Netanyahu and his allies have yet to pass their proposed reforms. It stated that funding was down 65% on a year-over-year basis. The LeumiTech Unit of Bank Leumi, Israel’s largest, reported similar results for the second quarter of this year. The Tel Aviv-based Start-Up Nation Policy Institute, a think tank that focuses on Israeli innovation, reported that Israeli companies raised $3.7 billion in technology investment during the first half of 2023, a 68% drop over the same period the previous year and the lowest first-half level of investment since 2018. In April, Moody’s Investor Service downgraded Israel’s credit outlook, on the basis of a “deterioration of Israel’s governance.” While Smotrich and others dismissed the downgrade as irrelevant to the actual state of investment, statistics for the first six months of 2023 have proved otherwise. The warnings regarding the impact on the economy have proved accurate.
Like his colleagues, he has proved to be the proverbial canary in the coal mine. Subsequently, Israel’s most senior banker became and still is chairman of JP Morgan Chase International. A man not given to exaggeration or hysteria, prior to serving as governor of Israel’s Central Bank, Frenkel had been the chief economist at the International Monetary Fund. That Frenkel signed the opinion piece was especially significant. Shortly thereafter, former Bank of Israel governors Karnit Flug and Jacob Frenkel authored an op-ed that repeated the warnings regarding the damage to Israel’s economy and credit rating. The signatories included Nobel Prize-winning professor Daniel Kahneman Eugene Kandel, former head of the National Economic Council and Avi Ben Bassam, a former director of the Finance Ministry. One day after Yaron issued his warning, hundreds of economists published a letter that outlined the negative impact of the reforms on the Israel economy. He also relayed concerns on the part of officials from credit rating firms regarding the danger to Israel’s credit rating, a critical factor in attracting investment from abroad. In addition, just weeks after the first, relatively small-scale protests took place - well before they escalated in both size and intensity after Netanyahu’s short-lived firing of Defense Minister Yoav Gallant for questioning the the pace of the judicial reform plan - Bank of Israel governor Amir Yaron warned Netanyahu regarding the impact of the reforms on Israel’s economic prospects. Several leaders of Israel’s technology firms announced that they would be transferring their accounts out of the country. Israel’s industrialists and economists have begged to differ, however. All four men have asserted that the reforms would have no impact on the Israeli economy, whose per capita gross domestic product exceeds that of most European states, as well as that of Japan. They have been urged on by the leaders of the most extreme members of the Netanyahu government: Itamar Ben Gvir, head of the extremist Otzma Yehudit (Jewish Power) party and minister of national security, and Bezalel Smotrich, leader of Rothman’s Religious Zionist party and Israel’s finance minister. Most controversially, the Knesset (parliament) would need only a simple majority to override a Supreme Court ruling that had declared legislation unconstitutional. In addition, the government’s proposals would grant it control over judicial appointees.
The planned reforms would limit the court’s ability to review Israel’s Basic Laws - Israel has no written constitution.
It has also infuriated the ultra-Orthodox community for ruling against exempting its members from military service, accepting non-Orthodox conversions to Judaism, and recognizing the rights of gay and lesbian Israelis. In particular, over the years the court has angered the settler movement by frequently ruling in favor of Palestinian claimants with regard to disputed land on the West Bank and limiting settlement expansion. The proposed reforms were intended to eviscerate the power of the Supreme Court, which has had an outsized role in setting public policy - invariably, according to its opponents, favoring the liberal Left. Those warnings are growing more dire, just as the protests have continued - this, as a new clash on the West Bank raises concerns of wider, more explosive Israeli-Palestinian fighting, with all the deaths and economic destruction that would cause. Ever since Israelis began to protest the Netanyahu government’s plans to implement what it termed “reforms” of the country’s judicial system, Israel’s leading economists and many of its high-tech leaders have warned of the damage that instability would cause to the country’s “start-up” economy.
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