Bank of Israel chief warns another election would strike blow to economy

As budget standoff threatens to send country to 4th vote since April 2019, Amir Yaron says reducing political uncertainty would boost market confidence

Amir Yaron, governor of the Bank of Israel, attends a press conference in Jerusalem, March 31, 2019. (Yonatan Sindel/Flash90)
Amir Yaron, governor of the Bank of Israel, attends a press conference in Jerusalem, March 31, 2019. (Yonatan Sindel/Flash90)

Bank of Israel Governor Amir Yaron on Sunday called on the government to swiftly pass a state budget and warned that new elections would have a negative impact on the economy, which is already reeling from the coronavirus pandemic.

The statement came as the country appeared to inch closer to a fourth set of elections in two years as lawmakers from coalition partners Likud and Blue and White began to openly bicker over the burgeoning budget crisis.

The government has until August 25 to approve a budget or it will automatically dissolve.

“The changing morbidity trends and developments in Israel and around the world are causing great uncertainty regarding employment, businesses’ income and government intake and expenses,” Yaron said in a statement.

He said it was therefore important that there be “stability in the conduct of the government and an orderly decision-making process,” saying this would help reduce uncertainty for households and businesses.

“The government must move forward as quickly as possible in determining a clear outline for the state budget and other economic decisions needed at this time,” the central bank chief added.

“Reducing the political uncertainty would contribute to the confidence of the markets in the Israeli economy and improve the ability to deal with the crisis,” he said.

“Further elections would be negative news for the Israeli economy at this time.”

Closed store at the Mahane Yehuda market in Jerusalem on June 3, 2020. (Olivier Fitoussi/ Flash90)

As the coronavirus outbreak hit Israel, the country was put into a lockdown in mid-March that all but brought the economy to a standstill. Unemployment rocketed from around 5% to 26%, and by April, over a million Israelis were unemployed.

Although the lockdown measures were mostly rolled back in recent months, unemployment is over 21%, according to the Employment Services figures on Sunday, with nearly 882,000 people out of work.

Prime Minister Benjamin Netanyahu and Blue and White leader Benny Gantz agreed to pass a budget through 2021 as part of the coalition deal between their parties, but the premier is now demanding a budget that only covers the rest of 2020, citing the uncertainty caused by the coronavirus pandemic.

Gantz is insisting on a budget that runs through next year, citing previous agreements. He is concerned that Netanyahu plans to use next year’s budget talks as an excuse to break up the government to avoid a transfer of power under their premiership rotation agreement.

While Netanyahu has to hand over the premiership to Gantz if he calls new elections before the Blue and White chief takes over as prime minister in November 2021, the coalition deal made an exception for a failure to pass a budget, leading to speculation the Likud leader was forcing the budget crisis now to avoid having to leave office in 15 months’ time.

Netanyahu and Gantz agreed to create an emergency unity government amid the pandemic, after three consecutive rounds of elections — in April 2019, September 2019 and March 2020 — failed to yield a clear winner.

Prime Minister Benjamin Netanyahu, left and Defense Minister Benny Gantz hold a press conference in Tel Aviv, on July 27, 2020. (Tal Shahar/POOL/Flash90)

Earlier Sunday, around 150 leaders from Israel’s business world signed a letter calling on the government to pass a two-year budget until the end of 2021, saying it would help bring economic stability to the country.

The initiative was led by Genie founder Ayelet Carasso, along with Shimon Eckhouse, founder of the aesthetic technology firm, Syneron, and his son, Ronen.

“Everyone understands that, during this period, the government needs most of all the ability for ministries to plan until the end of 2021. This is a vital key to driving the economy and business in Israel. A budget until 2021 will help reduce economic uncertainty,” the letter read.

“We call on all Knesset members and all government ministers to immediately pass the state budget for the remainder of 2020 and 2021. Continue to stand firm on this important decision — do not forget your commitment to the citizens of Israel. They should be the priority and they expect you to do so,” stated the letter.

Genie creator Ayelet Carasso, May 12, 2015. (Screen grab/Reuters/YouTube)

Carasso told the Calcalist financial news site that the signatories were from across the political spectrum.

“We targeted all factions, and there is no political connection here,” Carasso said. “Signatories, entrepreneurs and economists from all sides of the political barricade can be found among the signatories to the letter, because everyone understands that the budget must be passed. If the state was a company it would fire the CEO or close down.”

The letter was signed by, among others, Cellcom chair Ami Harel; Hay Galis, CEO of the Big retail group; Yoel Carasso, chair of Carasso Motors; Giora Inbar; Avner Stepak, one of the owners of Meitav Dash Investment House; entrepreneur Orni Petruschka; Eyal Waldman, founder and chairman of Mellanox; and USB memory stick inventor Dov Moran.

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