Not the end of the world

Stella Korin-Lieber

The sky has not fallen with Stanley Fischer's announcement that he will leave the Bank of Israel, but Benjamin Netanyahu's economic role is now even more critical.

A blow - perhaps. Drama - maybe (if we must have a daily drama). Tragedy - not really. The end of the world - not yet. Stanley Fischer was, still is, a good central banker. One of the best we have had here. The right man who, as it happens, also came at the right time. We admired his cosmopolitanism, the perfect Hebrew he learned, the sharp sense of humor, the glint in his eye, the fact that he's a professional whom you can see has studied, checked, honed his view, and knows what he's talking about. We liked it that ministers from the prime minister down and senior officials prostrated themselves before him. We enjoy seeing these guys respectful and nervous.

2. His wife is pressing. Rhoda Fischer saw these years as her husband's military reserves duty to the Jewish state. The life she wants doesn't suit a couple living permanently in Israel. They have a family, grandchildren in the US, and a full life. For now, he says he intends to remain in Israel.

3. Stanley Fischer has come to the end of eight years. He has every right to say: I've given it all I can. He has the right to find another job, preferably much more remunerative, before he gets old and sinks once more into the life of books, research, an elite academic institution, the World Bank, or some other international scholarly organization. They'll always be waiting.

He also has the right to accede to a proposal, which it seems will come his way soon, to be foreign minister. It would suit him. His term as Governor of the Bank of Israel has been one of the longest ever. So he's finishing two years before the end of his second term - we didn't know? We knew. He dropped hints, and we expected it, but separation is always hard.

4. From that to the destruction of the Third Temple, economic collapse and the fall of the Jewish state is a long way. The fact is that the Tel Aviv Stock Exchange, which took fright yesterday, actually opened with slight rises this morning. One of the wiser comments this morning was by Excellence Nessuah chief economist Yaniv Hevron: "To put things in proportion, in the past, the Bank of Israel has been able to provide governors who were no less worthy and no less assertive. All in all, it is not likely that much will change. The next governor may perhaps be less creative, but vis-a-vis the Ministry of Finance and in the signals given to the government he is likely to be no less dominant… As far as monetary policy is concerned, it's hard to see a governor who will not continue the expansionist policy, especially while the world trend of low interest rates and even quantitative easing continues. Dealing with the bubble that has developed in the housing market does represent a difficult challenge, but Fischer too understood that this was something that it was up to government to deal with."

5. Exploitation of the Fischer fest to continue negative campaigning a week after the election was not long in coming. Labor leader Shelly Yachimovich rushed to say: "Fischer's departure is a stinging slap in the face for Netanyahu's policy. The governor has signaled that he is not prepared to be part of the economic chaos and social hell that will prevail in Israel after the new government is formed." Meretz leader Zahava Gal-On would not be left out, and declared: "I see Fischer's resignation from his post as a vote of no confidence in the economic path followed by Prime Minister Benjamin Netanyahu, who has brought the economy to a huge deficit and to a deepening of inequalities."

And this happens after Fischer and Netanyahu worked together for years, with Netanyahu having been the minister of finance who approached Fischer to come and be Governor of the Bank of Israel, and after that in the four years of the outgoing government. It should be mentioned that, to their credit, Yair Lapid and Naftali Bennett did not jump on the headlines bandwagon (a new generation, did we say?). At least at this stage, this removes any possibility/fear that the identity of the new Governor of the Bank of Israel will become part of coalition negotiations.

6. A day before the announcement that Fischer would be leaving, Ministry of Finance Accountant General Michal Abadi-Boiangiu carried out a 30-year bond issue at the lowest interest rate ever for a dollar issue. The closing will be tomorrow. It is unlikely that the rating companies will change their stance on Israel because of Fischer. They do not usually base their judgments on individual personalities. It is possible though that the Israel analyst will be asked to follow with greater attention the formation of the new government and the discussion over the identity of the new governor.

7. Benjamin Netanyahu is left by himself. There is no Minister of Finance, and perhaps someone new will come along who has not previously had anything to do with the Israeli economy. There is no chairman of the Knesset Finance Committee, and perhaps a new member of Knesset will come along who was never even a member of the committee. The Ministry of Finance is sunk in a deep crisis of confidence, internal and in the mind of the public, and soon there won't be a Governor of the Bank of Israel either.

There are several credible, serious, and honest economists here who could be the next senior economic adviser to the government and the "helpmeet" of its head. But Netanyahu, even though in recent years he didn't really listen to him or act on his advice, saw Fischer as his teacher, mentor, and economic interlocutor. Whether the next minister of finance is someone experienced like Yuval Steinitz or, even more so, if he is someone new, Netanyahu, who is both certain of his economic doctrine and suspicious by nature, will not adopt him or her quickly, if at all, as someone with whom to discuss economic policy. Netanyahu's economic role becomes even more critical.

8. Fischer's time was characterized by an "American" approach, whereby he was prepared to "pay" for a low, economically beneficial interest rate with slightly higher inflation. This is what DS investment & Securities chief economist Alex Zabezhinsky writes today. According to him, Fischer's predecessor David Klein had a much more "European" approach, placing the main emphasis on hitting the inflation target: "It will be hard to find someone of similar standing to Fischer, and so the economy is liable to pay for maintaining stability with higher interest rates. His replacement is also likely to someone with a different approach, more like that of the central bank governors Israel had before Fischer, which will affect Bank of Israel policy, interest rates, bond yields, and the exchange rate."

Published by Globes [online], Israel business news - - on January 30, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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