Israel - The Next Target

By: Dr. Sam Vaknin

Also published by United Press International (UPI)

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Written March 24, 2003

Updated March 2005

Its leader seems more comfortable in battle fatigues than in civil suits. He has been long pursuing a policy of bloody oppression and annexation. The regime is often castigated due to rampant human rights violations. The country possesses weapons of mass destruction, though it repeatedly denies the allegations. It refuses to honor numerous Security Council resolutions. President Bush senior once subjected it to sanctions. The United States is already training its sights on this next target: Israel.

The chieftains of the New World Order have made it abundantly clear that Iraq's capitulation inexorably led to the official release of the much-leaked "road map" for peace in the Middle East propounded by the "Quartet" - the USA, UK, United Nations and Russia. A series of disclosures in the Israeli media made it equally evident that prime minister Ariel Sharon's crew still beg to differ from substantial portions of the foursome's vision. Instead, Sharon has come up with his Gaza Withdrawal First plan and his newfound amity with the post-Arafat Palestinian Authority.

Still, to demonstrate to skeptic and embittered Muslims everywhere that its motives in waging war on Iraq were more altruistic than ulterior, the Administration will impose an even-handed peace on a reluctant Israel. Should it resist, the Jewish state will find itself subjected to the kind of treatment hitherto reserved for the founding members of the axis of evil - economic sanctions to the fore.

Can it withstand such treatment?

Institutional Investor has downgraded Israel's 2002 country credit rating to 45th place - seven rungs lower than in early 2000. It is ranked behind Kuwait, Cyprus, Qatar, and Oman. Moody's, Fitch and Standard and Poor's (S&P) has refrained from a further rating action, following a series of demotions in 2001-2003.

The country's economy - especially its dynamic construction, tourism and agricultural segments - has been weakened by five years of civil strife both within the green line and throughout the occupied territories. This has been reflected in the shekel's and the stock exchange's precipitous declines, by one fifth each in 2001-2002. Profits in the banking sector slumped by more than three quarters in the same period due to augmented loan loss provisions.

A halting recovery from the effects of a global recession and the bursting of the hi-tech bubble have not helped. Gross domestic product growth in 2000 was a spectacular 7 percent. In the next two years, however, the economy has contracted. The calling up of reservists to active duty, the dwindling of immigration - from 78,400 in 1999 down to 31,491 three years later - and the disappearance of the Palestinian shopper depressed consumption, services and retail sales.

Uriel Lynn, chairman of the Israeli Chamber of Commerce, told BBC News Online, that the country has lost about $2.5 billion "in terms of business product". Defense spending spiked at 10 percent of the budget, double the American ratio and triple the military outlays of the typical EU member.

Social solidarity is fraying. The Histadrut (General Federation of Labor in Israel) - run by members of the shriveled opposition Labor party - often declares labor disputes, heralding general strikes. This in response to reforms promulgated by the Ministry of Finance, now headed by a hardliner, the former prime minister Benjamin Netanyahu.

The private sector accounts for 70 percent of GDP in Israel and is already stretched to the limit. Instead, the hard-pressed ministry wants to sack thousands in the bloated public services and cut the salaries and pension rights of the remaining civil servants by 8 percent. Government consumption amounts to one third of GDP and public debt exceeds it.

In a reversal of decades of tradition, collective wage agreements will be abolished. The finance ministry is trying to reduce the spiraling budget deficit - now pegged at more than 6 percent of GDP - by $2 billion to c. 3.5-4.5 percent of GDP, depending on one's propensity for optimism.

Netanyahu also pledged to trim down the top marginal tax rate from a whopping 60 to 49 percent and to aggressively privatize state holdings in companies such as El Al, Bezeq Telecommunications, Oil Refineries and Israel Electric Company. He told the Israeli daily Ha'aretz that the fate of an American package comprising $1 billion in extra military aid and $9 billion in loan guarantees depends on such "proper economics".

Trying to balance fiscal profligacy, David Klein, the former governor of the Bank of Israel, kept real interest rates high, cutting them by increments of 0.2 percent (to 8.7 percent in March 2003). Inflation in 2002, at 5.7 percent, was way above the 1998-2002 average of 3.7 percent.

