Fischer warns against surrendering to populism

"Economic steps that have broad short-term support from public...kill economies," BoI governor warns.

By NADAV SHEMER
November 15, 2011 17:48
2 minute read.
Bank of Israel Governor Stanley Fischer

Stanley Fischer 311 R. (photo credit: REUTERS/Baz Ratner)

 
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Bank of Israel (BoI) Governor Stanley Fischer warned on Tuesday against making dramatic changes to economic policy, saying that the Israeli economy was in good shape despite the worsening situation in Europe.

“The Israeli economy is in a relatively good position.

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The situation in Europe is worse,” Fischer said at a press conference at the Bank of Israel headquarters in Jerusalem.

“We can overcome this period successfully if we manage the economy in a responsible and orderly manner.”

Referring to the European debt crisis, which has spread to Italy and now appears to be seriously threatening the future of the entire euro zone, Fischer said it would impact Israel just as it impacts the entire world.

But there was “one ray of sunlight” compared to the 2007-08 global financial crisis, as this time, “it won’t come as a surprise,” he said, if the euro zone splits and Europe’s financial system suffers.

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“We must not surrender to populism,” Fischer continued, referring to policies at home.

“When an economist speaks of populism, he speaks of economic steps that have broad, short-term support from the public but which cause long-term damage.

We must not surrender to populism because it kills economies.”

Acting responsibly means protecting the budget framework and resisting the temptation to raise taxes in order to cover an expected increase in the deficit, Fischer added. He downplayed the forecasts of such an increase, saying it would not be such a negative development as long as the government could fund it.

The Finance Ministry said Tuesday in its monthly forecast that it was some NIS 2.6 million short of its expected tax revenue for the year to date.

Fischer said the GDP would grow by around 3 percent next year, adding that this had been Israel’s original target.

He said the government should only consider cutting expenditures or raising taxes if it has problems funding the deficit.

The BoI governor said the central bank still expected economic growth of 4.7% for this year, with expectations for next year at around 3.2%. While this will mark a slowdown, he said it still makes Israel the envy of Europe, where growth in most countries has stalled and – in the case of Italy – begun to decline.

“We’re growing more slowly but we’re not going into a period of negative growth – we’re relatively far from that,” Fischer said. “We just got used to the fact that for a few years we had economic growth exceeding 4%.”

He did acknowledge at least one negative indicator for the economy, namely the damage to Israel’s trade balance caused by a gradual drop in exports since April.

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