Israeli economic policy tugged by external, internal forces

LATimes:

With one eye on troubled economies elsewhere and another on protests inside Israel, the government is walking a tightrope these days to balance economic and political needs.

Israeli Prime Minister Benjamin Netanyahu raised the deficit target to 3%, nearly double the government's original target. Netanyahu explained to his cabinet Sunday that this would adjust Israel to the European standard and minimize tax hikes.

Stanley Fischer, governor of the Bank of Israel and one of the world's renowned economists, disapproved and warned that Israel is at a dangerous turning point, partly due to the deepening financial crisis in Europe. Israel's economy weathered the last global recession well, but now, he says, it might not fare so well if the European economy deteriorates.

Nor should Israel count on falling back on the U.S. for guarantees, Fischer said recently at an economic policy planning forum. "There is a problem with our rich uncle today: He is not so rich and not as friendly" as last time," Fischer said, urging the government to set a lower deficit target, cut expenditures and pass a responsible budget. 

In recent years, Israel has adopted a two-year budget. This policy, spurred by finance minister Yuval Steinitz, was designed to streamline expenses and increase governmental stability by sparing the annual ritual of political haggling that takes place as it is prepared each summer. Opponents have complained the two-year budget stifles parliamentary discussion of related policies.

The 2013 budget will be for one year only because of uncertainty that clouds the future of the Eurozone, Stenitz said.

Analysts say it is also because it is an election year, and some have criticized Netanyahu's deficit move as "election economics."

A year ago, socioeconomic protests rocked Israel for months. The protests began with a specific call for affordable housing but rapidly morphed into a movement demanding overall "social justice,"   a more egalitarian distribution of wealth and resources, and reductions in the cost of living.

The government responded with steps that included the expansion of public childcare, government dental care for children, stepped up construction of affordable apartments and increased competition in telecommunications.

Now, social protesters are  emerging from hibernation, claiming nothing has changed. The early attempts to recapture last year's energy faltered until a series of missteps on part of the authorities, including violent arrests and police summons for activists, brought protesters back to the streets.