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Thursday, 31 October, 2002, 12:36 GMT
Political rows blast Israeli economy
Ariel Sharon (centre) talks to coalition members after budget vote
Ariel Sharon: Backed settlers at cost of Labour support


BBC News Online examines how political brinkmanship in Israel is threatening the long-term health of the battered economy.
Troubles comes in series of three, so the old adage goes.

While the maxim may hold true in Jerusalem, it has become sadly difficult for Israelis to identify where the last batch of problems ended, and the latest one began.

As if the continuing conflict with Palestinians was not enough, Israelis have - as have their neighbours on the West Bank and Gaza strip - suffered rising unemployment, and falling economic output.

Shares have fallen, and tourism slumped by some 80%.

In an attempt to revive Israel's economy, the country's central bank cut interest rates, only to be forced to raise them again as inflation surged.

Now what is seen as the best hope of pulling Israel out of its worst recession for, well, 15 years, 50 years, for ever, depending on your source, has been threatened by unrest in the political arena.

Economic risks

You will have read of the withdrawal of Labour politicians from the coalition government led by Prime Minister Ariel Sharon.

You will have read that Labour quit in anger at the level of financial support proposed for Israeli settlers in the West Bank and Gaza Strip.

And you will continue to hear of the implications of the walk-out - for Labour leadership elections, for Mr Sharon's grip on political power, and for right-wingers being wooed as new coalition partners.

But what you may have missed are the pleas of business people, supposedly the backbone of the country's economic revival, for politicians to put good government before bad mouthing.

The cash support which so riled Labour politicians represented - at $145m - only 0.3% of a budget package executives see as crucial if economic growth is to be restored.

Earlier this week Oded Tyrah, head of Israel's Manufacturers' Association, said that any delay in passing the budget "would create chaos in the economy, a financial crisis and a lowering of Israel's credit rating".

While Mr Sharon has steered the package through its first parliamentary vote, even without Labour's help, it must pass two more readings before being enacted.

Budget aims

What the budget has sought to do is protect business from the worst affects of the economic downturn.

With tax revenues falling short of expectations, Mr Sharon has sought to cut public spending rather than lumber businesses with fresh levies.

Reductions have been proposed even to defence spending, despite the high levels of Middle East tension.

And, controversially, cuts have been aimed at social spending - except for that aimed at Israeli settlements.

It was the refusal of Mr Sharon to rein in support for settlers, and free cash for broader poverty support programmes, which Labour politicians blamed for their decision to quit the coalition.

Priorities

And their walk-out illustrates a key hurdle to Israel's economic revival - the willingness of its politicians, of all parties, to pursue political aims with little heed of the broader costs.

Such qualities have proved key in Israel's ability to withstand regional hostility.

They may, however, bring unnecessary hardship, if the budget becomes no more than a political pawn.

With Labour candidates caught up in primaries, other opposition leaders jostling for places in a new coalition, and some reported keen to force fresh elections, the economic plot risks being lost amid rushes for power.

Politicians risk creating, in Mr Tyrah's words, "chaos in the economy, a financial crisis and a lowering of Israel's credit rating".

And as a series of three troubles go, that one rates as alarmingly significant.


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