Tel Aviv has not just woken up. Eleven days after the war began, the city does not regain its pulse. It seems like every day is a holiday, without shops or offices, with the children in the parks and almost everyone at home. Only the cafe terraces on Malkhi Yisrael Street or Shlomo Ibn Gabirol Avenue are busy, full of people enjoying the good weather and seem to have solutions for everything, to put an end to Hamas and Netanyahu, to live in peace when the war is over. .
“The longer the conflict continues, the worse it is for everyone,” explains economist Eran Yashiv, from Tel Aviv University and member of the macroeconomics center at the London School of Economics. The middle class will have a harder time making ends meet and “high-tech companies will look elsewhere.”
“We will have to renegotiate with the banks,” a local builder admitted to me a few days ago. Tel Aviv is full of cranes raising 60-story towers, buildings with spectacular architecture for an economy that was growing at 3%. Almost all the works, however, are stopped. The sector is close to bankruptcy.
There is a lack of labor in a very rigid labor market. Almost everyone has a job. Unemployment is at 3.6%.
The least paid jobs, but which sustain production, were occupied by the approximately 300,000 Palestinians in the West Bank. Now, however, they are denied entry. Many Asian immigrants have returned home. Food delivery drivers are the only ones left.
And there is also a lack of qualified labor that supported the technology sector, the strongest in the Israeli economy. The army has mobilized 360,000 reservists, citizens up to 40 years old fully integrated into the labor market. They have left their jobs, many in startups, and there is no one to replace them.
The Hapoalim bank estimates that the economic effort of the war will be equivalent to about 5.7 billion euros, money that has to come from somewhere. Yashiv believes it is too early to close the numbers, but anticipates the worst.
“We already had it bad when the Government tried to end the independence of the Supreme Court, but now it is worse,” says Yashiv.
The Minister of Finance, Bezalel Smotrich, reviews the budget to cut expenses, but maintains the items destined for West Bank settlements. Yashiv believes that he should resign immediately, but that is impossible because he leads the most messianic settlers and also has to think about the haredis, the ultra-Orthodox Jews who live subsidized and support the Government. Between them they take around 3.5 billion euros.
Smotrich protects them at the expense of Israel's economic future, which Yashiv believes is intolerable. “I should resign now,” he says without hiding his contradiction, the deep disenchantment that academics feel these days due to the Government's inability to act with common sense.
Yashiv only sees one way out and it is a pipe dream. With Hamas defeated, he believes Netanyahu should resign. Whoever replaces him, he should renounce settlements in the West Bank and strengthen democratic institutions, which means imposing a strict division between the state and the Jewish religion. “Only then,” he says, “will high-tech companies reconsider their plans to move to another country.”
The war is very likely to increase the defense budget. Even if it now eats 5% of the GDP, it is not enough to guarantee security. Investing in weapons means doing so in the second most important sector of the economy, but Yashiv believes that, “above all, it benefits American companies, which are the ones that sell us weapons. The United States has a very clear economic interest when it helps us. Israel no longer needed it, but this war forces us to accept it again.”
The Israeli Defense Minister recognizes that the war will be long and this is bad news. Yashiv anticipates a drop in GDP, with inflation and interest rates soaring. It will be necessary to raise them to contain prices. Consumption will suffer. It will be more difficult to come back.
Fifty years ago, the Yom Kippur war, which is the one most similar to the current one, brought Israel to the brink of bankruptcy. It took twelve years of strict austerity. Between 1973 and 1985, Israel lived in deep water. There was talk then of a lost decade. This same risk has returned, and it will not be easy to overcome.
“We will have to pay for many things,” explains Yashiv. Not only the expenses of the war, but also compensation to the victims, the south will have to be rebuilt and, if Hizbullah enters the war, also the north.”
It is a huge expense, and Yashiv believes that it will have to be faced with fewer resources because “the startups will no longer be there. It fits with your business logic.”
I pose this dilemma to a group of seventies friends in a café on Malkhi Yisrael Street and they are not deterred. “The economy is much stronger today than it was then,” says Lior. “When they return from the front, the kids will start startups again,” says Yosi. “The Americans will give us a hand, I'm sure,” says Yoav, who has just read on his cell phone that the Biden Administration has accepted a loan of 10 billion dollars.
They are sure of themselves, but they do not know the economist Eran Yashiv and, without information, they do not fear the tsunami that has not yet been seen.
