A man holds up a Greek national flag during a demonstration in support of Greece.
(photo credit: REUTERS)
It is still unclear what the resounding “no” vote in the Greek referendum portends for the future of Greece – and for the future of the entire European Union.
But on the very same day Greeks went to the polls and rejected creditors’ bailout demands, Greece’s Foreign Minister Nikos Kotzias kicked off a three-day visit in Israel, which is expected to focus on bilateral military and economic ties and the diplomatic situation with the Palestinians.
The visit, coming at a time of such consequence for the Greek economy, invites the question: Where did Athens go wrong and what did Jerusalem do right in recent decades to avoid the Greek economic tragedy? Another coincidence – adding to the pertinence of such a comparison – is that it was 30 years ago this week that Israel began a dramatic break with failed quasi-socialist economic policies that had generated hyperinflation, a bloated public sector and crippling debt. On June 30, 1985, then-prime minister Shimon Peres, together with finance minister Yitzhak Moda’i and economist Michael Bruno, rammed through the Knesset an economic stabilization plan. Within two years, inflation rates fell from 450% to more manageable levels.
Obviously, comparisons between the Greek and Israeli economies can go only so far. Indeed, a large part of Greece’s problem is connected to its membership in the Eurozone.
Because the Greeks abandoned the drachna for the euro in 2001, it has been unable to combat a stagnant economy via devaluation of its currency, which makes Greek exports and Greek tourism more attractive to foreigners.
Nevertheless, Israelis have much to learn from the Greek meltdown, and many of these lessons were highlighted by outgoing National Economic Council Chairman Prof.
Eugene Kandel ahead of the Greek foreign minister’s visit.
According to Kandel, part of the answer to Jerusalem’s success has to do with economic policies. While the Greeks have failed miserably in their attempt to stay within the EU’s fiscal guidelines, Israel has over the past decade or so cut the size of its public sector, reduced welfare transfers and demonstrated fiscal responsibility – consistently maintaining a low budget deficit as a percent of GDP.
While Greece’s debt-to-GDP ratio climbed from 94.1% in 2003 to a crippling 177.2% in 2014, Israel’s debt-to-GDP ratio fell from 93.9% to 68.8% in the same period. Greece’s credit rating (Moody’s) declined from A1 (2002) to Caa3, while Israel’s rose from A2 to A1 (2015).
However the success of Israel’s economy is not just about fiscal discipline. Prudent spending balances the budget but it does not generate income.
Israel’s astounding innovations in the fields of medicine, hi tech, and applied sciences have been the driving force behind impressive GDP growth. Hundreds of international corporations have set up R&D centers in Israel to tap into world-class human resources. And these companies have pumped billions of dollars into Israel’s economy.
Perhaps it is the ancient and deep-seated Jewish ethos of education that encourages asking questions, perhaps it is the on-hands training so many Israeli youths receive in the IDF, perhaps it is the geopolitical reality that leaves Israel no choice but to be constantly one step ahead of its many enemies. Whatever the reason, Israel has more companies listed on the NASDAQ than any other country in the world except the US and China.
Though Israel’s GDP per capita in 2004 was $21,796 – lower than Greece’s at $25,837 – the Greek GDP per capita has remained stagnant while Israel’s GDP per capita has risen by approximately 50% to $32,691 (in 2015 dollars), according to World Bank figures.
And unemployment in Greece rose from 8.4% in 2002 to 26.5% in 2014, while unemployment in Israel dropped from 12.8% in 2002 to 5.9% in 2014.
Two factors explain the very different paths the economies of Jerusalem and Athens have taken in recent decades. First, while the Jewish state has managed to balance its budget, keep labor unions under control and reduce public sector waste, the Greeks have exhibited far less discipline.
Second, and more significantly, Israeli culture has fostered an impressive knack for innovation and creativity that has translated into higher GDP per capita, larger international investments and a more dynamic business environment.
The Greek lesson should be a reminder to our political leadership in Jerusalem to remain vigilant against fiscal irresponsibility while removing obstacles to innovation.