Steinitz Advocates Defense Cuts, Fears Importing American Crisis

Steinitz knows well he is taking over as finance minister at a difficult time, in the midst of a raging crisis featuring mounting unemployment and a huge budget deficit.

Two months ago, in a chance encounter in the Knesset corridor, MK Yuval Steinitz was asked what job he wanted in Benjamin Netanyahu's cabinet. Steinitz answered: "Defense, finance or foreign affairs."

The questioner was taklen aback by the answer. All wer senior ministerial positions, for which the comeptition was fierce, and Steinitz had no prior experience as a minister. But Steinitz confidently added: "Netanyahu promised me, and he will keep his promise."

Late Monday night it turned out Steinitz was right. Netanyahu preferred Steinitz over other politicians for the post, because of his relations of trust with Netanyahu himself and with his wife Sara.

Another reason Steinitz's appointment surprised other senior Likud politicians, as he lacks any formal economic training. Steinitz holds a doctorate in philosophy. He has however learned rudiments of economics and studied the pressing economic problems over the past few weeks in his role as head of Netanyahu's 100-day transition team, which shaped policies to be implemented immediately.

But yesterday, just before the Knesset debate before the swearing-in of Netanyahu's new cabinet, his office announced that Netanyahu would also serve as Minister for Economic Strategy, and would formulate economic policy and head the socioeconomic cabinet.

"I see my appointment as a huge vote of confidence," Steinitz said. "One of the main tasks facing us is dealing with the economic crisis, and I will do so. The prime minister will head the socioeconomic cabinet, and we will work in close cooperation... I am very proud of the faith he has in me."

Steinitz knows well he is taking over as finance minister at a difficult time, in the midst of a raging crisis featuring mounting unemployment and a huge budget deficit. But he also understands that little Israel cannot allow itself to act the way Barack Obama does in the United States: Israel can't afford to increase spending. It can't afford a huge deficit.

Speaking recently on the crisis, the new finance minister said he found developments win the U.S. and Britain "horrifying." Hundreds of billions of taxpayer dollars are being spent at the expense of future generations, he said: "We mustn't reach the state of the U.S. We have to intervene in a limited time and way."

Like Netanyahu, Steinitz believes in budgetary discipline. He advocates cutting the defense budget, and also in blocking wage raises in the public sector to the deficit in check. Private-sector salaries have gone down, and they need to do so in the public sector, he says.

The Israel Defense Forces' argument that career soldiers need to be paid handsomely in order to compete with high tech doesn't apply any more, Steinitz says. If anything candidates are fighting for army jobs. The same goes for academia, he says.

As to the economic crisis: "Israel has three advantages over the rest of the world: The banks are operating properly, total public savings are higher than the debts and the crisis arrived here late, so we could see the storm in advance and prepare to handle the damage."

Steinitz did not wait for Knesset approval before getting down to work. Yesterday, even before Netanyahu presented his cabinet, he started meeting with senior officials from his new ministry. Their first and most urgent task is to pass the 2009 budget while preparing the framework for a 2009-2010 two-year budget. This is being done while putting together a coherent economic policy and implementing it.

Steinitz is considered a defense expert, having served as the chairman of the Knesset Foreign Affairs and Defense Committee, but he has agreed to the treasury's proposal to cut NIS 2 billion in defense spending this year. "There is no choice but to make intelligent cuts in defense," he says.

Netanyahu's decision to serve as minister for economic strategy will affect Steinitz's standing, as those who are unable to persuade the finance minister can now appeal over Steinitz's head to Netanyahu, who will also chair the socio-economic cabinet. This will leave Netanyahu the final say in economic matters and could weaken Steinitz's position.