growth has been reduced by almost half a percentage point relative to the July 2007 World Economic Outlook Update. This would still leave global growth at a solid 4.75%.”

To be fair, the IMF warned then about growing “downside risks,” which is what it did in its latest report, too. Those are, among other things, the impact of Trump’s trade wars and growing levels of debt whether it is held by U.S. corporations or by China. By cutting taxes, Trump is presiding over a dangerous fiscal expansion.

In Israel, the labor market is tapped out, and consumers are spending heavily. Our import bill is rising rapidly, far faster than export growth. It all points to a fin de siècle for a long era of prosperity. One wrong move by Trump or a sudden turn lower on Wall Street will quickly expose Israel’s weaknesses.

A decade ago, Israel stayed aloof from the global recession thanks to a current account surplus, restrained government spending and a conservative banking industry. The Bank of Israel kept economic activity going by cutting interest rates.

If the world economy goes bust now, Israel won’t be in as good a position to insulate itself. Finance Minister Moshe Kahlon has pursued a fiscally expansionist policy, causing the deficit to balloon. Interest rates are close to zero, depriving the government of the tools it will need to cope with a downturn.

Kahlon himself hinted at the risk on Thursday, although he put the cause and effect in reverse. He said early elections were good for the economy; I’d say the economy is good for early elections, because if Bibi waits too long, he may find himself with both the economy and Gaza working against him.