4/6/06

How Can Olmert Afford His Partners? Demands from possible coalition allies could break the budget .

Stewart Ain and Joshua Mitnick

As Ehud Olmert began forming a new government in Israel this week, he faced a formidable task of welding together a stable coalition from 12 parties — none of which is dominant — and in which his natural allies are expected to make serious money demands.

“We don’t have any figures yet, but people are saying the demands of the Pensioners Party, Labor and Shas will total 10 to 12 billion shekels [$2.2 billion to $2.6 billion],” said Gabi Sheffer, a political science professor at the Hebrew University in Jerusalem.

Some of that money will come from the current 7 billion shekel surplus, according to Yoram Meital, chairman of the Department of Middle East Studies at Ben-Gurion University of the Negev. “I’m not sure [Olmert] can respond to all of the requests of the parties that we have seen made in the last couple of days in the Israeli media, but this is the time of negotiation and at this stage everybody can come in with their maximum requests.

An associate of Olmert, whose Kadima Party won 29 seats, was quoted this week as saying that there “can be no progress” with potential coalition parties unless they “make serious concessions.”

Kadima’s outlook on the economy is closer to that of former Finance Minister Benjamin Netanyahu, who was seen as having restored economic health at the expense of the nation’s poor.

The Pensioners Party, formed just weeks before the election and one of its big winners, campaigned on a single issue — helping to improve the condition of the country’s 750,000 pensioners, including a guaranteed pension for all (which would cost the state as much as 4 billion shekels a year) and subsidized medical costs for the elderly. It also wants a significant increase in old-age pensions, a move that could cost 2.1 billion shekels yearly.

A senior member of the Labor Party was quoted Wednesday by the Israeli newspaper Yediot Achronot as saying that although he does not expect any serious difficulties when it comes to diplomatic issues, a struggle over socioeconomic affairs looms.

“We still haven’t started dealing with everything, and therefore it could take quite a bit of time and even not work out,” he said. “We want to be in the government, but that doesn’t mean we’ll renounce our principles.”

The Labor Party, under former Histadrut union head Amir Peretz, won 19 seats and campaigned on a platform that placed socioeconomic issues ahead of all others. He called for an increase in the minimum wage to $1,000 a month over three years at a cost to the state of 2 billion shekels a year, increases in welfare payments, and the inclusion of more medicines in the state’s health plan.

The other possible coalition partners also have their money demands.

Shas, the Orthodox Sephardic party that won 12 seats, also campaigned on socioeconomic issues, attacking the neo-conservative economic policies implemented by Netanyahu that hurt many low-income families. It also wants increased aid for fervently Orthodox educational schools. In addition, it wants a return of the child allowances to their pre-2003 level, a move that would cost 3 billion shekels annually. And it wants the restoration of extra grants for young couples who are entitled to government mortgages, a step estimated to cost 1 billion shekels per year.

Meretz-Yachad, the party of the far left that won five seats, also pressed for a broad social- economic-democratic agenda. It called for developing a social policy under which the weak and under-privileged would live in dignity as the social gap disappeared.

United Torah Judaism, which won six seats, wants more money for the fervently Orthodox educational institutions at an estimated cost of as much as 500 million shekels a year, and increased state benefits for its members.

All of this wrangling is seen as likely to delay implementation of the 2006 budget, whose passage is one of the first orders of business for the new 17th Knesset.

How could the new government afford these possible increases? David Makovsky, a senior fellow at the Washington Institute for Near East Policy, questioned whether it would mean a cut in defense spending, a tax hike, a cut in other programs or a request for more aid from abroad.

“There is no doubt that part of the game in this election was a backlash to the austerity cuts Israel was forced to impose because of the intifada,” he said. “The country’s GNP was dropped by 9 percent per year. The fact that Israel grew at 5 percent last year is a sign of its resilient economy and that the austerity cuts were necessary.”

But even before coalition negotiations began, members of Olmert’s Kadima Party were expressing concerns that an increased demand for social spending would break the budget and make the financial markets uneasy.

Against this backdrop are Olmert’s plans to move more than 60,000 settlers from the West Bank to behind the security barrier Israel is completing. Although the move is not likely to begin for at least another year, Leonard Weinberg, a professor of political science at the University of Nevada, said the cost of such action would be staggering compared to the cost of moving 8,000 Jews from the Gaza Strip last summer. “Seeking subsidies from the U.S. would not be an unreasonable financial request,” he said.

