The Bottom Line / Market's Stroke

In the morning, the market responded with restraint. Later it started to drop. Sometimes understanding economic-political processes takes time.

In the morning, the market responded with restraint. Later it started to drop. Sometimes understanding economic-political processes takes time.

For the past three years, there was compelled cooperation between Prime Minister Ariel Sharon and former Finance Minister Benjamin Netanyahu. Despite their mutual loathing and Bibi's occasional efforts to topple Sharon, in practice, cooperation was created that saved the economy. Netanyahu carried out an economic revolution: he cut the budget, cut welfare subsidies, lowered taxes, and implemented reforms. At the same time, Sharon succeeded to cut back terror, carry out the disengagement from Gaza, and create an atmosphere of heading to a political solution, which lowered the economy's risk level and restored the flow of tourists and capital. That is how the pair created the resumption of economic growth: from negative growth in 2002 to the fastest growth in the West: 5 percent a year.

This collaboration is clearly over. Bibi no longer will reign in the treasury, and the prime minister can joke when asked tough questions about his health. In other words: risk in the economy is up. Kadima is a party of one man, who until now has exuded stability and a willingness to negotiate. But the stroke raises the question: Can Sharon continue to work full speed ahead for long hours? Can he continue to control, conduct, initiate and handle political negotiations? That is, after all, his main contribution to the economy, and that's no small task for even a completely healthy person.

The probability of Sharon having another health crisis has increased, and could even snowball into an economic-political crisis. In other words, the risk level in the economy has risen.

Brokers are broadcasting "business as usual," and sending "all-clear" signals to the financial market. That's no surprise. Optimism is good for business. But it is impossible to ignore the fact the stock exchange is at a record high. The greatest possible optimism is priced into stocks: continued growth, continued tourism expansion, continued respite from terror, and entry into negotiations. In record situations, markets look for reasons to take profit. And reason there is.

War is on

If the treasury budgets director Kobi Haber could, he'd cut the week by two days and fast forward straight into Thursday. Because until tomorrow, members of Knesset can keep going wild and ratify privately-sponsored legislation that is "good for the people," in other words, good for their constituencies, a trend that gains momentum as elections approach.

MKs have no budget limits and priorities. Each of them tries to prove his worth, and doesn't care about the deficit and its implications. Battles are waged in various committees, and the budgets division has three lines of defense.

The first is preventing or cutting back the bills. The second is the preliminary reading. If a bill only passes a preliminary reading, no big deal; it is automatically expunged at the end of the term. The third line of defense is the first reading. If legislation passes the first reading, then debate on it will continue in the next Knesset, which Haber is trying to prevent.

But if someone gets their bill past second and third readings, that's a failure for the budgets division and finance minister. This still hasn't happened, but there are two more days, and the battle continues.

The current situation is particularly difficult because there is no coalition to curb parliamentarians' generosity. The coalition consists of just 14 Knesset members, so a lot hangs on three MKs who are showing responsibility and preventing a budget disaster: Knesset Speaker Reuven Rivlin, Likud whip Gideon Sa'ar, and Agudat Yisrael's Yaakov Litzman, chair of the Knesset Finance Committee. Rivlin and Sa'ar are acting out of responsibility. Litzman got some of his demands for budgets for yeshivas and ultra-Orthodox education, which may have turned out to be one of the best investments.