Partly due to this contractionary bias, more than 50,000 small businesses closed their doors in 2002. According to the CNN, another 60,000 will follow suit by yearend. The number of tourists plunged by a staggering three fifths. Foreign investment crumbled from $11 billion in 2000 to $4 billion in 2002.

Unemployment is stubbornly stuck above 10 percent - and double this figure in the Arab street. The State of the Economy Index, published by the central bank, fell for the 30th consecutive month in February 2003. Of 1.6 million employees in the business sector, 61,000 were fired since January 2001.

It is the fifth year of recession: the economy contracted by 1 percent in 2002 and by 0.9 percent in 2001. Nor is it over yet. Business Data Israel (BDI), a forecasting consultancy, reckons that the damage to Israel's economy of the short war in Iraq amounts to $1 billion, or 1 percent of GDP.

One fifth of the population survives under the poverty line. Strains between well to do newcomers, mainly from the former Soviet republics, and impoverished veterans are growing - as do tensions between destitute immigrants and their adopted homeland. Many emigrate from Israel back to the Commonwealth of Independent States, to Germany, Australia and New Zealand.

American aid - some $2.7 billion a year - largely goes to repay past debts. Then U.S. Secretary of State Colin Powell has announced in January 2003 the U.S.-Middle East Partnership Initiative. Local groups will be encouraged to invest in the private sectors of their countries. But the Partnership is geared to tackle the needy Arab polities rather than the far-advanced and sated Israel.

Consider next door Palestine, now severed from its main market employer next door.

A World Bank report released in early March 2003 stated that half the 3.5 million denizens of the Palestinian Authority live under an impossibly depleted $2 a day poverty line. One in two employees in the private sector lost their jobs and GDP declined by two fifths in the first two years of the intifada.

The UN Conference on Trade and Development (UNCTAD) warned in September 2002 that the economy of the West Bank and the Gaza Strip was drained of up to $2.4bn due to closures, mass unemployment, and damages to infrastructure. "The profound changes that have taken place in the functioning of the economy ... are unlikely to be easily reversed even if stability is attained", the report concluded gloomily.

Israel withholds more than $400 million in back taxes it had collected on behalf of the Palestinian Authority. Business Week predicts that donor aid - more than $1 billion annually at current levels - will dry up in the wake of the Iraq conflict with resources diverted to reconstruct a nascent and oil-rich democracy on the Euphrates.

Hence Blair's sense of urgency (and the summit with Palestinian leaders that he convened in London at the beginning of 2005). With victory in Iraq, Israel faces a united "land-for-peace" front, encompassing ostensible adversaries such as France and the United States. Unity on the Palestinian question will salve the wounds self-inflicted on the Euro-Atlantic coalition on the road to Baghdad.

Few place bets on Israel's ability to resist such concerted action, led by the sole superpower. The Economist Intelligence Unit foresee the imminent collapse of Sharon's narrow right-wing government - this despite a modest economic revival and the coalition with his erstwhile foes, the Labor party, headed by Shimon Peres.

The current account deficit, prognosticated the EIU in 2003, should fall to 1.7 percent of a GDP growing, in real terms, by 3.1 percent in 2004 (compared to a rosy scenario of 0.3 percent in 2003). This proved to be unrealistic. Exports have sharply plunged to less than $28 billion in 2002, two fifths of it to the USA and a similar proportion to the European Union.

Still, with a GDP per head of about $16,000 (or $20,000 in purchasing power parity terms), Israel is one of the richest countries in the world - particularly if its thriving informal economy is considered and if the global hi-tech sector recovers which is widely tipped to happen. According to Jane's Defense Weekly, Israel is the third largest exporter of armaments, materiel and military services, ahead of Russia.

The country's foreign exchange reserves per capita, at $3500, are higher than Japan's. Its external debt - c. $27 billion - is puny and almost entirely guaranteed by the United States. Only one tenth of it is held by ordinary foreign investors. Israel can withstand years of economic sanctions unaffected - as it has done well into the 1970s. The Jewish state also enjoys the support of a virulently nationalistic diaspora, willing to dip into bulging pocketbook in times of need.

