Greece has voted to say “no” to an austerity plan, defying international creditors. National Economic Council (NEC) Chairman Prof. Eugene Kandel, at the weekly Cabinet meeting on Sunday 18 Tammuz, briefed ministers on the economic crisis in Greece and on its implications and lessons for Israel.

At the start of the briefing, Prof. Kandel presented comparative data on the Greek and Israeli economies, which show the changes that they have undergone in recent years.

According to World Bank data, GDP per capita in 2004 was higher in Greece – $25,837 – than it was in Israel – $21,796. However, the Greek GDP per capita has not grown in the past decade while Israel’s GDP per capita has risen by approximately 50% to $32,691 (in terms of current buying power and prices). Unemployment in Greece rose from 8.4% in 2002 to 26.5% in 2014, while unemployment in Israel dropped from 12.8% in 2002 to 5.9% in 2014. Greece’s debt-to-GDP ratio climbed from 94.1% in 2003 to 177.2% in 2014, whereas Israel’s ratio declined by 26%, from 93.9% to 68.8% in the same period. At the same time, Greece’s credit rating (Moody’s) declined from

A1 (2002) to Caa3, while Israel’s rose from A2 to A1 (2015).

The main reason for these changes is the difference in economic policies undertaken by the respective governments in the past 15 years. From 2002-2007, the Greek government chose to increase government expenditures and “benefits” to the public, such as pensions from the age of 57, etc., which could not be financed over the long-term. The Government of Israel chose a responsible policy of fiscal discipline and cutting government expenditures.

Prof. Kandel noted that according to NEC assessments, it is anticipated – in all scenarios – that the direct impact of the Greek economic crisis on Israel will be low. This is because of the Israel financial system’s low exposure to Greece and because Greece is not one of Israel’s major export targets; exports to Greece amounted to approximately $450 million in 2014, approximately 1% of total exports.

Prof. Kandel also presented the main lessons of the crisis for the Israeli economy. The main lesson is that long-term fiscal credibility is a critical component for any economy. The crisis in Greece proves that investor flight is possible even in developed economies, which are also liable to go into default given that the failure to deal with structural problems over the short term is liable to lead to collapse over the short term.

Prime Minister Binyamin Netanyahu noted that one of the main lessons for Israel was the need to encourage the arrival of foreign investors. Over-regulation in Israel creates a problematic business environment for foreign investors. He emphasized that the government is committed to encouraging foreign investments in Israel and to reducing the burden of regulation via a special ministerial committee that has been established on the issue, under his chairmanship.

At the start of the weekly Cabinet meeting, Prime Minister Netanyahu said, “GDP per capita in 2003 was higher in Greece than it was in Israel. We enacted a series of reforms to control expenditures and reforms to open markets to competition – and as a result of this, our GNP per capita has risen by 50% while Greece’s, to my regret, has remained the same. We hope that Greece will find ways to rescue itself from this chronic crisis.”

In a related matter, Prime Minister Binyamin Netanyahu met with Greek Foreign Minister Nikos Kotzias on Monday. At the start of their meeting Mr. Netanyahu stated “Foreign Minister Kotzias, it’s my pleasure to welcome you to Jerusalem. You come here at a critical time for Greece, and I appreciate the fact that you kept this visit despite some rather dramatic events in your country. And I think it demonstrates the real commitment that we have to strengthen the friendship between our two countries. It’s dramatically changed. It has deep roots because Athens and Jerusalem provided the twin foundations of Western civilization, and the idea of the freedoms of the modern world originated in these two cities.

“Today, we are two Western democracies seeking peace, stability and security in the Eastern Mediterranean. May I add that we also seek prosperity? That’s something that’s important and we are committed to help in any way we can to ensure your success, not only because of friendship, but also because I think we live in an interwoven world where the stability of one country affects the stability of many countries.

“We are also allies in the struggle against the terrorism of militant Islam that afflicts the entire region. It afflicts not only the Middle East and Israel; it afflicts obviously just about every country in the world. Recently we saw an Iranian-Hezbollah terror cell uncovered in Cyprus that had reportedly five tons of ammonium nitrate in one apartment. That’s roughly the amount that took down the Federal Building in Oklahoma City. That’s just one apartment. But this terror network expands to over 30 countries in many continents and we have just received a report of another Iranian terror cell operating in Jordan that was uncovered. This is one source of the terrorism, the militant Shiites. The second is of course the militant Sunnis, led by ISIS. And then we have a common battle with the moderate Arab countries and so many others who seek to remove the scourge. I hope that we can discuss today all these issues – our bilateral issues, our ability to enhance our cooperation in many, many fields. And these are challenging times.

“They are challenging times also because today we face the possibility that a deal will be signed with Iran, which is the foremost state-sponsor of terrorism in the world. This deal, as far as we can see, comes on almost daily concessions from the P5+1 to growing Iranian demands. Every day, more concessions are made and every day the deal becomes worse and worse. I could say that what we see in Vienna is not a breakthrough, but more like a breakdown, a breakdown of the principles that the P5+1 committed itself to uphold in the Lausanne negotiations.

“This deal will pave Iran’s path to a nuclear arsenal. It will give them a jackpot of hundreds of billions of dollars with which to continue to fund their aggression and terror – aggression in the region, terror throughout the world. It’s something that I think we should work against because when you have such a bad deal that resembles more and more the deal with North Korea, the conclusion is simple. It’s been said before by many leaders and I’ll say it again now: Better no deal than this very bad deal. That too affects all our countries. We need to cooperate to seek stability, security, peace and prosperity. And these are the subjects that I look forward to discussing with you and so many other things.

“This is your first visit to Jerusalem. We always have a special feeling for Greece. I’m proud to have been the prime minister that worked to further our relationship. We reestablished our formal diplomatic ties 25 years ago, but really five years ago we began to cooperate more closely with one another. I visited Greece; you are visiting Israel now and I welcome you in the spirit of friendship, ancient and modern. And we hope and pray for your success.”

(YWN – Israel Desk, Jerusalem)