On July 28, Governor of the Bank of Israel Prof. Stanley Fischer, the Israeli government’s economic advisor, made one of his angriest and harshest speeches since taking up his post. He was not satisfied with criticism of Prime Minister Benjamin Netanyahu and Minister of Finance Yuval Steinitz for their fiscal policies, but made an unprecedented rebuke. The power of his remarks was extraordinary to the point that immediately following this outraged speech at the Caesarea Forum, rumors spread that he was on his way out.
“We must, then, set the deficit at 2.5% of GDP. Why specifically 2.5%? Because then we will send a message that the budget is under control, and that we plan to act as a responsible and organized country, like Finland, and not like the weaker countries in Europe. We must present a realistic budget that will convince the markets, and the citizens, that we intend to continue to maintain the economy’s resilience in the coming years. This strength is no less important a factor in the growth and prosperity of the country than military strength,” he said.
Netanyahu and Steinitz listened to Fischer, and in an act of political suicide, they submitted an austerity fiscal package to raise NIS 10 billion in new taxes, in real terms. Without going into the details of the fiscal package, this was an act that Fischer later admitted he never thought would happen, especially because this is an election year.
Yesterday was Fischer’s turn to repay them both. After threatening that budget cuts must be made and that the budget deficit and framework must not be breached, otherwise the economy would go into free fall, he had to explain that the defense budget must not be increased, otherwise civilian budgets would have to be cut, the deficit would grow, bond yields would soar, Israel’s credit rating would be downgraded, and a financial crisis would be an accomplished fact.
But Fischer failed. He did not arrive prepared for the cabinet meeting on the defense budget, and he did not know the material. One of the most accomplished professionals who has ever held a public position in Israel should have turned up with an organized and sweeping position, especially since the fate of the Israeli economy was on the agenda…Read More>>