Another scenario, however unlikely, would see the European Union siding with Israel against a bullying United States and its sidekick, the United Kingdom. Two years ago, Italy's outspoken prime minister, Silvio Berlusconi, normally a staunch supporter of president George Bush, floated the idea of further enlarging the EU to incorporate Russia, Turkey and Israel.

But visionaries like Stef Wertheimer, an Israeli industrial tycoon, talk wistfully of a regional "mini" Marshall Plan. It calls for massive infusions of aid and credit, overseen by the International Monetary Fund (IMF) and the World Bank, into the eastern Mediterranean - Jordan, Turkey, the Palestinian Authority and Israel's minorities - at least until GDP per capita throughout the region surges fivefold, to $6,000 per year.

Such misguided development nostrums are alluring. They cater to the Western misconception that terrorism is born of poverty and ignorance. Removing these alleged causes of violence, goes the refrain, will end all aggression. Throwing money at problems is an inveterate American and European reflex. Prosperity and democracy are keys to stability and moderation, they preach.

But the unpalatable truth is that Israel is the haughty outpost of Western civilization in an area distinctly un-Western and anti-Western. Terrorism is about clashing values and opposing worldviews, not about the allocation of scarce jobs and the benefits of technology parks.

People like Osama bin-Laden are rich and well-educated. Muslim fundamentalists - in between atrocities - provide health, welfare benefits and schooling to millions of the poor and the deprived. They don't seem to think, like Wertheimer and his patronizing ilk,  that higher standards of living negate their mission to oppose American culture, ethos and hegemony by all means, fair or foul.

Appendix: The USA, the Friendly Bully

I. Introduction

It is common knowledge that, in international affairs, emotions defer to self-interest. As George Orwell noted in his masterpiece, "1984", the flux of circumstance may render yesterday's foe tomorrow's friend.

Thus, ever since the USA bombed Yugoslavia in 1999 and then proceeded to champion the cause of the restive Albanian minority in 2001 (amidst a bloodied insurgency), America was widely considered by many Macedonians as the enemy. A mere 7 years later, Bush's United States has become Macedonia's last hope and great supporter in its conflict with Greece over the "name issue".

But Macedonia would do well to learn from Israel's turbulent and bitter experience with the United States. Despite the fact that the Israeli lobby in Washington - AIPAC - is by far the mightiest and the best organized, backed as it is by millions of affluent and politically active Jews, Israel was often pressured by its "friend" and strategic ally into compromises that subverted its national interest and even endangered its very existence.

II. 1948-1967

During the 1950s and 1960s, the USA was essentially pro-Arab. It attempted to secure the oil fields of the Middle East (in the Gulf, Iraq, and Iran) from Soviet encroachment by nurturing friendly relations with the region's authoritarian regimes and by fostering a military alliance with Turkey (later, a part of an extended NATO).

Remarkably, Israel was forced to rely on the USSR for arms (supplied via the Czech Republic) and, later, on France and Britain, who were desperately trying to hang on to the smoldering remnants of their colonial empires

Thus, in 1956, Israel (in collusion with France and Britain) attempted to prise open the critical recently-nationalized waterway, the Suez Canal, by invading the Sinai Peninsula, then, as now, a part of Egypt. The USA forced Israel into a humiliating and public retreat and threatened the fledgling state with economic, military, and diplomatic sanctions if it did not comply with American demands without ado.

During the 1960s, even when America did (rarely) sell weapons systems to Israel, it made sure to make the same armaments available to Israel's avowed and vociferous enemies, Egypt and Jordan. By 1967, the USA has granted the Hashemite Kingdom of Trans-Jordan far larger sums of military and foreign aid than it did its neighbor to the west, Israel.

President Johnson was a staunch supporter of Israel. Yet, in the run-up to the Six Days War, the Johnson Administration summoned Israeli politicians and military leaders to Washington and publicly chastised and berated them for refusing to succumb to American pressure and yield to Arab demands (which amounted essentially to the dismantling of the Jewish State by economic and diplomatic means). Secretary of State Dean Rusk went as far as blaming Israel for the war. A diplomatic solution, he insisted, was possible, had Israel shown more flexibility.

