Major international financial firms like Moody’s and Morgan Stanley have already moved to either downgrade or issue warnings about the state of the Israeli economy after Monday’s passage of new legislation that limits the powers of the country’s Supreme Court. While the same agencies recently preserved Israel’s positive ratings, the moves came as little surprise as they had also warned of future problems should the government push through its controversial judicial reform plan.
In response to the news, Israel’s Prime Minister Benjamin Netanyahu and Finance Minister Bezalel Smotrich released a joint statement in which they downplayed the significance of the moves and asserted that Israel’s economy is strong.
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The coalition government of Prime Minister Benjamin Netanyahu passed the first phase of its judicial reform on Monday. The so-called “reasonableness” amendment to Israel’s basic law on the courts passed in a vote of 64 to 56, with all members of the Knesset voting. All of the coalition members voted in favor and all opposition members against.
Morgan Stanley changed Israel’s status to a “dislike stance.”
“We see increased uncertainty about the economic outlook in the coming months and risks becoming skewed to our adverse scenario,” wrote Morgan Stanley’s analysts. “Markets are now likely to extrapolate the future policy path and we move Israel sovereign credit to a ‘dislike stance’.”
As for Moody’s, the firm went to the trouble of making a statement outside of its standard schedule for rating updates.
“The wide-ranging nature of the government’s proposals could materially weaken the judiciary’s independence and disrupt effective checks and balances between the various branches of government,” said Moody’s, “which are important aspects of strong institutions,” the credit rating agency wrote in its announcement that was made “The executive and legislative institutions have become less predictable and more willing to create significant risks to economic and social stability.”
Basically, the new “reasonableness” clause will place limits on when the courts can intervene and decide on whether a law passed by the Knesset should be allowed to stand. This is even so in cases when an independent group appeals a law based solely on its opposition to the policies the law sets and not whether it in any way violates the rights of Israeli citizens or other laws of government.
The new law will also block the courts from interfering with actions made by government ministers based solely on their own beliefs of what is reckless, unethical, or incompletely considered, and not based on what the law says.
The government’s supporters assert this is necessary because it will “restore” democratic principles to Israel that the government maintains were lost. This, it says, is because the courts have taken on too many powers for themselves that were not enshrined in law, thereby usurping the democratic process and the will of the majority in political matters.
The opposition, however, charges that this would be just the first step in a process to end the system of judicial review in Israel. This, it says, will harm Israel’s democracy by taking away the power of the courts to serve as a check against government powers.
Benjamin Netanyahu and Bezalel Smotrich, however, do not seem to be so concerned about this.
They dismissed these decisions saying, “This is a momentary response; when the dust clears, it will be clear that the Israeli economy is very strong.”
They also listed a number of positive aspects of Israel’s economy saying, “The security industries are bursting with orders. The gas industry is increasing exports to Europe and seven companies are now competing for tenders to explore for gas in Israel at an investment worth billions. Intel is planning its largest investment outside of the US ever and will invest $25 billion in Israel. NVIDIA is building a supercomputer in Israel and we are moving forward in AI, cyber and the manufacture of chips in Israel. Growth is increasing and inflation has been blocked. Regulation is being lifted and free market competition is increasing.”
But any of the above could be reversed if foreign investors lose confidence in Israel’s political stability.
Netanyahu and Smotrich also declared, “The Israeli economy is based on strong fundamentals and will continue to grow under experienced leadership that is enacting a responsible economic policy.”
