Israeli economist of Swiss origin fears a major economic crisis: “People no longer dare to go out”

class=”sc-29f61514-0 icZBHN”>

What happens to the economy if eight percent of the working population disappears from work within a few days? For Israel, this question is no longer a game of thought.

The army has called up 360,000 reservists following the Hamas attack and is planning a ground attack on the Gaza Strip. This is a very significant figure for a country with almost the same population as Switzerland.

Besides the pain of the 1,400 victims of the Hamas attack, there are also questions about Israel’s economic future: How long can the state of emergency last? How long until the economic collapse?

Already fought in the Six Day War

Just ask Swiss-Israeli economist Eytan Sheshinski, 86. His mother emigrated from Zurich in 1933 and settled in Israel.

Sheshinski gave up his professorship of economics at Harvard University in 1967 and instead joined the Israeli army as a paratrooper in the Six-Day War. He is now considered an intellectual among economists. He taught at the best universities in the world for years. He made recommendations to the Knesset, that is, the parliament and the government; Two laws bear his name.

Sheshenski now sits in his apartment in the capital Jerusalem and worries about what is happening in his country. He lost many of his friends in the attacks. The day before the interview with Blick, a bomb alarm goes off. Sheshinski and his family need to go to the shelter for a few hours.

How many fronts?

According to Sheshinski, there is great uncertainty between the military and the government. As the army prepares for a ground offensive in the Gaza Strip, another source of conflict is simmering on the northern border with Lebanon. Clashes with the Shiite militia group Hezbollah and threatening gestures from both sides are raising fears of a multi-front war.

“The number of fronts will determine how many drafted reservists are deployed,” says economist Sheshinski. However, it is extremely difficult to keep them in office for a long time. His absence from work becomes more evident with each passing day.

The high-tech sector was particularly affected

It is particularly problematic from an economic perspective: Many young reservists work in the high-tech sector. This is at the heart of Israel’s economy; last year it accounted for half of all exports.

Start-ups in particular (Israel is the country with the highest start-up density in the world) face the risk of going broke in the chaos of war. At the beginning of the year, debates over judicial reform had deterred both investors and entrepreneurs.

Start-ups are especially dependent on money from foreign investors who are waiting for now. “Some start-ups have already moved abroad for this reason. More are likely to follow,” says Sheshinski.

“More expensive than the corona epidemic”

The future of most of the service sector hangs by a thread. “People no longer dare to go out. They hardly consume anything anymore,” says Sheshinski. Only hotels will get some reprieve. Although tourists stayed away, the government also sheltered the population evacuated from nearby Gaza Strip with them.

He knows from his contacts in the government that they want to present an aid package for SMEs in the next few days. An agreement on the amount has not been reached yet. But Sheshinski says: “It will be more expensive than during the corona epidemic.”

The specter of stagflation

What makes the problem worse is that agricultural production is quite limited in the south, where agriculture is predominantly done. Israel therefore has to become more dependent on imports. This situation, along with the decrease in investments from abroad, is likely to further weaken the local currency, the shekel. This creates a dangerous cocktail that will likely worry the Israeli public for a long time: a recession accompanied by rising prices.

There doesn’t seem to be any improvement. The Israeli government is currently making efforts to strengthen its defense budget at the expense of many other sectors. It is possible that US President Joe Biden (80), who wants to prepare an aid package for Israel, will come to the rescue.

Still, Sheshinski believes: “The Israeli people will have to adjust their living standards downward in the near future.” It will likely take years for the Israeli economy to return to its former strength.

Source :Blick