Every manager knows that the gap between forecasts and execution can cause a lot of damage. Decision makers misrepresented to the credit rating companies that there was broad agreement on the legal reform, and to this day the bond, stock and foreign exchange markets believed that as always at the last minute everything would work out and some reservation, some compromise would be found that would lead to agreements.
The coalition celebrates after the passage of the law to abolish the grounds of reasonableness// Yehuda Schlesinger
However, this did not happen. The coalition left no crumb to hold on to and passed the reduction of the reasonableness grounds in a 0-64 vote, without agreement and without softening. In the eyes of foreign investors around the world, this may be perceived as aggressive and even totalitarian conduct, and especially as conduct that contradicts everything that has been broadcast so far to rating companies, the largest banks in the US, and more. Therefore, the reaction of the markets that has already begun may be correspondingly severe.
The government received great power and appetite last night, and it remains to be seen what it will do now. If the coalition goes in the dangerous direction of the "open salad bar" – continuing legal legislation unilaterally – we will all lose, and Israel, one of the most successful economies in the OECD, could find itself in a financial crisis.
The weak will be harmed
The uncertainty will continue, a decline in foreign investment will worsen, and the engine of the economy, Israeli high-tech, will continue to stagnate. The direct significance of the decline of high-tech, by the way, is fewer taxes that will enter the state coffers, which will lead to harm mainly to the weaker sectors.
The high-tech protest in Beer Sheva (archive), photo: Dudu Greenspan
High-tech workers' protest against the legal legislation (archive), photo: High-tech protest headquarters
Progress in this direction could also lead to the emigration of Israeli "minds" abroad, and of course to a slowdown in growth, a reduction in Israel's rating forecast, and a worsening of relations with the United States and Europe. Civil unrest will also continue. Moreover, the realization of this scenario is liable to lead to higher interest rates in the economy, an increase in the cost of living, and a decline in the standard of living.
Best Screenplay
Nonetheless, we will leave room for optimism – for the alternative scenario, one in which the coalition must choose to return dialogue, extend a hand for peace and correct the impression left in the markets after yesterday.
Dialogue should resume in the coming days, because a period of several months until returning from the recess could be devastating to the economy. This will not be an easy task, and it is possible that the damage has already been done – this can be seen from the initial reaction of the markets immediately after the vote: the dollar is soaring, and yields on Israeli government bonds have begun to rise. This response may continue as time passes and the coalition does not come out with a reassuring message.
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