Farewell Bibi, hello Ehud

Until A few years ago, Netanyahu’s replacement as finance minister, Ehud Olmert, was considered by reform-minded Israelis a worthy successor to Netanyahu.

Like Bibi, Ehud professed to be pro-market, with the courage, sometimes, to take unpopular stands.

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The acid rain the media poured on Binyamin Netanyahu when he recently resigned his post as finance minister was to be expected, of course. No matter what he does, Bibi – the leader a leftist Israeli media loves to hate – can never do right.

Except for some savvy economic commentators who, even when they sharply disagreed with Netanyahu’s political positions, still praised him as the best Israeli finance minister ever, most Israeli journalists, ignorant of economics, could not fathom the revolutionary nature of Netanyahu’s reforms. But even some of Netanyahu’s supporters felt uneasy about his resignation, especially its timing. They felt he should have stayed in office longer to see his historic
financial market reform completed to the letter; that he should not have left it in the hands of those who could now whittle it down by granting the banks such high commissions on their sale of financial products that the reform’s effort to reduce the banks’ domination of financial markets would remain a dead letter and they would inevitably regain dominance through those high fees.

Netanyahu argues that only because economic reform was such an urgent necessity did he not resign his post earlier. And Netanyahu has already paid a heavy political price both for his determined reforms and for delaying his expected resignation. With early elections a high probability, he could not afford to sit back and watch his political base totally erode.

UNTIL A few years ago, Netanyahu’s replacement as finance minister, Ehud Olmert, was considered by reform-minded Israelis a worthy successor to Netanyahu. Like Bibi, Ehud professed to be pro-market. When he served as health minister he attempted, though unsuccessfully, to privatize dysfunctional government-owned hospitals. He also had the courage, sometimes, to take unpopular stands.

Since Netanyahu was Olmert’s greatest competitor for the post of prime minister it was natural that he would join the enemies of reform by echoing their accusations that Netanyahu was deliberately harming the lower-income sector. Upon becoming finance minister Olmert continued to attack Bibi’s “extremist Thatcherite policies,” repeating the phony poverty-line statistics and the claim that poverty is enhanced in Israel by economic growth because growth increases “the income gap.” He announced that he intended to shift resources to welfare payments that discourage work.

Equally worrisome, Olmert decided to extend the tenure of Eitan Raff, the notorious Bank Leumi chairman who fought the financial markets reforms, often by very questionable means, using public funds to undermine a decision of a democratic government. Olmert even praised his banker friends as great managers, when they are really total failures as bankers, having lost most of the billions in credit they extended to cronies, and having as a result deprived Israel of productive investment for two decades. This has deepened a six-year recession and caused massive unemployment, forcing most Israeli workers to earn pitiful wages and hundreds of thousands of families to be unable to make ends meet. One wonders why Olmert wants to associate himself with such failures. It is also a puzzle why he chose to protect the monopolies that belong to Israel’s oligarchy when he attempted to cast himself as the protector of the poor.

Amazingly Olmert succeeded, it seems, in convincing his friends and supporters in the US that he was pro-market even as he supported increased government intervention and handouts. He even convinced a much more skeptical Israeli media that he was a champion of “the poor” while promoting the interests of Israel’s oligarchy.

Olmert is not only a very ambitious politician but also a very smart man, wary of failure. He was wise enough to correctly interpret the signal given by a dramatically falling stock market when Netanyahu resigned. He immediately announced that he was going to continue Netanyahu’s policies, and he might do so, just as Tony Blair continued Margaret Thatcher’s policies while condemning her.

TO SUCCEED like Netanyahu, Olmert must, paradoxically, rid himself of his obsession with Bibi and become his own man, following market policies and not merely paying them lip service while indulging in populist talk. Olmert has an excellent team to work with if he follows market policies: Stanley Fischer, the governor of the Bank of Israel, and Ariel Sharon’s chief of staff Ilan Cohen, who understands economics.

The test of whether Olmert will seize this great opportunity to be his own man rather than serve others’ interests will be soon. While he promised to keep the framework of the budget intact, he could do a lot of good or harm by the way he deploys its resources, whether toward growth or more damaging welfare. Olmert also repeatedly indicated that he might recommend next year increasing the budget deficit above 3% in contravention of an agreement with the US.
Olmert has also decided to open the question of what commission the banks will receive for their sale of the products of the funds they will have to disgorge. Should he bow to their pressure and grant them too high a commission he will nullify the benefits of the banking reform and establish the banks again as dominant players in the markets, with all the terrible consequences this has had so far.

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