Israel Week Ending July 9th

Challenges for New Government,Resets with the US, Jordan and EU, Covid, New Budget and More

The new government has faced a challenging week in The Knesset; among other things, it failed to pass the law that stopped Palestinians who married Israelis from becoming Israeli citizens. For now, the government will have to examine each case on its own merits. Not a great loss. But from a political standpoint, despite the loss, it showed the potential resilience of the government with Meretz and half of Ram. Both had opposed the law but voted in favor for the sake of maintaining the coalition. Meretz was attacked by its former, Zahava Galon, for forsaking its ideological purity. But as one commentator noted, for all her excellence as a legislator, Galon never once was part of a government nor served as a cabinet member and therefore hadn’t ever had any real influence.

Governing with a razor-thin majority is difficult, especially with an opposition that will vote against bills that they had supported a few weeks before for security reasons. Still, I maintain my view that the government will be more resilient than people believe. For example, one law they have passed allows as many as four Knesset members to leave one party to join another. So, expect Bennet and Saar to expend significant efforts trying to woe four Likud members to the coalition.

One of the clear advantages of a new government is its ability to reset relations with countries and groups that the old government had had difficulties cultivating. We see that on several fronts. The most visible is with Jordan. On Thursday, Foreign Minister Lapid carried out a public meeting on the Jordanian side of the Allenby Bridge with his Jordanian counterpart. In addition, it's been reported that Prime Minister Bennet met with Jordan's King Abdullah at a secret meeting in Amman last week. At Thursday's meeting, it was finalized that Israel would sell Jordan 50 million cubic meters of water beyond what it is currently providing. It was also agreed that Jordan would increase its exports to the Palestinian Authority.  

The government has also made it clear that a priority exists to reset relations with the Democratic Party and the European Union. To that end, Lapid has been invited as the guest of honor to a meeting of European Foreign Ministers next month the first time an Israeli Foreign Minister has been invited. In addition, the Director-General of the Foreign Ministry traveled to Morroco this week and invited the Moroccan Minister to visit Israel.

The reset includes a reexamining of Israel's position regarding the JCOPA agreement (Iran Agreement) and the potential for the US rejoining it. There are actual discussions taking place trying to decide if Israel is better off with the current situation wherein the US reimposed sanctions and Iran has effectively walked away from the agreement. It may be a moot question, however, since it's unclear whether the Iranians are even willing to reach an agreement: no new negotiations have been scheduled in Vienna.

The one area on which the reset has misfired is the decision to destroy the West Bank family home of Muntasir Shalabi, who carried out a terror attack. The family has US citizenship, and the US asked Israel not to do so. It is questionable whether destroying the family home of a terrorist works as a deterrent. Still, Bennet has been a proponent of the policy and went ahead despite the American request.

Ultra-Orthodox

Finance minister Lieberman fired the first salvo in his plans to persuade the Ultra-Orthodox to to work instead of studying full time. He changed the criteria for having their children’s daycare subsidized so as to include only those whose parents work, thus effectively cutting out the Ultra-Orthodox, who traditionally maintain large families with fathers studying in yeshiva settings and women remaining in the home.. As expected, the outcry came from Ultra-Orthodox politicians. But after three weeks cursing the new government, the assumption is that they had better get used to seeing some of the special considerations they have historically enjoyed, come to an end. The new person at the head of the Ministry to develop the Galil and Negev has ended a program where the Ministry subsidized 17,000 Yeshiva student's trips to the Galilee while only subsidizing the trips 7,000 students from all of the Ministry other streams of education in the country.

New President

The term of President Rivlin came to an end this past week, and in a dignified ceremony, President Herzog was sworn in. Rivlin will go down in Israeli history as one of the country’s more important Presidents, fulfilling both important diplomatic missions with leaders whose relationships with Prime Minister Netanyahu were strained, and being a representative of "Mamlactiot" (a word that has no English equivalent but means acting with the interest of the nation always first) when it was often missing from the outgoing government. As a lifelong member of the right, Rivlin could never be accused of a "leftist" stance when he made statements that were seemingly critical of the government. Herzog comes from a very different background; son of a diplomat and President not to mention head of the Labor Party, but one that has uniquely prepared him for the role.

 One of the more humorous news that came out on the last day of the Presidency was a photo released by the Shin Bet of Rivlin's disguise that allowed him to walk around unnoticed by the population.

Defense

The Israeli Navy has issued a contract to Israeli Shipyard for five patrol boats. It is the first local order by the Israeli Navy in many years. The order is worth NIS 100 million and will create high-paying jobs in the Haifa area.

Talks continue in Cairo with Hamas, but there has been no breakthrough. As a result, the fear remains that Hamas will decide that it prefers to create a new crisis and start another war if it does not get what it wants.

COVID

The Delta variant slowly advances in Israel, with the number of those infected rising to a little above 500 a day. On Thursday, that number dropped below 500, which is an optimistic sign since projections had shown that the numbers would grow to 1000 by the end of the week. Nevertheless, the number of people critically ill has increased to 36, and for the first time, there have been new deaths from the variant.On Wednesday, an 80+-year-old man who had been fully vaccinated, and a 38-year-old who had not been vaccinated and had preexisting conditions died. The government has decided not to take any decisive actions, rationalizing that decision by saying that we do not have to take action if the vaccines are still very effective against serious disease. I understand the government’s reluctance to take strong action at this point. The problem, however, is two-fold: first, by the time we have a large number of very sick people, it may be too late, and second while most children do not get very ill from COVID, there seems to be as many as 10% of kids who get the disease and do end up as COVID long-haulers with unknown long-term health consequences. While I hope the government is making the right decisions, I remain somewhat skeptical.

Economy

The new government's greatest challenge is to pass a new budget. The Ministry of Finance released an outline of its plans for the next fiscal year. I could write a whole post on the new budget plans, but a few things stand out—first, establishing a Metropolitan Transit Authority for the overall Tel Aviv metro area. Second the clear commitment to building a complete subway system. There is also an emphasis on digitizing all government services and streamlining the import process. For example, if goods have European regulatory approval, they do not need permission to be imported. There is also an emphasis on investing in artificial intelligence to increase Israel's competitiveness by buying a supercomputer for Israeli companies and academicians to research with. The plan also includes a change in taxes to incentivize Israeli companies to purchase other companies and allows high-tech investors to delay their taxes if there is an exit if the proceeds are invested in another company. There is also an interesting idea to allow high-tech companies to employ support personnel on Shabbat, thus allowing companies to keep their support divisions in Israel and not have to farm them out to other parts of the world to provide 24/7 support. Finally, in an out-of-the-box suggestion to deal with the growing crisis of a lack of housing, the Finance Ministry suggests that office buildings be converted to housing units. This applies to both existing units and ones under construction.

Alpha Tau Medical, an Israeli startup that says it can destroy tumors by injecting them with radioactive material using just a needle, has gone public at a value of $1 Billion by merging with a SPAC.

Meanwhile, Oracle unveiled its new data center in Jerusalem. Located nine floors underground, it is one of the safest data centers in the world. In addition, Oracle CEO Safra Catz, born in Israel, made it clear that anyone who objects to Oracle doing business in Israel can find employment elsewhere.