Landau with Greek counterpart 370.
(photo credit: Courtesy Energy and Water Ministry)
Is there a real threat of Israel “becoming like Greece and Spain?” Could this
country lose access to the international markets, so that no one would want to
lend to us? On what basis do creditors stop lending to countries that want to
borrow? Those were the central questions posed in last week’s column.
answer to the first question is that there is no substance to the shrill and
melodramatic threat being hurled at us at every opportunity by our silly,
childish and theatrical prime minister and finance minister. One reason,
entirely sufficient in itself, is that Israel has become a net creditor to the
world. It owns more financial assets overseas than the rest of the world owns
here. In that sense, it doesn’t actually need to borrow. But the government does
have a large and growing budget deficit, and the country has a large and growing
deficit in its global trade.
Why we have those deficits and who is
responsible for them is open to debate, but what is undeniable is that they need
to be financed. That means we need to borrow, because we don’t want to sell
assets to finance what ought to be a temporary shortfall; that would be
equivalent to drawing on your pension scheme or selling your home in order to
cover some unforeseen expenses or a temporary drop in income.
If we are
so strong financially, to the point that we are net creditors to the world,
there should be no problem raising loans in the international markets – and
certainly no risk of losing access to them. However, the markets themselves have
become both panicky and finicky, whilst the lenders – banks and large financial
institutions – have serious problems of their own to deal with.
particular, are hoarding cash and are loth to lend to almost anyone, whether
households, businesses or even sovereign countries. Maybe their behavior is
insane, or maybe it is actually the acme of sanity – either way, there is a
significant danger that we will lose access to the markets not because we are
not good debtors, but because the potential lenders are not good creditors or
simply because the markets themselves have become
Fortunately for us, Israel does not have to rely very much
on foreign borrowing via either banks or the global bond market. The Israeli
public generates a large pool of savings, which ideally are invested in the
private sector, but which the government can access when it needs to. Obviously,
a situation in which the government consistently demands the lion’s share of
domestic savings will have a cumulatively negative impact on the economy –
indeed, that is how Israel got into severe trouble in the early 1980’s, and how
other countries have done the same recently or are doing so currently. But
having a pool of domestic savings is critically important.