Israel Politics


Israel: Benjamin Netanyahu forms weak coalition in a last-minute deal; no major economic changes expected

May 11, 2015

Prime Minister (PM) Benjamin Netanyahu barely met the 6 May deadline to form a majority government and is now set to start his fourth term as PM, thus indicating that there will be no major changes in terms of economic policies. Netanyahu’s Likud–National Liberal Movement party celebrated a surprise victory in the 17 March snap elections, but fell short of an outright majority. Following lengthy negotiations, Netanyahu managed to put together a center-right-leaning coalition, which has given him a majority by just one seat in the 120 seat-Knesset. However, the creation of a narrow majority at the last minute underlines the government’s internal tensions, which means that it may be difficult to pass major legislations.

The new government includes the center-right Kulanu party, the two ultra-orthodox parties United Torah Judaism and Shas, as well as The Jewish Home party. Getting the first three parties to join the coalition was a sure thing. However, securing the support from the members of parliament (MPs) of The Jewish Home was complicated as the party demanded that it hold the important role of Justice Minister. After two days of fierce negotiations and shortly before the 6 May deadline, the two party leaders managed to seal a deal. Netanyahu has declared that he will try to lure other parties into the coalition in order to strengthen it. His statements suggest that he may also try to convince the Zionist Union—the second largest party in parliament—to form a national unity government. However, this scenario is far from certain given the deep ideological differences between the two parties. As things currently stand, given the government’s thin majority, there are fears that it will not last long and that early elections will be called.

In terms of economic reforms, the continuation of Netanyahu’s leadership will not spell any major changes, with business-friendly policies likely to continue. Some new measures to lower the cost of living are likely to be implemented as this is the main mandate of the centrist Kulanu party. Kulanu’s leader, who now serves as the new Finance Minister, has also promised to pass reforms in the housing market in an effort to lower the elevated cost of housing. In this regard, Gil Bufman, Chief Economist at Bank Leumi comments:

“After housing, which suffers from a substantial shortage of supply, high prices and low affordability, competition in banking is an issue on which the Kulanu Party leader, Moshe Kahlon will focus. Kulanu's platform and proposals for changes in banking are ambitious. However, the banking industry in Israel is regulated by the Bank of Israel (the central bank) and is not under the direct control and authority of the minister of finance. Other items that are likely to receive attention from the next minister of finance include reforms in the insurance and pension markets and the cost of living.”

More uncertainty is expected regarding foreign policy issues. The inclusion of the hawkish The Jewish Home party in the coalition might change the government’s stance on security issues. The party is opposed to any peace talks with Palestine, which might lead to the peace process being derailed and therefore exacerbate the relations with the West.

Author:, Senior Economist

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