134 — Joining the Dots

For several months now, the number one item on the agenda of global financial markets and the global economy has been the European (originally merely Greek) crisis. Yet, although its indirect impact has been strongly felt in Israeli financial markets, it can hardly be said that this has been the number one topic on the local agenda. On the basis of what has been making headlines in the Israeli financial media, it would be fair to say that the state of the local real-estate market – the supposed bubble that has formed or is forming in it, and measures suggested or actually being taken to deal with it – is the centre of attention.

Meanwhile, as the European economic and financial crisis simmers in the background, from an Israeli perspective, Israel’s relations with the EU and many of its member states have been deteriorating. This trend, long in the making, came to the fore last year during the ‘Cast Lead’ operation in Gaza and has now again seized the spotlight, in the context of the blockade Israel has imposed on Gaza and the efforts of break it, culminating in the dramatic struggle over and seizure of the ‘Turkish flotilla’ last week. The diplomatic and political fallout stemming from this event is still developing, but it is clear that one if its results has been to aggravate the deterioration noted above in Israel-Europe relations. This, at least, has received considerable attention within Israel, although the range of views as to how Israel should respond and proceed is very wide.

This issue of The Landau Report seeks to cover the entire spectrum of the Israel-Europe relationship, on the premise that the various aspects are, and must be, inter-related. Indeed, the interplay between Europe’s deepening internal crisis and its ‘Mediterranean policy’ goes far beyond the generally one-dimensional media coverage. For example, it is hardly a secret that the EU is the major funder of the Palestinian Authority. Yet we hear that EU countries are undertaking massive budget cuts – including in their foreign aid budgets. The connection between these two points seems glaringly obvious to me, and also seems to be a source of serious potential concern from an Israeli viewpoint, let alone a Palestinian one. But I haven’t seen anyone say as much. Maybe I’m missing them, or maybe – as often happens – the political analysts never ‘follow the money’, and the economic analysts have bigger fish to fry in the context of Spain et al, than these countries’ foreign aid budgets.

The result is what I have termed ‘Joining the Dots’. For this newsletter, there are always five groups of dots, which are the sections into which it is divided: A] Regional Developments; B] Domestic Politics; C] Macro-economics; D] Corporate Affairs; and E] Financial Markets. The European crisis affects all of these and they then interact with each other, resulting in tangled skein which I will try and pick apart. To do this, I have reversed the usual order, so as to start with the easy subjects – in Financial Markets, the impact of the euro’s decline versus the shekel and, in Corporate Affairs, the allied topic of the impact of a weak euro and weak European demand on Israeli exports, as well as the potential and actual policy responses to these developments. Along the way, I digress to consider the impact of the MSCI upgrading of the Tel Aviv Stock Exchange from developing to developed market status and, in passing, some aspects of Israel’s acceptance as a member of the OECD. These recent developments, I think, should also be seen in the wider context of rising tensions with Europe and their actual and potential fallout in the financial and corporate spheres.

These topics suffice to fill a reasonably-sized issue – but they leave many of the ‘dots’, in macro policy and, critically in domestic politics and foreign affairs, to be joined. This is underway and, hopefully, the task will be completed next week, so that this issue and the following one are designed, and should eventually be seen, as a single entity.

As the old publishing cliché used to say: To be continued…



 E: Financial markets

  •  The shekel/ euro link
  •  Economic upgrading and political disinvestment 


D: Corporate Affairs

  •  Exports: Europe – out; EM – in
  •  The sectors left behind


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