The Bottom Line / Instead of Joining Hands

The relations between the central bank governor and the finance minister are tense in every country, and such is the case in Israel too.

The relations between the central bank governor and the finance minister are tense in every country, and such is the case in Israel too. The relations between Jacob Frenkel and Dan Meridor weren't good; the relations with Yaakov Neeman were good; and the relationship between Avraham Shochat and Frenkel had its ups and downs, primarily downs.

But in the darkest periods, there was no break in the daily meetings between Shochat and Frenkel. Moreover, despite the differences of opinions and mutual accusations, Frenkel and Shochat would coordinate positions on numerous issues. They would coordinate the cabinet's sessions on the budget, who would say what, and how they would convince the ministers to vote for the cuts. Their relations never once reached the low that exists today between Silvan Shalom and David Klein.

Immediately on taking office, Shalom began with a series of accusations, charging that the high interest rate to which Klein was clinging was to blame for all the ills of the economy. In other words, the budget that was being constantly amended, the deficit that kept growing from one austerity plan to the next, the non-existent reforms, the war in the territories and the terror attacks in the streets had no effect on growth and unemployment. So then what did? The interest rate of Klein the terrible.

Klein began fighting back pretty quickly. Through a long and never-ending series of statements, articles, comments and interviews, the governor blamed the crisis gripping the economy on the treasury, the size of the budget, the depth of the deficit, the surplus in government spending, and the ever-increasing government debt.

And so, their relations went from bad to worse, until the absolute break that came when Shalom decided to pass the Board of Governors Bill some three months ago. The first version of the bill was extremely radical, and had it passed into law, it would have meant the end of the Bank of Israel as an independent entity.

Shalom tried to get the proposal through the cabinet and the Knesset as fast as lightning, within four days, prior to the legislature's winter recess. According to the bill: The board of governors would have been appointed, for the most part, by the treasury; its objectives would have been in line with the will of the treasury; and even the protocols of its meetings would have been transferred for review to the treasury.

This extreme version underwent some softening and was approved by the cabinet much to the dislike of the governor. Now, it lies on the agenda of the Knesset. The softened version also constitutes a bad law, which prejudices the independence of the Bank of Israel and undermines its central aim - the war on inflation.

Klein cannot absorb such a blow; and the truth is, the State of Israel has not committed such a heinous crime to deserve such awful legislation. Therefore, it is not enough for Shalom to declare that he wants to "join hands" with the governor. He must also take action. In other words, he must retract the Board of Governors Bill and, together with Klein, formulate completely different legislation.