US military aid to Israel is no longer a fixed point in relations between the two countries. The threat to American aid to Israel (and in fact to every foreign aid plan) is of course a result of the budget noose around Washington's neck.
When the US talks of cuts of hundreds of billions of dollars in the budgets of the Pentagon, the State Department, and other government departments; when even the Democrats are willing to wield the ax and make cuts in social security and other social services payments; when "60 Minutes" shows (former) middle class families living in their cars, and their children having to brush their teeth in the morning in the bathroom at a gas station because their house was repossessed by the bank; when such developments become burned into the national consciousness, then aid programs to foreign countries, among them Israel, lose their last remnants of public legitimacy (which wasn't much to begin with).
"Aid to Israel was once a sacred cow, something that wasn't even discussed," an aid to a legislator on Capital Hill who is involved in Israel-US relations told "Globes". "Now aid to Israel is part of public discourse, it's on the table, another government expense that needs to be cut - if not completely cancelled. What is happening now reflects the "Tea Party" mood: there is no government expense that can't be cut."
An Israeli defense industry source adds, "Whoever does not foresee a fall in exports by Israeli defense companies to the US has his head in the sand." In fact, the cloud over the issue of US aid to Israel (or arms purchases from Israel) is one of the most sensitive topics on the agenda of the two countries. It is being discussed in various forums, mainly with "friends of Israel" in Washington, but very little in public.
But the topic is starting to come up more frequently in public discussions in the US. One of the first harbingers of change was "Washington Post" columnist Walter Pincus who called on the US government to reexamine its aid policy to Israel.
"If Israel can reduce its defense spending because of its domestic economic problems, shouldn’t the United States which must cut military costs because of its major budget deficit consider reducing its aid to Israel?" Pincus wrote on October 17.
Aid packages will start from zero
In debates between Republicans vying for the presidential nomination, one of them, Rick Perry, has already declared that, if he wins, he will establish a rule that foreign aid packages start from zero, and each country will have to justify every cent above that. "Obviously Israel is a special ally, and my bet is we would be funding them at some substantial level," Perry said on November 12, "But it makes sense for everyone to come in at zero and make your case."
Aid has become an issue because of the inability of a Congressional "super committee" to formulate an agreement on a $1.2 trillion cut in the US fiscal deficit. The committee's failure, which its members admitted last week, will mean an automatic $1.2 trillion cut across all federal budgets over ten years, starting from January 1, 2013. Half the cut, $600 billion, will fall on the budget of the Pentagon, the other half falling on the other government departments.
The cuts are not certain, a Washington analyst who specializes in Federal budget matters told "Globes". From now until the beginning of 2013, a lot of water will flow in the Potomac, and there will be elections for president, the House of Representatives, and a third of the Senate. The Congress will have to vote again on raising the ceiling on the national debt, and on making permanent the tax cuts for the rich introduced by George W. Bush.
Some Republican legislators oppose cutting more than half a trillion dollars from the Pentagon's budget. It can be expected that there will be negotiations between Republicans and Democrats, and between Congress and the administration, with the aim of averting the automatic cuts, or at least moderating them.
Even so, many sources, Israeli ones among them, believe that that the automatic cut will remain in place. In the current political climate, there are politicians who prefer an automatic cut to uncomfortable votes in Congress. For his part, President Obama has already declared that he will veto any bill to cancel the cut for the Pentagon unless it is accompanied by a tax increase for the rich, a measure that is anathema to the Republicans, judging from their public statements.
Defense companies at risk
What will be the consequences for Israel? The largest aid package, the annual military aid to Israel, amounting to $3.1 billion, is financed from the foreign aid budget of the State Department (and not from the Pentagon budget, as many people think).
According to the Washington analyst, if the cut is applied in full, this will mean a cut of 8-9% in the foreign aid budget, which will reduce the aid package to Israel by some $250 million.
The hardest blow will fall on the Pentagon: the $600 billion cut that is liable to hit the defense budget in a year's time, will come in addition to a $450 billion cut already in force. This amounts to a cut of more than a trillion dollars, over ten years.
As far as Israel is concerned, the cut threatens US participation in the various missile defense projects, such as the "Arrow", and exports by Israeli defense companies to their largest US customer.
A senior Israeli defense industry source explains, "We are certain that the automatic cut in the Pentagon's budget scheduled to occur in 2013 will happen, in addition to the existing cut. We're talking about $1 trillion. This is a 15-20% cut over ten years. That's a huge slice. In the expectation that the other boot will fall, US defense companies are laying off employees in droves, and even closing factories, following cancellations of projects by their clients the arms of the US military."
The source predicts that Israeli companies will find themselves in an inferior position in the US. "We expect a tough tendency on the Pentagon's part to hand work to local companies, on the basis that your own poor come first. That will force us to be even more attractive, not just on quality, but also on price. The question is, how low can we go?
"One thing is for sure," he says, "We will all sell less in the US market, and anyone who doesn't believe that is deluding himself. If the US companies are suffering, will we not suffer too?" He stresses however that "according to the feedback from the Pentagon, there will be no change in the level of support for the "Arrow" programs, at least not at first."
The aid has lost its sanctity
The Capitol Hill source also says that he will be surprised if aid for the missile defense programs is cut, but adds that it can no longer be expected that the level of support will rise every year. "That won't happen any more. The politicians will have to spend more and more precious political capital to justify raising the aid."
According to him, the most worrying thing for the supporters of aid is that it has lost its sanctity. "Those who seek to make cuts at any price do not understand that a cut in aid to Israel will be interpreted by the Ayatollahs in Iran and by Hamas as an expression of weakness, and that it will be liable to spark war in the Middle East."
He admits however that the Republicans, and even some Democrats, think that the fiscal deficit is a mortal danger, and they will be hard to convince. Our Washington analyst sums it up thus: "You can't live in a vacuum. America will have to cut a great deal of money. The America of November 2011 is not the America of November 2010."
Published by Globes [online], Israel business news - www.globes-online.com - on November 30, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011