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Netanyahu’s Budget Riles Left, Threatens Unity Talks

TEL AVIV — Benjamin Netanyahu, the spoiler of Ariel Sharon’s Cabinet, managed this week to throw Israeli politics into turmoil by pulling one of his most unexpected stunts ever: bringing in a 2005 state budget framework on time.

Netanyahu’s draft budget, a Thatcherite mix of privatization and spending cuts, is winning plaudits from economists and business leaders for its tough-mindedness. Its centerpiece is $1.3 billion in government spending cuts, designed to shore up Israel’s credit rating by holding the deficit below 3% of GDP.

Its chances of enactment, however, are growing slimmer by the day. Critics on the left — including liberals within Netanyahu’s own Likud party — are attacking it as draconian and socially divisive. More important, the Labor Party is threatening to call off talks over entering a unity government unless the budget is put on hold. That could scotch Sharon’s hopes of broadening his minority coalition, stall the Gaza disengagement plan and force new elections.

Critics say that this is precisely what Netanyahu has in mind. By presenting a budget that Labor cannot accept without alienating key constituencies — and by presenting it for Cabinet approval now, while coalition negotiations are in full swing — Netanyahu hopes to undercut Sharon and eventually bring him down, offering himself as the successor.

Labor leaders spelled out that scenario this week, after Likud negotiators rejected their proposal to reopen budget talks once Labor enters the coalition. The Cabinet is currently due to vote on the budget this coming Sunday, August 15.

“I’m very pessimistic,” Labor negotiator Binyamin Ben-Eliezer told reporters Tuesday. “I think Bibi [Netanyahu] is trying to make it difficult for Labor. And the toughening of the position of the Likud narrows the chance that we will join [the coalition]. This is precisely what Bibi wants; we are being used.”

Netanyahu denied that the budget proposal was intended to push out Labor. His goal, he said, is “to pull our economic wagon out of the mud.” As frequently happens with Netanyahu, however, almost nobody believed him.

The current coalition crisis is unusual in several respects, not least the fact that it centers on economics, which rarely plays any major role in coalition talks. Traditionally, the Finance Ministry remains under the control of the prime minister’s party, and smaller parties limit their demands to their own sectoral interests, avoiding debate on the larger issues.

The difference in the current negotiations stems from the fact that security and the future of the territories, usually the main bones of contention, are the issues least in dispute this time. The only reason that Sharon wants to reshuffle his coalition — and the only declared reason for Labor to join him — is to ensure the implementation of his Gaza disengagement plan. Therefore, economics have become the battleground for political positioning. And everybody is joining the fray.

Netanyahu, for his part, is playing a role he never expected to play. He became finance minister only reluctantly, forced into the post after the 2003 elections by Sharon, his longtime political rival. Saddled with a job commonly regarded as a political graveyard, Netanyahu performed what is widely considered a miracle, turning around a troubling economy while boosting his personal popularity. Acting on his own deeply held economic beliefs, Netanyahu implemented an Israeli version of Reaganomics or, more precisely, Thatcherism: sharp budget cuts, mostly in welfare, unemployment and aid to the elderly; minor but politically significant tax cuts, and a strong focus on privatization and reducing the public sector. “The private sector is like a thin man carrying a fat man (the public sector) on his back,” Netanyahu declared at the time.

Politically, the climate was just right. The ultra-Orthodox parties, Shas and United Torah Judaism, were out of government and unable to press their constituents’ considerable demands. Shinui, the Likud’s biggest coalition partner, had become a 15-seat mini-power after the elections by mining the same sentiment Netanyahu was tapping: the rage of middle-class Israelis, who feel they are carrying others — the poor, the ultra-Orthodox, the Arabs — on their backs.

With loyal backing from Sharon and the opposition all but silenced, the road was open for Netanyahu to fulfill his vision. In the process he paradoxically became a favorite of the very groups that had worked hardest to unseat him as prime minister just four years earlier.

For historical and social reasons, Israel’s economic elites are usually identified with the left — that is, with those who favor trading territories for peace — while the have-nots, except for Israeli Arabs, favor the right. Netanyahu rose to power in 1996 on the wings of a “coalition of the outcast,” meaning the culturally and economically disenfranchised. But once in office, he quickly learned just how much power the old elites still retain. They mobilized behind Ehud Barak, whose main promise was to be different from Netanyahu, and ousted Netanyahu after barely three years in office.

Netanyahu is nothing if not a canny politician. As finance minister, he has carried the banners of the people who dethroned him in 1999. With Labor and Shinui fighting for the same electorate, and no real counterweight in sight, he took credit for the change of fortune in the Israeli economy: Last year there was positive economic growth, for the first time since 2000; it is expected to be anywhere between 2.5% and 3.5% this year. The shekel is strong and stable, inflation almost nonexistent.

The growth has not translated into jobs, and the unemployed currently number close to 290,000, or 10.8% of the working force. Netanyahu’s measures have taken their toll on the poor, as well. But the major parties offer these groups little more than lip-service: Labor Chairman Shimon Peres last week called Netanyahu’s policies “swinish capitalism,” but in the current coalition talks he has shown no interest in taking on the Treasury himself, insisting on receiving the Foreign Ministry.

The only person to offer an alternative is, perhaps not surprisingly, a rival from within Netanyahu’s own Likud party. Ehud Olmert, Sharon’s closest ally, attacked the finance minister (who, needless to say, is the greatest threat to both the prime minister and Olmert himself) in terms that few opposition leaders have dared to use. Netanyahu, Olmert declared this week, “has created two states — the haves and the have-nots.” To back up his words, Olmert is offering his own version of an economic plan. Netanyahu, not surprisingly, has rejected it.

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