Fischer makes defense budget gaffe

Adrian Filut

Stanley Fisher arrived unprepared for yesterday's cabinet meeting on the defense budget, and he did not know the material.

On July 28, Governor of the Bank of Israel Prof. Stanley Fischer, the Israeli government's economic advisor, made one of his angriest and harshest speeches since taking up his post. He was not satisfied with criticism of Prime Minister Benjamin Netanyahu and Minister of Finance Yuval Steinitz for their fiscal policies, but made an unprecedented rebuke. The power of his remarks was extraordinary to the point that immediately following this outraged speech at the Caesarea Forum, rumors spread that he was on his way out.

"We must, then, set the deficit at 2.5% of GDP. Why specifically 2.5%? Because then we will send a message that the budget is under control, and that we plan to act as a responsible and organized country, like Finland, and not like the weaker countries in Europe. We must present a realistic budget that will convince the markets, and the citizens, that we intend to continue to maintain the economy's resilience in the coming years. This strength is no less important a factor in the growth and prosperity of the country than military strength," he said.

Netanyahu and Steinitz listened to Fischer, and in an act of political suicide, they submitted an austerity fiscal package to raise NIS 10 billion in new taxes, in real terms. Without going into the details of the fiscal package, this was an act that Fischer later admitted he never thought would happen, especially because this is an election year.

Yesterday was Fischer's turn to repay them both. After threatening that budget cuts must be made and that the budget deficit and framework must not be breached, otherwise the economy would go into free fall, he had to explain that the defense budget must not be increased, otherwise civilian budgets would have to be cut, the deficit would grow, bond yields would soar, Israel's credit rating would be downgraded, and a financial crisis would be an accomplished fact.

But Fischer failed. He did not arrive prepared for the cabinet meeting on the defense budget, and he did not know the material. One of the most accomplished professionals who has ever held a public position in Israel should have turned up with an organized and sweeping position, especially since the fate of the Israeli economy was on the agenda.

Fischer missed the fact that the entire debate is now focused on the IDF's commitment to streamline. "The finance minister won't like what I am going to say now: the Bank of Israel examined the entire issue of the defense budget, and the defense establishment is meeting its commitments under the Brodet recommendations," he said. If Fischer says that the IDF has met its commitments, de facto it means that he supports Minister of Defense Ehud Barak and gives him carte blanche to greatly increase the defense budget with all the dire consequences that that entails.

Ministry of Finance officials are furious with Fischer. "He talks about budget cuts and the importance of fiscal responsibility, but when he faces the generals, he melts," one of them told "Globes".

Fischer, an old hand in PR, should have understood that he must not open his critical speech with the wretched phrase ("The finance minister won't like what I am going to say now.") The defense establishment excels with its spokesmen: what Fischer said after this opening sentence, including that he opposes a further increase in the defense budget, and especially the astonishing idea of issuing designated bonds, is no longer really relevant. No one in Israel focuses on the small print.

Netanyahu had to send National Economics Council chairman Eugene Kandel from the meeting room to find out exactly what Fischer meant. Ultimately, it turns out today, that Fischer intended to say the opposite of what he said, and this is evidence of a serious mistake by him, not by the Ministry of Finance, or by the defense establishment.

The Bank of Israel had to issue a statement that Fischer's statement was not referring to IDF streamlining, under heavy pressure from the Ministry of Finance. But it was too late: websites had already tipped the scales.

Fischer, one of Israel's most polished politicians, should have known that this is not a purely economic debate, but a political and media debate intended to shape public opinion about the country's proper priorities. In late June, Fischer knew how to rebuke Netanyahu and Steinitz. He did not carry his share in yesterday's discussion. Fortunately, this was only an initial discussion, and he will have a chance to make amends.

Published by Globes [online], Israel business news - - on August 16, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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