The deliberate or mistaken Israeli attack, during the conflict, on the USS Liberty, an American intelligence-gathering ship, moored in international waters, did not help bilateral relations any.

III. 1967-Present

Still, Israel's decisive victory over the combined forces of numerous Arab states, many of which bore Soviet arms, changed perceptions in Washington and among the Jews: here was a military democracy that could serve as a bulwark against Soviet expansion in the Middle East; a regional cop; a testing ground for new weapons; a living breathing demonstration of the superiority of American arms; an intelligence gathering "front office"; and a frontline base in case of dire need.

Israel's standing was thus transformed from pariah to a major non-NATO ally overnight (a status officially granted it in 1987). Israel felt sufficiently secure in its newfound pivotal strategic role to reject a peace plan forwarded by then Secretary of State, Will Rogers in 1970.

Yet, even in the heyday of this "special relationship", Israel refrained from defying the USA and feared the repercussions of any disagreement, major or minor. This hesitancy and dread were not confined to the political echelons: the entire population were affected. People of all walks of life engaged in reading the tea leaves of "the mood in Washington" and what should Israel do to placate its fickle, thuggish, and overbearing "partner".

Thus, despite numerous warning signs that it is about to be attacked by superior Arab forces in 1973, the Israeli leadership gambled with the country's very existence and did not launch a pre-emptive strike, having been cautioned not to act by President Nixon and his Secretary of State, Henry Kissinger.

When Israel repelled and encircled the invading Egyptian Army, Kissinger called Israel's Ambassador in Washington, Simcha Dinitz and instructed him not to pursue a military victory. When Dinitz protested, Kissinger told him that disobeying the United States (and destroying the aggressor's remaining forces on the ground) was "an option that simply does not exist".

Kissinger then proceeded with shuttle diplomacy aimed at pressuring Israel into ceding most of the land it conquered in the last two wars in return for a mere ceasefire. Whenever Israel resisted any of his dictates, however inconsequential, Kissinger would publicly threaten Israel with abandonment and even sanctions. This modus operandi continued throughout President Carter's years in office.

Even in the early Reagan years, Israel was berated and threatened on a regular basis, owing to its invasion of Lebanon and its rejection of yet another American-imposed "peace" plan in 1982 and in 1988. The Reagan Administration also openly consorted with the PLO, at the time still an unrepentant, anti-Jewish terrorist organization.

Yet, throughout these very public and advertent humiliations, the USA remained Israel's main backer. Friendship and bullying appeared to be two inalienable facet of the same coin of American-Israeli relations.

The two countries signed a Memorandum of Understanding in 1981; formed a Joint Military Political Group in 1983; conducted joint air and naval exercises in 1984; stockpiled American weapons and materiel on Israeli soil; and signed a free trade agreement in 1985. Israel has also been the recipient of 3 billion USD annually (until 2004, one third of all American foreign aid) since the early 1980s.

At the very same time, Secretary of State, James Baker reprimanded Israel for its "expansionist" policies and his boss, President Bush (the father) insisted that east Jerusalem - the very soul and heart of the Jewish state - was an "occupied territory".

Blowing hot and cold on the "special" relationship strained them to the hilt. Disagreements and misunderstandings proliferated as the USA began to micromanage Israeli affairs, telling the country how to conduct its investigations into incidents and even how to hold elections (for the Palestinian delegation to a peace conference).

With the first Gulf War imminent in 1990, Bush affirmed the USA's commitment to Israel's existence and security. But, only a year later, when Iraq attacked Israel with Scud missiles and Israel heeded America's request not to retaliate did relations between the two asymmetric allies thaw. Israel was granted loans, albeit under the condition that it freezes all settlement activities in the West Bank.

Relations between Israel and the Administration of President Bush (the son) started off on the wrong foot, with recriminations and accusations, only to be rendered an intimate collaboration by the terrorist attacks of September 2001.

