ישראל נאמן | Lectures, Articles, Tours: Israel | Mideast onTarget | Elliot Chodoff & Yisrael Ne'eman | Economics and the Disengagement Compromise 7.6.04

Economics and the Disengagement Compromise

07 June 2004

By Yisrael Ne'eman

The revised version of PM Ariel Sharon’s Gaza Disengagement Plan passed in yesterday’s cabinet vote by 14-7. The dissenting trio of Finance Minister Benyamin Netanyahu, Education Minister Limor Livnat and Foreign Minister Sylvan Shalom agreed to semantic changes emphasizing the “intention” of the government to finish the pullout by the end of 2005. For the next nine months there will be preparations and then a second vote to begin implementation in March 2005. Everyone is speaking of a “political” compromise to save the ruling Likud party where Sharon is facing down the trio who oppose the evacuation. They claim they cannot defy the party rank and file who voted against the PM’s proposal (60% vs. 40%) on May 2.

Politics play a role, but economics is the overriding factor. Finance Minister Netanyahu is in the middle of revolutionary capitalization process in respect to the economy. At first, Israel lost close to 2% of its GNP due to the Palestinian violence initiated in Sept. 2000. With Netanyahu at the economic helm over the past 15 months Israel has recouped its loses and is back to a $100 billion GNP. In addition first quarter Bank of Israel statistics showed a 2004 growth rate of 5.5%, but so far only the upper classes are enjoying the sharp turn around. It will take close to a year for the trickle down effect to impact the man in the street.

The Netanyahu (un)plausible compromise and claim that he did not really vote for the Disengagement, but rather only the possibility of intent will enable him (and his two colleagues) to vote against its implementation in March. Furthermore, Foreign Minister Shalom is negotiating with Egypt to beef up its police forces on the Gaza border area, in an effort to stop tunnel smuggling of weapons and terrorists. Education Minister Livnat is revamping the school system along the lines of the Dovrat Report. Everyone first needed to save face when confronting their Likud colleagues, but more importantly, they need to buy time.

Not only should the 2005 state budget pass by the end of December (and if it does not there is an extension until March 31), but all three ministers should have much to show for their efforts by next spring. Netanyahu in particular should be able to build in a fair amount of benefits for the middle class and even return certain stipends and allowances to the lower classes in the 2005 budget.

Tommy Lapid and the Shinui faction are in the Netanyahu economic boat despite the fact that they are Sharon’s most loyal Disengagement supporters and are seen by the Likud right wing (as represented by the trio) as a left wing fifth column in what “should be” a right wing coalition. Lapid tried frantically to arrange a compromise between the PM and Netanyahu, despite his contempt for watering down Sharon’s original plan. The compromise reached was not of his making, but it did not leave Shinui any less relieved. The faction continues to support Netanyahu’s capital incentive economic planning far more than anyone else, including the Likud. They too, need until next spring to show results.

Whether the government coalition will hold on until next spring is unknown. But one thing is for sure, economic considerations are playing a much larger role in the decision making and compromising process than many care to admi