The relationship between Prime Minister Ariel Sharon and Minister of Finance Benjamin Netanyahu reached boiling point yesterday, in no small part thanks to a headline by one political commentator, who crowned the prime minister "Sharon, head of Netanyahu's government."
Something got out of whack big-time in Israeli politics last Friday. Although the prime minister had already made some mistakes, beginning with the referendum on his disengagement plan among Likud party members, the time has not come to dismantle the winning economic duo Sharon & Netanyahu. There might be problems, but firing the finance minister would be a strategic decision, since Netanyahu won't leave voluntarily.
Despite the mistakes, one should give Sharon credit for improving the economic situation over the past 18 months. The improvement can largely be attributed to the cessation of terrorist attacks in Israel's cities. The ability to prevent the kind of suicide attacks on buses, in markets, and in malls that harmed Israel's growth in 2000-01, is now behind the current economic growth. Terrorist attacks, regrettably, persist periodically in the settlements in the territories, along the Green Line, and in Jerusalem, but surveys show that their impact on Israel's economy is small, nor are they deterring tourists and foreign investors.
It is impossible to take away from Sharon his due. Without the decline in terrorist attacks in the cities, there wouldn’t be any tourists in Israel, nor would there be large-scale internal tourism. The malls would not be full of shoppers, after standing silent for three years. The flow of foreign investment, now amounting to billions of dollars, is related more to the recovery of global high-tech; but without the security calm and the political and personal support for Sharon by President George W. Bush, foreign investment would only be a dribble.
All these factors account for at least half of the annualized 5.5% GDP growth Israel posted in the first quarter of 2004.
On the other hand, it is also impossible to ignore Netanyahu's contribution to renewed growth, either. Most important was the recovery of Israel's standing in international markets, which was severely hit by the three years of the intifada. Netanyahu's reforms and specific measures on the budget and labor market will bear fruit in another quarter or two, provided that the economic policies continue. Netanyahu's presence as finance minister, and the introduction of international economic norms, broadcasts credibility and determination to the markets.
Netanyahu has won the support of the capital market, where the relative calm of the past few days testifies to a belief that there is little likelihood that Sharon will go so far as to fire Netanyahu, and that the current crisis will end with a handshake, if not a political hug.
For better or worse, as far as the markets are concerned Israel has a winning combination in power, with each member of the pair dependent on the other.
Published by Globes [online] - www.globes.co.il - on May 31, 2004