Ex-US Treasury head Summers: ‘Israel walking too close to a ledge’ with overhaul

Netanyahu’s one-time pick to head central bank says that when concerns about financial instability are proven correct, it tends to be too late to put genie back in bottle

Lawrence Summers, former United States Treasury Secretary, during a panel at a G20 Economy and Finance ministers and Central bank governors' meeting in Venice, Italy, July 9, 2021. (AP Photo/Luca Bruno)
Lawrence Summers, former United States Treasury Secretary, during a panel at a G20 Economy and Finance ministers and Central bank governors' meeting in Venice, Italy, July 9, 2021. (AP Photo/Luca Bruno)

Former US Treasury secretary Lawrence Summers said Wednesday that Israel was “walking too close to a ledge” with the government’s proposed judicial overhaul.

“My sense is that Israel is walking too close to a ledge in the way this is being done, and by the time you are sure you are too close to that ledge, it’s too late to repair the situation,” Summers told Channel 12 news in an interview.

Summers, who has been lobbied by Prime Minister Benjamin Netanyahu to back the proposed sweeping reforms, refused to be drawn out on the details of their talks but said that he hoped the premier would listen to what the Israeli and global entrepreneurial and financial communities were saying about the impact of the plan to neuter the judicial system.

“When concerns about financial stability are proven to be correct, the genie tends to be out of the bottle and it tends to be too late to contain the situation,” Summers said.

“It’s quite extraordinary when a set of actions in a judicial sphere [lead to a] call for action from a country’s central bankers and from large financial communities,” he said.

According to Channel 12 news, last month Netanyahu called Summers in a bid to convince him to back the government’s proposals, which will severely limit the courts’ powers to balance out other branches of government and upend other parts of the judicial system.

Prime Minister Benjamin Netanyahu at a press conference at the Prime Minister’s Office in Jerusalem, January 25, 2023. (Yonatan Sindel/Flash90)

The report said that Netanyahu and Summers spoke for about an hour, with the prime minister attempting to convince the former US official of the merits of his government’s plan. The premier presumably wanted Summers to push back against assertions from top Israeli economists that the plans to limit the judiciary would harm the economy.

Critics say the government’s plans to curb the judiciary will weaken Israel’s democratic character, remove a key element of its checks and balances, and leave minorities unprotected.

“There is a sense that this judicial reform — not because the idea of judicial reform is being pursued — but because it is being pursued in so divisive and so rapid and so extreme a way… will undercut confidence in or vary relations,” Summers said on Wednesday. “And what has been a great accomplishment for Israel in building a start-up economy will be undermined.”

“The fact that there seems to be so much anger and so much alienation on the part of so many with so much capital raises the prospect of capital flight and the exit of many who have built incredible export powerhouses that by generating foreign exchange have strengthened Israeli markets and strengthened the value of the shekel,” he warned.

Tech workers march in Tel Aviv to protest against the government’s planned overhaul of the judicial system, January 31, 2023. (Tomer Neuberg/Flash90 )

Summers said that while Netanyahu has made many “important contributions” to Israeli economic reform, there was “substantial concern” when there was volatility in the value of the shekel and in Israeli equity markets.

Summers, who is Jewish, served in the cabinet of former president Bill Clinton, and was also director of the National Economic Council under former president Barack Obama. He also served as president of Harvard.

In 2013, Netanyahu sought to nominate Summers as the governor of the Bank of Israel — a post he declined. Both Netanyahu and Summers attended MIT in the mid-1970s.

Summers’ comments came hours after Israeli tech unicorn Riskified announced that it would be moving $500 million out of the country and offering relocation packages to some interested workers.

The fraud prevention company’s CEO and co-founder Eido Gal said in an email to staff that the company was transferring the money, which was “essentially all” of the firm’s reserves in Israel, due to concerns that the government may begin to place restrictions on cash transfers.

On Tuesday, the Moody’s rating agency said the government’s proposals could weaken the country’s institutional strength and negatively affect its economic outlook.

The agency’s warning was the latest signal from the business community that the government’s plans may hamper continued investment in the country, with reports saying some investors have already begun curtailing or completely freezing the flow of money into Israel.

Moody’s noted that the judicial plans would “materially alter judicial independence and effective checks and balances” in the government, and said Israel’s institutions were a significant factor in its credit profile.

The report highlighted Israel’s crucial tech sector, which accounts for about half of all exports and a quarter of income tax, and relies on foreign investment.

Tens of thousands of Israelis protest against the government’s judicial overhaul moves, in Tel Aviv on March 4, 2023. (Gili Yaari /Flash90)

A group of hundreds of Israeli economists issued a fresh warning last week that a financial meltdown could occur more “powerfully and faster” than they had originally forecast when they penned an “emergency letter” cautioning that the far-reaching judicial shakeup being advanced by the government could have grave implications.

The protest movement against the government’s judicial overhaul plans was set to conduct another major campaign to disrupt daily life in Israel on Thursday, in what activists are calling a “day of resistance.”

The day notably includes plans to block roads around Ben Gurion Airport in an attempt to make it difficult for Netanyahu to get there for his flight on an official visit to Italy. This in addition to marches, temporary workplace strikes, the blocking of main thoroughfares, disruption of train services and rallies outside the homes of top government officials.

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