The legal reforms are dead. How do we know? Because that's what Bibi promised the credit agencies

Israel's downgrading was bad news, but could have been much worse


Israelis block the Ayalon highway in Tel Aviv during a protest against the Israeli government's planned judicial overhaul on March 26, 2023. Photo by Tomer Neuberg/Flash90 *** Local Caption *** מחאה נגד הרפורמה המשפטית ברחובות ת"א תל אביב הפגנה דגלי ישראל איילון

April 19, 2023 18:19

Seventy-five years ago, when Israel was established amidst war and the necessity to quickly absorb hundreds of thousands of Holocaust survivors - all without any financial resources - if anyone had predicted that one day its international credit rating would be A1 and economic outlook “stable,” they would have been accused of going heavy on the Palwin.

Last Friday, international credit agency Moody’s confirmed that was Israel’s status. And it was bad news.

Just after Shabbat began, the news arrived that despite both Prime Minister Benjamin Netanyahu and President Isaac Herzog personally calling up senior executives at Moody’s to try and convince them that all was well, the agency had downgraded Israel’s outlook from “positive” to “stable.” Thus ended nearly seven years during which Israel had its highest credit rating ever.

The report was clear that while Israel’s economy remained strong, the government’s plans to weaken the Supreme Court, now suspended indefinitely, threatened its stability in the future.

“The truth is that we dodged a bullet,” said a former senior government economic advisor who was involved in the discussion with Moody’s. “There was a possibility of our outlook being downgrade to ‘negative,’ or even a downgraded rating. Luckily, Netanyahu had already announced that he’s suspending the legislation and promised them that it won’t be coming back.”

That doesn’t mean Israel is out of the woods, said the advisor. “If Netanyahu wanted to quell the doubts, he could have come out and said that the legislation has been shelved. Instead he’s scared of his coalition partners and isn’t saying anything. And then there’s the way he and [Finance Minister Bezalel] Smotrich responded.”

Immediately after Shabbat, the two men released a joint statement saying, among other things, that “the concern that Moody’s analysts raise about the public controversy and its effect on Israel’s political and economic stability is natural for those who do not know the strength of Israeli society.”

“To say that Moody’s analysts, who are the top of the business, don’t know what they’re talking about shows how ignorant Smotrich is about economics,” said the adviser. “Netanyahu on the other hand isn’t ignorant. He actually does know how a place like Moody’s works. Which makes the response even worse.”

Breaking promises to the electorate is normal. But breaking promises to the credit agencies is unthinkable. What is clear now is that the Netanyahu government’s “legal reform,” is dead, though its demise may never actually be acknowledged. What’s left for the prime minister is to find a way to string along the “dialogue” with the opposition over constitutional changes for as long as possible, in the hope that at some point the members of his own party and other coalition partners give up.

After Independence Day, the Knesset will reconvene for its three month summer session. The first month will be occupied with passing the budget and the controversial law exempting yeshiva students from military service. Netanyahu will have to find a way to occupy his coalition’s legislative time for another two months. The winter session will start ten days before Supreme Court President Esther Hayut’s seventieth birthday – also the mandatory pension age for judges. She will be replaced almost certainly by fellow liberal judge Yitzhak Amit, who at 65 will ensure that the court remains the same for another five years. The opportunity for installing a new ultra-conservative president, as Justice Minister Yariv Levin intended, will have passed. The government will have other priorities. And Netanyahu will have fulfilled his promise to the credit agency.

Iranian messages

Meanwhile, the government had hoped to host a stellar cast of world leaders, including Rishi Sunak, for Israel’s seventy-fifth jamboree next week, but few if any have expressed much interest in visiting while Israel it’s undergoing internal turmoil and strife. For now the closest thing to a world leader expected in independence week is Republican presidential hopeful Ron De Santis.

But at least in the preceding week there was a sprinkling of international stardust on Jerusalem – Reza Pahlavi, Crown Prince and Heir Apparent to the Imperial Throne of Iran no less. Officially, Mr Pahlavi was in town to attend the Holocaust Memorial Day ceremony at Yad Vashem, but a visit by the most prominent figure in the Iranian émigré community - and in the opposition to the regime in Tehran, at least the opposition outside Iran - has other implications.

The visit is useful for both Pahlavi and his Israeli hosts. Both are feeling a bit sidelined following last month’s surprise diplomatic agreement between Iran and Saudi Arabia. “Israel has expectations, rather unrealistic now, of closer relations with the Saudis, and Pahlavi used to have the Saudi’s support,” says Dr Raz Zimmt, a senior Iran-watcher at the Institute for National Security Studies at Tel Aviv University. “It shows there is an alliance between Israel and some Iranian forces, but let’s be clear, the real opposition to the region is the one which is inside Iran. And while Pahlavi has some support, especially in recent years since he’s made it clear he doesn’t want to become the Shah like his father but wants to see a democratic Iran, there are many who still remember what a tyrant his father was.” At some of the recent protests in Iran, one of the slogans being chanted was “death to the dictator, be him a mullah or a Shah.”

But the visit was terribly stage-managed. It wasn’t even clear how official the visit was. Mr Pahlavi could have been hosted by President Herzog (who he met) or by private business with something to offer Iran in a peaceful future, such as Israeli water-tech companies. Instead his official host was Intelligence Minister Gila Gamliel. This was a bad message to both Israelis and Iranians. Israelis know that 'intelligence minister' is an empty title which exists solely to compensate Likud jobworths. If Ms Gamliel is hosting Mr Pahlavi, it looks unserious to Israelis. For Iranians, on the other hand, the title “intelligence minister” makes the whole affair look devious and sinister.

But then, who would have imagined 75 years ago that Israel would be hosting crown princes?

April 19, 2023 18:19

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