May 17, 2021


ISRAEL: Hamas will not hurt the economy much, but domestic challenges rising

BY Jon B. Alterman

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  • Hamas rockets will have negligible effect on Israel’s economy this year.
  • A sustained political crisis and increasing polarization between Israeli Jews and Arabs is a bigger threat.
  • Israel seems destined for a new election, which is unlikely to be anything other than what the previous four have been: a referendum on Prime Minister Benjamin Netanyahu himself.

Thousands of Hamas rockets launched into Israel and the Israeli air assault on Gaza have drawn worldwide attention. Seen broadly, however, the impact of the violence on the Israeli economy will be negligible. The violence will almost certainly be over in days or weeks. Israel’s Iron Dome air defense system is largely working as designed (despite Hamas’ effort to overwhelm it with simultaneous volleys of dozens of rockets), and ground damage has been limited. The Israeli assault on Gaza has not required the call up of large numbers of army reservists. While there has been some disruption as Israelis have hustled into bomb shelters, the recent violence will do nothing to depress Israel’s economic growth, which the IMF estimates will be 5% in 2021.

The violence will blunt but not end Arab governments’ rapprochement with Israel. Very few Arab governments feel anything but hatred for Hamas, and the underlying logic of a deeper economic and security relationship with Israel remains. Public passions in the Arab world have grown, however, especially over what many see as Israeli aggression against Muslim worshippers in Jerusalem. It will take some time for those passions to die down.

The violence has darkened two storm clouds looming on the horizon, however. The first is Israel’s ongoing political crisis, which has resulted in four inconclusive elections in two years. Just prior to the Gaza violence, Prime Minister Benjamin Netanyahu had failed to assemble a coalition, and opposition leader Yair Lapid appeared to be on the verge of creating a government composed of Netanyahu’s enemies from across the political spectrum. The violence seems to have doomed Lapid’s efforts, pushing right-wing leader Naftali Bennett back into support of Netanyahu, and making a coalition including the Islamic Movement in Israel leader Mansour Abbas unthinkable. While Lapid’s government would have been hard-pressed to agree on much, it would have paved the way for politics in Israel that did not totally revolve around the personality of Netanyahu. Now, Israel seems destined for a new election, which is unlikely to be anything other than what the previous four have been: a referendum on Netanyahu himself. Netanyahu remains deeply polarizing. The instability of his governments, combined with his preoccupation with his ongoing corruption cases, have kept him and Israelis off-balance, and the prospect of a fifth election will keep them off-balance for the foreseeable future.

The second storm cloud is the sharply growing rift in Israeli society between Jews and Arabs. About 20% of Israel’s population is Arab, and they face discrimination in housing, employment, and other aspects of daily life. For the most part, Israeli Arabs have identified with the state, recognizing that they are economically and politically advantaged compared not only to Palestinians in the West Bank and Gaza, but also compared to Arabs in neighboring states. The Gaza violence (which began with rising tensions in Jerusalem) has given rise to Jewish and Arab vigilante groups that are attacking the opposite community, assaulting individuals and destroying property. This sort of violence is uncommon in Israel, and it may mark a point of departure for communal relations. Not only could violence escalate, but it could open up new rifts that make the riddles of Israeli politics even harder to solve.

Israeli governments have always insisted that their majority only consist of “Zionist parties,” excluding coalitions that include Arab parties. In effect, it means that Israeli prime ministers must assemble “super-majorities” of Jewish voters. A more polarized Jewish electorate and a higher Arab turnout in the next round of elections would not only exacerbate intra-Israeli tensions, but it might make it even more difficult to create any coalition government.

Hamas can threaten Israel with rockets, but the greater challenge is a political system that is increasingly chaotic, increasingly polarized, and increasingly hard-pressed to do the work of government. The Hamas challenge will diminish within days or weeks, but Israel’s political challenges will endure, and they might even worsen in the next round.

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