Fischer hopes economic sanctions in Iran lead
Fischer hopes economic sanctions in Iran leadReuters

On the eve of the final American presidential debate - a debate focused on foreign policy in which Israel was mentioned 32 times - Stanley Fischer, Governor of the Bank of Israel, spoke to CNBC about Iran, sanctions, the Israeli economy and what to expect in the coming months in the region. 

As world leaders continue to debate the practicality of a pre-emptive strike and the impact of economic sanctions on Iran, Fischer pointed out that the likelihood of an economic collapse in Iran is slim. Rather, the best possible scenario that can result from the sanctions is a significant political shift. 

"Economies don't collapse. If they collapse its through the political impact of what's going on in the economy…people find a way to keep economic life going," said Fischer. "It seems clear that there's a serious deterioration in the situation (in Iran), particularly in whats happening to the exchange rate. But what the political impact of that will be is something that remains to be seen. It is likely to have a political impact but what happens next will depend on how law authorities deal with it."

As for a contingency plan for how to deal with the economic impact in Israel should the crisis with Iran escalate into full blown war, Fischer said the banks have planned "for all sorts of eventualities," adding, "The planning process is very important in getting you to think in the right way and getting you prepared for what might come up."

Fischer also spoke about the current state of the economy in Israel and the difficulties of balancing the budget, saying, "The problem is that they've committed to a variety of groups and political parties and what have you to increase spending by 10 percent in 2013 so they've got to cut 5 percent out of their promises."

"We calculate this will be a slightly restrictive budget because the tax increase effect will outweigh the 5 percent increase in spending."

Fischer also answered questions regarding a recent report that brought into light the possibility of a housing bubble in Israel, as some fear lower borrowing costs have the potential to further inflate housing prices in the country.

"We are very committed to not allowing a bubble to happen and we will undertake measures if we have to to prevent that from happening," said Fischer.