Israel's Economy Debate Discusses Budget Problems

A few days ago, the Israeli government announced that it will enlarge the country’s budget deficit from 1.5% to 3%—a controversial move.

Israel managed to come out of the global crisis in 2008 with relatively few damages, but it still faces complicated challenges and the crisis in Europe has an influence on the economy of Israel.

Budgeting issues and economical problems were discussed at the Eli Horowitz Conference for Economy and Society—named after the former CEO of the Israeli firm Teva, who passed away last year.

The conference took place in the Rimonim Hotel at the Dead Sea.

Ministers, Israeli and European bank governors, and most celebrities of the Israeli economy attended the conference.

The Minister of Finance Talks of a "Challenging Budget"

During lunch, the Minister of Finance, Yoval Steinitz, explained his assessment for the Israeli economy in 2013 and the coming decade.

He called the 2013 budget (which grew by 14 billion NIS following a 3% increase in deficit) a challenging one, and stated: “Unfortunately, there will be no escape from imposing taxes.”

The minister says the Israeli economy is not detached from the world around it.

[Yoval Steinitz, Israeli Minister of Finance]:
“Following the renewed crisis in Europe and other parts of the globe, the slowdown in recovery in Asia, China, India and the USA, there are influences on the Israeli economy—we are not alone, and we can see a certain decline in the state revenue. Economically speaking, the most important thing credit rating companies examine is the public debt to GDP ratio.”

Steinitz says this figure stands at 74%, while the final goal for the coming years would be about 60%.

Insurance Pension and Retirement Age

One of the most concerning problems for western countries, Israel included, is the issue of securing pensions in a era where the average life span is increasing, the birth rate is declining and interest rates are decreasing.

One of the most concerning figures is the increase in the ratio between the working population and pensioners.

The Israeli government wants to raise the retirement age, but is encountering much resistance.

Steinitz says the pension money is funded by working citizens, and the value of pension savings is decreasing along with the interest rate, which dropped since the world crisis began.

[Yoval Steinitz, Israeli Minister of Finance]:
“If people live longer—and it’s good that the life span is increasing—there is no escape from working harder. Eventually every cent the government gives to pension funds goes through the pockets of the citizens; the country has no other sources besides its citizens. There is no escape from this, if people live longer, they must save more money for retirement during their working years.”

A Discussion on the Foothills of the Mezadah

The governor of the bank of Israel, Stanley Fischer, hosted his colleagues—the governor of the central bank of Finland, Erkki Liikanen, and the governor of the central bank of Iceland, Mar Guðmundsson, at the historical site of Mezadah.

The population of both countries are similar to Israel (about 7 million residents), but their geographical sizes are much bigger.

Both Finland and Iceland suffered crises in the past, causing an economical breakdown.

In both cases, the banking systems were deemed responsible for the crises and for dragging the country down.

Both governors told of how they had dealt with their crises, and advised Israel on how to avoid similar crises in the future.

Guðmundsson spoke about Iceland’s economical crisis, beginning with the 2008 global crisis, when the major banks started repaying debts of billions of Euros.

[Mar Guðmundsson, Governor, Central Bank of Iceland]:
“Nearly 90% of the financial system collapsed within one week, which created much panic that prevented taking actions for getting out of the crisis.”

Guðmundsson says there were 3 steps to solving the crisis: declaring a state of emergency by means of regulation, receiving financial aid from the International Monetary Fund (which opened other financing opportunities), and the request to join the European Union as a full member. He recommends Currency control as a tool for stabilization.

Today Finland is one of the most stable and strongest economies in Europe, in spite of the Euro crisis, but it wasn’t always like that.

Liikanen says there are 2 reasons for Finland’s financial crisis: the collapse of the Soviet Union, with which Finland was in strong commercial relations, and the lack of economical regulation, which caused instability in the biggest bank in the country.

The outcome was a national product reduction of 30% and an increase in unemployment, which grew from 3% to 20%.
 
Finland joined the European Union and the Euro zone from the very beginning.

Liikanen stresses that the economical crisis in the EU was caused by ignorance and arrogance; the EU governments must be strong, yet the European level cannot replace national responsibility.”

The governor of the bank of Israel, Tanley Fischer, concluded that the “European crisis will become global.”

The forum is an initiative by the Israel Democracy Institute, in collaboration with the College of Management Academic Studies in Rishon LeZion, Israel.

This is its 20th yearly meeting.

Marlene Aviva Greenpeter, NTD News, Israel