Monday was a busy day for Bank of Israel Governor Stanley Fischer who not only held a press conference but made the rounds of various news programs. While outwardly unflappable, Fischer is obviously concerned that the current demonstrations may trigger irresponsible programs of a shoot from the hip style. He was particularly concerned about the timing of such actions since he coupled his statement while expressing his fears that the international monetary situation remains turbulent as the European debt crisis was advancing from the peripheral states to the core states.
He conceded that there were areas for improvements but it was important to preserve the budgetary framework. Instead of launching ill-considered programs the committee set up to examine the tax structure was excellent and perhaps the decline in direct taxation and the increase in indirect taxation was responsible for growing socioeconomic gaps in Israel. Fischer admitted that he was surprised by the demonstrations but then almost everybody else was.
Fischer defended his policy initiated at the start of the global economic crisis of cutting interest rates to the bone --a policy that left investors with few alternative havens for their capital outside the real estate market. Fischer replied "if we hadn't dropped the interest rates and left them at 4.25%, we would not have a problem of housing but instead a problem of high unemployment as in the United States and Europe would've been created where the unemployment level is almost 10%. If the interest was so high, there wouldn't be any work and people couldn't even think of buying a home.
Stanley Fischer believes that the Israeli economy may be over centralized and one should examine price differences between Israel and abroad "we pay too much for automobiles"… My impression is that prices in Israel a very high"
In perhaps a backhanded compliment to the demonstrators the Bank of Israel Governor claimed "some of their demands are political and I won't speak about it. But they are contributing to the quality of politics in the state of Israel but anyone who wants to exert influence in politics can't work exclusively via protest movements."
Fischer returned to his warning "We are entering a problematic period due to the state of the world economy and therefore it is impermissible for us to rupture the budgetary framework; we will pay a very high price. We did this in 1995 and it cost us a great deal.
The financial correspondents did not pick up on this statement either because they did not understand the allusion or they understood it too well. In 1995 the Prime Minister was Itzhak Rabin and his Minister of Finance was Avraham (Beiga) Shohet. That government lavished huge salary increases on public sector employees and the Arab sector and because of its munificence it was credited with changing the country's order of priorities. This phrase changing the other of priorities has reappeared in the demonstrations and Fischer is issuing a warning against the mistaken policies that could be initiated as a result