Bottom Shekel / Keep Your Fingers Crossed That No Rockets Land in Tel Aviv

We can reasonably predict that nobody's dealing with the compensation issue right now, but even though precedent was set in the north after the Second Lebanon War.

NIS 3.5 billion - that's the amount of reparations that the state paid to employees and businesses in the north after the Second Lebanon War. In hindsight, some would say that it was the best NIS 3.5 billion the state ever spent. The money helped the residents of the north rally after the war, and helped spur consumption, which had been one of the war casualties.

The fact that the economy grew like a weed in 2006 despite the war can be attributed, among other things, to the Keynesian move of compensating citizens for war.

This time around, the government has been lauded for the speed of its movement to help civilians during Operation Cast Lead. It seems the government learned lessons from the failures of the Second Lebanon War, and responded efficiently this time to attacks on the home front. But the very promptness of its response to the myriad issues that residents of the south face is liable to raise false expectations about that knottiest issue of them all: Whether, when, and how much reparations residents of the south will receive.

We can reasonably predict that nobody's dealing with the compensation issue right now, but even though precedent was set in the north after the Second Lebanon War, it doesn't mean that compensation will be given following Cast Lead.

Why? Three reasons. The first touches on timing.

The state, actively encouraged by employers in the south, doesn't want to make an early offer of compensation lest it be seen as giving employees justification to stay at home.

The state closed the schools, thereby forcing many parents to stay home. But it still wants these parents - and certainly those not parents of small children - to strive to keep to their normal routine in the south, and sustain economic activity. A premature compensation agreement would thwart its drive to maintain economic activity.

The second problem is assessing the damage. Because of time pressures, among other things, a simple, easy-to-measure compensation mechanism was drawn up after the Second Lebanon War, based on the decline in business activity. It was a correct measurement for that year, when the economy was flourishing, making it easy to assume that any detriment to economic activity in the north could be attributed solely to the effects of the war.

The problem is that this assumption is no longer correct in 2008, when businesses all over the country - not just in the south - are experiencing plunging revenues as a result of the economic crisis. It's all but impossible to differentiate between damage to businesses in the south from Cast Lead and damage caused by the economic situation. The government can't have businesses roll their recession-related troubles onto it. It is therefore likely to reject a drop in revenues as the criterion for compensation, which will to complicate the compensation mechanism.

The third, and most important issue is the scale of the damage - that is, how far the Hamas rockets will reach. To date the economic damage in the south from Cast Lead is far more limited than that sustained in the Second Lebanon War. During the latter, economic activity was completely paralyzed in a third of the country, including the city of Haifa.

Missiles may have reached Ashdod, Yavneh and Be'er Sheva, but the scope of economic damage is smaller, so far. This ought to make payment of reparations simpler, since the smaller the compensation, the easier it is for the state to bear the cost.

But as the range of Hamas rockets expands, the chances of the state being able to bear the cost of reparations diminish. One single rocket on Tel Aviv, the nerve center of the Israeli economy, will put an end to any question of reparations, because it will mean that every citizen of Israel is a victim of the war, and payment of reparations would be entirely paradoxical. Taxpayers will use tax money paid by themselves to compensate themselves.

When everyone is paying themselves, compensation loses its meaning. As a result, the moment the war expands to the entire country is the moment that each and every citizen of the country will have to absorb their damage on their own - just as every citizen will have to absorb the damage from the intense recession that the economy suffered as a result of the wave of suicide attacks in the second intifada.

And so, the crucial question in the compensation arrangement for residents of the south is whether or not a missile reaches Tel Aviv. They should keep their fingers crossed.