Histadrut chairman Ofer Eini apparently likes the association of his name with the word "outline". There was the Eini outline in the teachers strike and the Eini outline in the university senior faculty strike. And lo and behold!, both labor disputes were solved.
Now, Eini is proposing his own solution to the problems created by ramifications of the global financial crisis on the domestic foreign currency market. First, the workers will go on strike, and then he will offer an "Eini outline" for managing monetary policy; in other words, the interest rate will go down, the shekel will weaken, and salvation will come to the world.
What a brilliant solution. Even the Manufacturers Association president Shraga Brosh has adopted it, resulting in workers-employers solidarity on issues such as the exchange rate regime, monetary policy, and the independence of the central bank. In effect, they say, who needs a central bank if it is possible to set up a private committee comprising the pals of Eini and Brosh who will henceforth set the interest rate and the exchange rate?
An original Israeli solution
The Eini outline, or the Eini-Brosh outline as it should be called, is indeed an original Israeli solution that is intended to serve as the outstanding model for economies that were tempted to adopt a regime in which there is no protektzia (connections) against exposure to risk; where taxpayers do not share, without knowing it, in the risks taken by parties at interest in commercial companies or by investors in the foreign currency market. This is indeed an insufferable situation, this famous outline that is supposed to bring salvation to the world.
But there is a niggardly problem on the road to salvation: the shekel interest rate, which Governor of the Bank of Israel Prof. Stanley Fischer is being called on to cut or else risk a general strike, has no more than a small effect on the exchange rates for the shekel against other currencies. The shekel's appreciation is driven by other forces, such as the large surplus in the shekel current accounts, which is partly attributable to large income from services.
Another source is foreign investment, which is drawn to the attractiveness of the growing Israeli economy. Finally, some people assert that there is a whole wide world outside Israel, and in that world too the dollar is weakening because of interest rate cuts initiated by the US Federal Reserve Board, which is trying to cope with the threats of a financial crisis and a severe recession.
Do you want to tax shekel-strengthening foreign investment?
None of this should disturb, of course, the adoption of the proposed Eini-Brosh outline. All that should be done is to insert a few minor adjustments in order to make it work. For example, it is possible to propose, as a by-the-way, levying high taxes on foreign investment, which strengthens the shekel. It is also possible to warn all those Israeli businessmen who are responsible for creating the current accounts surplus in the balance of payments that they will face demonstrations by workers committees unless they cease and desist from doing business abroad and bringing the proceeds home to Israel. The private committee can also send urgent telegrams to Fed Chairman Ben S. Bernanke and his colleagues demanding that they stop cutting the dollar interest rate, and that any step in that direction must first brought before an extraordinary committee to be set up by the manufacturers and unions.
This, therefore, is the revised Eini outline. In a week's time, a few hours before the orders of National Labor Court President Steve Adler against the Bank of Israel come into force, the government can adopt the Eini outline and make global economic history.
Published by Globes [online], Israel business news - www.globes-online.com - on February 6, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008