Currently, in the throes of an umpteenth honeymoon, Israel can do no wrong. But, history teaches us that such phases are invariably followed by discord. Israel has consistently jeopardized both its national security and its interests to placate American impetuous demands and to cater to its ally's geopolitical and -global economic interests.

Thus, at America's vehement and minacious behest, Israel has ignored Syrian offers to negotiate a peace accord. Similarly, Israel has cancelled the sale or maintenance of proprietary weapons systems to China, Venezuela and other countries the USA deemed "unfriendly".

When Israel dared to service and upgrade an unmanned aerial vehicle (UAV) it has previously sold to China, it was harshly penalized: joint development programs, shipments of military equipment, and regular communication between the departments of defense of the two allies were all suspended.

Acting as the latter-day equivalent of a colonial or imperial master, the USA demanded from Israel a detailed report about dozens of transactions with Mainland China; the right to supervise and inspect Israel's military equipment sales supervision system; and an effective veto power on all future arms sales.

On the Swedish Recognition of a Palestinian State (Interview granted to “Nova Makedonija”, November 8, 2014)

Q. What is the position of the Israeli government to the recent recognition of the State of Palestine by Sweden (which is the first EU state to do so)? Would this create a new wave of recognition by other member-states of EU and other non-EU states?

A. Sweden is not a very important partner of Israel, although both mutual trade and joint ventures in research and development have been growing briskly in the past few years. Israel is rightly worried that the Swedish move will precipitate similar action by far more crucial states, such as France, Germany, and the UK. These are countries with sizable and radicalized Muslim minorities (of which they are afraid) and whose politicians often score points with the general electorate by capitalizing on a wave of anti-Jewish and anti-Israeli sentiment. As the self-appointed guardian of Jews throughout the world, Israel is also concerned about the rising tide of anti-Semitism in Europe that accompanies each such move.

More importantly, Israel is worried that European official recognition of a Palestinian polity will undermine its ability to dictate the parameters of a final settlement of the conflict: the borders of the entities comprising the two-states solution and their capacities. Israel is firmly convinced that any recognition of a Palestinian state now will only strengthens the bargaining position of the Palestinians and make them more intransigent and less willing to negotiate in good faith, preferring instead to rely on outsiders to apply pressure on Israel to compromise even further.

Additionally, international recognition will render Israeli military operations in the West Bank and possibly Gaza acts of aggression against a sovereign, internationally recognized state, in violation and contravention of the UN Charter and other applicable international law.

Q. Some experts claim that Sweden's recognition of State of Palestine is influenced by US. If that is the case, is US sending some kind of message to Israel and is it using Sweden to deliver it?

A. This conspiracy theory is utter nonsense. The last thing the US needs right now is a radicalized Israel. Sweden's Social Democrats have returned to power after 8 years in the political wilderness. They need to form a coalition and working relations with both the far right and the far left. The recognition of a Palestinian state is a part of the process of bargaining over important domestic issues such as housing, education, and defense spending. It is also intended to placate an increasingly more restive and extremist Muslim population in order to prevent homegrown terrorism and risks to or attacks on its nationals abroad.

Both the USA and the EU regard the Israeli-Palestinian conflict as the core of the ominous instability in the Middle East and the derailment of what is left of the peace process. They expect Israel to offer more concessions because it is superior in every way to its interlocutor, the Palestinians. But, Israel is not monolithic: it is ruled by theocratic, nationalistic, and Messianic political parties who aim to take advantage of the fact the West is distracted by crises in Europe and Iraq to establish facts on the ground via land grabs and settlements. The Palestinians are equally divided with the suicidally irrational and extremist Hamas grudgingly collaborating with a Palestinian Authority which is a shadow of its corrupt former self. The partners to the moribund peace process, weakened as they are by internal strife and discord, are both unable and unwilling to negotiate a solution with its attendant sacrifices. Perhaps the Swedish declarative diplomatic action will rock the boat out of this stagnant water and will prove to be a blessing after all!

Also Read:

Israel's Hi, Tech - Bye, Tech

Israel's Economic Intifada

God's Diplomacy and Human Conflicts

The Economies of the Middle East

Turkey's Jewish Friend

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