Peace Process Front

In the meantime on the political front, the Labor Party plans to push Olmert into pursuing a “serious” search for a Palestinian partner for peace negotiations. Party leaders say it wants to ensure “there isn’t an automatic pullout.”

“We want to see if there are people who can negotiate” on the Palestinian side, said Labor Knesset Member and former New York Consul General Colette Avital. “We want to see if there are moderate forces in Fatah.”

“They have to get their act together in Kadima and decide what their policy is,” she continued. “Is it [behind Foreign Minister] Tzipi Livni who says [Palestinian President Mahmoud] Abbas isn’t relevant, or is it [behind] Ehud Olmert, who thinks that Abbas is relevant.”

While many in Kadima question whether Abbas can deliver a tangible peace agreement, Labor politicians say they want an exhaustive search for Palestinian moderates who might be willing to embark on talks.

“This could be a contentious issue between Labor and Kadima,” said Yossi Alpher, the editor of an Israeli-Palestinian Web-based journal, bitterlemons.org. “This is an issue on which they don’t agree. They agree pro forma, but they don’t agree with the substance.”

Avital said that a serious search for a partner isn’t done with a “stopwatch in hand.” Nevertheless, Olmert’s promise to fix Israel’s final borders within four years has spawned speculation that his government can’t wait for more than a year if it wants to move forward with a new unilateral move.

The acting prime minister said in a victory speech last week that Israel prefers a peace treaty with the Palestinians and that he was ready to make concessions. Even Hamas’ Prime Minister, Ismail Haniyeh, gave his blessing to Abbas renewing negotiations. But few observers believe the time is ripe for another round of negotiations.

“The Palestinians will be very busy in the coming months trying to get their house in order,” said Bruce Maddy Weizman, a fellow at the Dayan Center for Middle East and North African Studies. “The real question is what is the relationship between Abbas and the Hamas government. So far the picture is muddy.”

It’s still unclear how the sides can even get past the first stage of the U.S.-sponsored road map, which requires Israel to dismantle illegal settler outposts while the Palestinians disarm militants.

With Hamas stating that it will not rein in gunmen who are part of the “resistance” against Israel, the prospects for any progress on the peace plan seem remote. Hamas’ ascendance to control the Palestinian parliament has taken it off the front lines of bombings against Israel. In a strange role reversal, Hamas is in the position of responsibility for maintaining order, and members of deposed Fatah are trying to embarrass the new government with attacks on two West Bank settlements

Hamas may focus inward in the upcoming months to gather strength and establish its rule.

“On the top of their agenda is to consolidate their power internally, and to break the siege imposed on them by the U.S. and Europe,” said Said Zeedani, a Ramallah political analyst. “They have never been in power, and there will be a lot of learning for them. There are huge challenges when it comes to the rule of law, poverty, and welfare; the internal agenda will be preeminent.”

The same thing could be said of the Israeli side as well. After Amir Peretz based his campaign on socio-economic issues, he may end up as defense minister. That’s because financial markets would go south if the populist Labor leader got the finance portfolio, and because the top foreign ministry post was promised to Tzipi Livni.

As defense minister, Peretz would have an opportunity to help direct Israeli-Palestinian violence toward calm or toward escalation. He’ll also have control over the government’s largest ministry. Knesset Member Avital predicted that Peretz would try to shift about $400 million from the defense budget to education in the next parliament. The possible appointment of a politician who spent little time in the army is positive development, said Avital, asserting Peretz would “offer a fresh attitude on defense.”

Except for the Pensioners’ Party, the remainder of the coalition has yet to come into focus. Olmert and Kadima are said to be deliberating between Yisrael Beiteinu, the Russian party headed by Avigdor Lieberman, and Shas. Both right wing parties could theoretically sit in the government to begin with, but their support won’t be assured if Olmert gets around to a new withdrawal. And yet, the incoming parliament marks the first time a clear majority of the lawmakers would support some sort of territorial deal with the Palestinians.

“There’s an overwhelming majority engaged in a debate over how to end the control over the Palestinian population,” said Gidi Grinstein, president of the Re’ut Institute, a Tel Aviv think tank, “and that is a historical moment in the Zionist movement.”

And yet, if Olmert wants to survive politically, he will have to invest in coalition maintenance to ensure the government doesn’t implode.

“One thing we know is that Olmert is a much more practiced and effective politician than [former Prime Minister Ehud] Barak ever was, and so he’ll probably handle it in a more astute manner,” said a Hebrew University sociologist Steven Cohen. “The question is whether those fundamental issues can be resolved even by an effective politician, or are they structurally so profound that they are simply not soluble at this time in Israeli politics.”