Commentary: Fischer’s concern hints at storm ahead

The Fischer of November 2011 is much more gloomy than the Fischer we used to know in 2008.

Stanley Fischer 311 (photo credit: Bloomberg)
Stanley Fischer 311
(photo credit: Bloomberg)
The word “concern” can describe most thoroughly Bank of Israel Governor Stanley Fischer’s mood, at least according to what he said at a press conference on Tuesday. In the meantime, Fischer is not expressing more than concern. His essential message can be reduced to a warning not to increase expenditures and not to let the deficit expand beyond what stems from slowed growth.
Fischer suggested to the social-protest leaders that they make do with the Trajtenberg report, though there are signs that its implementation is in doubt. Everything not included in the report, Fischer believes, is just populism.
But the ones who should be listening to Fischer’s warnings are actually Prime Minister Binyamin Netanyahu and Defense Minister Ehud Barak. If these two former commandos begin horse-trading on this issue, as is their habit with other issues, they might find themselves face to face with Fischer.
Signs of weakness
Fischer tried to give a balanced macroeconomic forecast of what the Israeli and global markets should expect. Among all the numbers, there is one piece of data that should have all decision makers worried: For the first time in eight years, Israel will show a current-account deficit. This piece of data reflects the fact that the world debt crisis is signaling its arrival, and the Israeli economy is showing signs of weakness, even if growth statistics are still strong.
Fischer sounds much more worried, though, about the situation in Europe. The two alternatives – protecting the euro by the largest EU countries entering into a recession and making huge sacrifices, or dismantling the euro zone and reestablishing it in northern Europe only – are somber, ominous and full of dangers.
Much more gloomy
While everyone is looking toward the European Central Bank, Fischer’s forecast, as with its two alternatives, explains something about the things currently being said by central-bank leaders.
The Fischer of November 2011 is much more gloomy than the Fischer we used to know in 2008. His appearance reminded me in many respects of his speeches during the year of the financial crisis, when Fischer told the Israeli public a financial and economic storm was closing in on Israel that will damage the economy.
There were hints of a storm then, and now there are more than just hints that a storm is coming our way. This explains why Fischer is not in the mood to quietly let the politicians get away with their deals to raise the budget.