Exporters Bracing for European Meltdown

As global markets sway during the Greek debt crisis, Israel's exporters are preparing a contingency plan, including for the possibility that the euro zone may collapse entirely.

As global markets sway during the Greek debt crisis, Israel's exporters are preparing a contingency plan, including for the possibility that the euro zone may collapse entirely.

Shraga Brosh
Tomer Appelbaum

"Greece isn't the only country facing problems," said Manufacturers Association head Shraga Brosh over the weekend. "It could affect the banking system, since banks have stopped giving [European countries] credit and are demanding that they repay their debts. This process could cause a credit crisis that affects businesses and causes a recession. Therefore, we have to prepare for a scenario where the entire European economy collapses."

The crisis in Europe exacerbates the problems exporters are already facing due to the strengthening shekel, which makes Israeli products more expensive abroad, said Brosh. "I hope that the Bank of Israel governor won't raise interest rates, because then foreign exchange rates will continue tumbling against the shekel," he said.

The euro fell to a seven-year low against the shekel, at NIS 4.686.

Ami Arel, chairman of the Israel Export Institute, is also concerned; has has asked the government to increase its budgets to assist exporters targeting the Far East. He has discussed the matter with the Prime Minister's Office, the Finance Ministry and the Industry and Trade Ministry. The institute, which operates under the Industry and Trade Ministry, currently has an annual budget of NIS 30 million.

This program was launched in 2009, in the wake of the global financial crisis, to help Israeli exporters build additional markets while the United States sank into recession. It set its sites on India, China and Brazil, among other countries, as potential export destinations.

"The exporters need to free themselves from their dependence on exports to the West, which is Israel's traditional export market," said Arel. "They need to understand that a market that's not expanding is a dead market, and that the increases in consumption will be in the East."

They'll have to adjust themselves, their products, their marketing methods and their prices accordingly. "A product that could have been sold to Boeing can't be sold tomorrow to China Airlines," he said.

The Export Institute says the crisis may wind up being as large as the 2008 one.

Even if the situation in Europe doesn't get worse, Israel could face problems, said Osem chairman Dan Propper - even as the euro emerges from the crisis, Israel could see layoffs, and the government needs to prepare for that, he said.

The troubles in Europe make it even more important for the shekel rate to remain unlinked to a foreign currency, he said.

"Every global crisis hurts Israel, since foreign trade is the main component giving the economy strength," he said.

Israel's high-tech exports can expect to feel more of a blow than traditional industry - Europeans can survive without them, he said. In addition, the high-tech industry is particularly exposed to the American market, which is also expected to feel the repercussions of the crisis in Europe, said Propper.

"We still don't know how many American banks have bent on the euro or are exposed to European banks," he said.

But Propper doesn't think Israel's government needs to start reaching into its pockets to help exporters. "Israel's economy has protected itself well over the past few years," he noted. "I don't believe in subsidizing exports."

Plus, international trade doesn't permit it, he added.