Adi Schwartz

Now it’s serious

Have the latest revelations about a secret uranium-enrichment plant made an Israeli attack in Iran more probable, imminent even? Not necessarily. Such a plant might indeed mean that Iran is getting ever closer to obtaining nuclear weapons. But since all indications are that the Israeli intelligence already knew about this plant a couple of months ago, the genuinely significant development, in Israeli eyes, is Barack Obama’s, Gordon Brown’s and Nicolas Sarkozy’s signalling that this time they really mean business when it comes to the Iranian regime.

For years, Israeli officials have argued that an Iranian nuclear bomb is not like any other country’s nuclear bomb. According to most Middle Eastern analysts – Israeli, Arab and western – Iran’s official attempts to export the Islamic Revolution around the region have turned it into a source of great instability. Taking into account Israel’s tiny territory (75 times smaller than Iran’s), and the latter’s open and ongoing threats to “wipe Israel off the map”, it is not surprising that Israel considers a Iranian nuclear bomb as such a paramount concern.

As the months and years have gone by, the international community’s response to Iran’s nuclear project has seemed hesitant and slow. A fragmented Security Council, unfinished wars in Iraq and Afghanistan and the American intelligence failure leading up to the Iraq war, have repeatedly let Iran off the hook. Despite a few rounds of sanctions, Iranian leaders have sounded defiant as ever, firm in their quest to achieve nuclear capabilities.

And Israel has felt more and more cornered, with no real alternative but to act independently. While for most countries around the world believe that an Iranian nuclear bomb might pose theoretical questions about the effectiveness of the non-proliferation regime, for Israel it’s a question of life and death.

“This latest disclosure shows that the Israeli assessments were right,” says Avner Cohen, a University of Maryland professor and author of the book Israel and the Bomb. “The Israeli intelligence did not believe the American assessment of 2007, according to which Iran had halted its nuclear programme. Now it appears that Israel wasn’t just pessimistic or war-mongering. It is a game-changer as to future negotiations with Iran, especially those that will start just this coming Thursday [Group of Six meeting with Iran in Geneva].”

Therefore, Israel had been encouraged to see a decisive Obama and a grumpier-than-ever Sarkozy in Pittsburgh. An international commitment vis-à-vis Iran will probably yield better results than any other possibility, given the carrots and sticks Iran’s trading partners can offer and the difficulties in carrying out any military action. This is why ex-prime minister Ariel Sharon’s attitude was that Israel has to keep a low profile in matters concerning Iran.

So now the ball is again in the international community’s court. It remains to be seen if this is a serious attempt to solve the problem or just another photo-op. The EU, after all, is still Iran’s largest trading partner (with $25bn worth of trade in 2008). Maybe instead of waiting for Chinese approval of new sanctions, Germany, Italy, France and other European countries should start by giving their own example.

(Originally published in Monocle, September 28th 2009)

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Crisis? What crisis?

The somewhat odd celebrations on the first birthday of the financial crisis offered much remorse and only dim rays of hope. Standing in stark contrast, though, was the Israeli version of that anniversary, marked mainly by the feeling that the worst is already behind us, and that actually it wasn’t that bad.

This week, UBS joined Morgan Stanley and Barclays Capital in projecting positive growth of 0.3 per cent for the Israeli economy this year. According to The Economist, this will make Israel the only developed economy in the world with a positive growth rate in 2009.

Earlier this month, Moody’s Investor Services concluded that Israel’s recession appears to be over, while HSBC economists wrote that Israel had shown “tremendous resilience to the global recession”. In August, Bank of Israel governor Stanley Fischer was the first among his colleagues in the West to raise the interest rate, thus proclaiming an end to the recession.

So what went so (relatively) well here?
 
First of all, Israel entered the crisis in a very different situation to others: with no toxic bank assets and no property bubble. Israeli banks have traditionally been conservative lenders, and “sophisticated” financial tools were far less in use. Public and private levels of indebtedness were also very low.

Crisis did hit eventually, exports shrank and around 2 per cent of the workforce (more than 60,000 people) joined the ranks of the unemployed – the rate now stands at 7.9 per cent.

The big star of the crisis is no doubt Mr Fischer, who took a few resolute steps. He cut interest rates, bought government bonds and spent some 100bn shekels (€18bn) to buy dollars in order to help exporters.

But it seems that his most useful asset as the crisis unfolded was his leadership skills, and his ability to “speak softly and carry a big stick”. On the one hand, he was much more visible than usual, sending the market and the citizens a clear message that someone’s taking care of things. On the other hand, he reiterated time and again his refusal to spend public money in order to bail out companies.

Another important lesson is the advantage of being small. Dan Catarivas, director of foreign trade at the Israeli Manufacturers Association, says that Israeli companies were very flexible this year, and managed to shift their activities to markets with high demands. “Israeli companies are no General Motors,” he says, “and they can easily shift from providing services to the car industry, for example, to selling components to electronic goods manufacturers.”

Israel, of course, is not comparable to the big players, but rather to medium-sized economies, such as Hungary, Greece, Portugal and the Czech Republic. In the Israeli case, the crisis showed that it’s sometimes easier to navigate a small speedboat than a huge aircraft carrier.

(Published originally in Monocle, September 24th 2009)

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