Tel-Aviv has not just woken up. Eleven days after the war began, the city does not regain its pulse. It seems that every day is a holiday, with no shops, no offices, with the children in the parks and almost everyone at home. Only the terraces of the cafes on Malkhi Yisrael street or Shlomo ibn Gabirol avenue are frequented, full of people who enjoy the good weather and seem to have solutions for everything, to end Hamas and Netanyahu, to live in peace when the war over
“The longer the conflict goes on, the worse it is for everyone,” economist Eran Yashiv, from Tel-Aviv University and a member of the London School of Economics’ macroeconomics center, explains to me. The middle class will have it worse to get to the end of the month 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 of spectacular architecture for an economy that was growing by 3%. But almost all works are stopped. The sector is one step away from bankruptcy.
There is a lack of labor in a very rigid labor market. Almost everyone has a job. Unemployment is at 3.6%.
The lowest-paying, but production-sustaining jobs were held by the roughly 300,000 Palestinians in the West Bank. However, they are now being denied entry. Many Asian immigrants have returned home. Home delivery people are the only ones left.
And the skilled workforce that supported the technological sector, the strongest in the Israeli economy, is also missing. The army has mobilized 360,000 reservists, citizens up to the age of 40 fully integrated into the labor market. They have left their jobs, many at start-ups, and there is no one to replace them.
Bank Hapoalim calculates that the economic effort of the war will be equivalent to around 5.7 billion euros, money that has to come from somewhere. Yashiv believes it is too early to close numbers, but anticipates the worst.
“It was already bad when the Government tried to eliminate the independence of the Supreme Court, but now it’s worse”, says Yashiv.
The Minister of Finance, Bezalel Smotrich, reviews the budget to cut expenses, but keeps the items destined for the West Bank settlements. Yashiv believes that he should resign immediately, but it is impossible because he leads the most messianic settlers and must also think about the Haredis, the ultra-orthodox Jews who live subsidized and support the Government. Between them, they take about 3,500 million euros.
Smotrich is protecting them at the expense of Israel’s economic future and Yashiv thinks that is intolerable. “I should resign at once”, he says without hiding the contradiction, the deep disillusionment that academics feel these days due to the Government’s inability to act with common sense.
Yashiv sees only one way out and it is a chimera. Once Hamas is defeated, he believes Netanyahu should resign. Whoever the replacement is, he would have to give up settlements in the West Bank and strengthen democratic institutions, which implies imposing an iron divide between the state and the Jewish religion. “Only in this way – he says – will high-tech companies reconsider their plans to move to another country”.
It is very likely that the war will increase the Defense budget. Even if 5% of GDP is eaten now, it is not enough to guarantee security. Investing in armaments is investing in the second most important sector of the economy, but Yashiv believes that, “first of all, it benefits American companies, which are the ones that sell us weapons. The United States has a very clear economic interest in giving us aid. Israel no longer needed it, but the war forces us to accept it again.”
The Israeli Defense Minister acknowledges that the war will be long and it 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 harder to come back.
50 years ago, the Yom Kippur war, which is the 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 with water up to its neck. Then there was talk of a lost decade. The same risk has returned and it will not be easy to avoid it.
“We will have to pay for a lot of things – Yashiv explains -. Not only the expenses of the war, but also the compensations to the victims, it will be necessary to rebuild the south 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 start-up companies will no longer be there. Quadra with its business logic”.
I put the dilemma to a group of seventies friends in a cafe on Malkhi Yisrael Street and they don’t flinch. “The economy today is much stronger than it was then,” says Lior. “When they come back from the front, the boys will go back to creating start-up companies,” comments Yosi. “The Americans will give us a hand, I’m sure”, says Yoav, who has read on his mobile phone that the Biden Administration has accepted a loan of 10,000 million dollars.
They are sure of themselves, but they do not know the economist Eran Yashiv and, without information, they are not afraid of the tsunami that is not yet visible.