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Moody’s Sees Economic Ruin for Israel if Judicial Reforms Pass

The members of the opposition were removed from the plenary hall of the Knesset because they wrapped themselves in the Israeli flag source @yallatikva

Moody’s, the top world credit ratings agency, announced Tuesday that it was keeping Israel’s rating at A1; however, the agency did so with one really big caveat regarding the country’s judicial reform legislation currently before the Knesset. The government of Prime Minister Benjamin Netanyahu is currently promoting reforms that it says are needed to “restore” Israel’s democracy and undo years of what it asserts were “undemocratic” moves by Israel’s Supreme Court to take powers for itself at the expense of the Knesset and government.

But Israel’s opposition charges that the reforms, which would greatly inhibit the ability of Israel’s courts to serve as a “check” on the government of Israel and the Knesset through the process of judicial review, would harm Israel’s identity as a democratic state. This has led to two months of massive protest in Israel against the plan, a slide in the Shekel’s value out of concerns that it would hurt the country’s economy and some Israeli businesses pulling their funds from the country.

Moody’s seems to agree with this warning in its report, “If implemented in full, the proposed changes could materially weaken the strength of the judiciary [in Israel] and as such be credit negative. The planned changes could also pose longer-term risks for Israel’s economic prospects, particularly capital inflows into the important high-tech sector.”

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Moody’s also stated the reforms would, “materially alter judicial independence and effective checks and balances” in Israel.

Moody’s also echoed calls made by Israel’s President Isaac Herzog for compromise. And agreed with the President’s statements on the issue in which he said that such drastic changes should only come as the result of some sort of “super-majority” vote in the Knesset, with support from the opposition, and not just a simple majority of 61 or more votes in the 120 seat Knesset.

“We continue to believe that there is broad political consensus on the direction of economic and fiscal policies despite the fragmented political landscape,” said Moody’s. “However, stronger fiscal and debt metrics may not be sufficient to offset weakening institutions if the content of the judicial reforms and the way they are passed point to such weakening.”

As of Wednesday morning, however, reports in Israeli media indicate that Prime Minister Netanyahu may be ready to bow to all of the pressure and accept a compromise plan on the reforms.

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