Bankers said to warn Smotrich judicial shakeup already causing economic fallout

Leaders of Israeli banks tell finance minister funds are flowing out of Israel at a rate 10 times higher than usual due to jitters over government legislation, instability

Workers from the tech sector protest against the government's planned judicial overhaul. The signs say, 'No freedom, no high tech,' and 'Tech workers protest.' Tel Aviv, February 7, 2023. (Tomer Neuberg/Flash90)
Workers from the tech sector protest against the government's planned judicial overhaul. The signs say, 'No freedom, no high tech,' and 'Tech workers protest.' Tel Aviv, February 7, 2023. (Tomer Neuberg/Flash90)

Leading bankers warned Finance Minister Bezalel Smotrich on Tuesday of potential damage to the economy caused by the government’s moves to curtail the judiciary.

During a tense meeting, members of the Association of Banks in Israel said they had seen early signs the planned legislation will damage the economy and urged the coalition to adopt a compromise plan proposed by President Isaac Herzog, Hebrew media reported.

The bank chiefs previously issued a letter in support of Herzog’s proposal.

Uri Levin, the CEO of Israel Discount Bank, said during the meeting that he was deeply concerned about the economic impact of the overhaul, and was already seeing fallout.

“There are negative indications. We see a ten-fold increase in interest in opening savings accounts in foreign banks. The shekel is growing weaker, Israel’s risk factor is rising and our stock exchange is doing worse than others around the world,” he said, according to Channel 12. “The market is based on trust and if we don’t stop it now we may find ourselves in a deep crisis.”

Levin’s concerns were reportedly echoed by other top bankers.

Another attendee reportedly said, “Money is leaving Israel at a rate ten times higher than usual.”

Smotrich reportedly dismissed the warnings and accused the bankers of having double standards.

“Your job is to calm the discourse. You have a responsibility as bank managers. I don’t remember you expressing worry about the Oslo Accords or the evacuation of Gush Katif,” said Smotrich, who heads the hardline Religious Zionism party, referring to communities pulled from Gaza in the 2005 disengagement.

He insisted the judicial overhaul will strengthen the economy by decreasing legal interference in business deals.

“We will prepare a responsible budget, focused on growth, which will include many reforms. We won’t go over budget and there won’t be excessive spending on the coalition,” Smotrich said.

The Finance Ministry said in a statement that the bankers “discussed with the finance minister economic issues at hand and presented him with an up-to-date picture of the situation.”

The meeting included leaders from Bank Hapoalim, Bank Mizrahi, Israel Discount Bank and the First International Bank of Israel.

Minister of Finance Bezalel Smotrich attends a Finance Committee meeting at the Knesset in Jerusalem, on January 10, 2023. (Yonatan Sindel/Flash90)

The government’s push to severely weaken the judiciary has sparked mass protests, fierce pushbank from the opposition, worker strikes and warnings from business leaders.

In recent weeks, tech companies, moneymakers, business organizations, policymakers, and prominent economists have repeatedly warned that the judicial overhaul plan, which they say threatens democracy, will hurt Israel’s standing as a stable hub for investments.

Many fear that a weakening of the judiciary system will create uncertainty and reduce the likelihood that foreign investors will inject funds into local companies. This in turn could force local and international businesses to leave and set up shop elsewhere. Israel’s tech sector is crucial to the economy and depends on foreign investment and cooperation with foreign firms.

Hundreds of tech startups, law firms, and other private sector companies allowed their employees to join a nationwide strike on Tuesday, with buses to bring them to the capital for a mass rally.

A number of Israeli unicorns, or companies worth over $1 billion, have already announced that they are pulling significant funds from Israeli bank accounts and placing them abroad due to pressure from concerned foreign investors.

Several dozen leading economic figures penned a letter to Prime Minister Benjamin Netanyahu last week urging him to hold negotiations over the proposals, and presented an alternative framework for reform.

Also last week, over 50 leading economists at US universities wrote an open letter to Netanyahu warning him that the judicial restructuring would be “detrimental” to economic growth.

Earlier this month, leading US financial institute JPMorgan warned of a growing risk of investing in Israel due to the government’s far-reaching plans.

Despite the warnings, the coalition has steamrolled ahead with the legislation, which is likely to come to the Knesset plenum for its first vote next week.

The legal overhaul, advanced by Justice Minister Yariv Levin and backed by Netanyahu, would grant the government total control over the appointment of judges, including to the High Court, severely limit the High Court’s ability to strike down legislation, and enable the Knesset to re-legislate laws the court does manage to annul with a majority of just 61 MKs.

Critics say that along with other planned legislation, the sweeping reforms would undermine Israel’s democratic character by upsetting its system of checks and balances, granting almost all power to the executive branch and leaving individual rights unprotected and minorities undefended. Netanyahu and other coalition members have dismissed the criticism.

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