Among Israelis, Economic Crisis Eclipses Conflict

On the eve of a long-anticipated Middle East policy speech by U.S. Secretary of State Colin L. Powell, Israelis were more focused Sunday on the state of their economy than on the Bush administration’s vision for ending more than 13 months of Israeli-Palestinian bloodshed.

Prime Minister Ariel Sharon declared late last week that Israel now faces an economic emergency as well as a security crisis. He spoke after the Finance Ministry confirmed that the economy is in recession, and after a storm of criticism of him and his government for failing to address the economic problems.

A government task force began work Sunday on a proposed agreement under which manufacturers would end layoffs and unions would freeze demands for higher wages. But economists held out little hope that a meaningful deal could be reached, and Sharon faced stiff opposition to budget cuts from within his own broad-based coalition.

For months, Sharon has focused almost exclusively on battling the Palestinians, his critics complain. The former general, who is said to spend most of each working day micromanaging army operations in the West Bank and Gaza Strip, allegedly has paid scant attention as Israel’s once-booming economy has been dragged down by the worldwide economic downturn and the conflict with the Palestinians.

“If I were advising our prime minister, I would tell him that he must see to both security and the economy,” said Mandy Barak, head of the international trade division of Israel’s Federation of Chambers of Commerce. “Security without economy is as bad as economy without security.”

Sharon Refocuses Following Report

But the prime minister seemed to focus on the worsening situation only last week, after the Central Bureau of Statistics released gross domestic product figures for the third quarter that showed there have now been two consecutive quarters of negative growth.

“We have been hurled into an economic emergency,” Sharon said in a speech the day after the figures were released.

Strikes by dockworkers and customs officials have crippled imports and exports for several weeks. Work stoppages by government bureaucracies have prevented the jobless from receiving unemployment checks for October, and made it impossible for Israelis to register land sales or perform other tasks.

Thirty-three Israeli towns suffer from an unemployment rate of 10% or higher. The Israeli Arab town of Kafr Manda’s jobless rate, the highest in the country, stands at 23.4%, according to government statistics. Social workers say that requests for assistance have snowballed.

“There is a very big increase in the number of applications,” said Nissim Zioni, chairman of Pitchon Lev, a nonprofit organization that is providing food and essential items to 2,527 distressed families nationwide.

“We have more than 500 families on our waiting list,” Zioni told Israel Radio on Sunday. “I believe that this is a real shame for Israeli society, and it’s heartbreaking that we have to tell people that we cannot help them.”

Economists have warned that the Finance Ministry’s projection of a 4% growth rate for the coming year is unrealistic and said that the government must revise that figure downward to no more than 1.5% to 2%. Because the budget now being debated by Israel’s parliament is based on the more optimistic estimates, ministry budgets will have to be slashed to avoid increasing the deficit.

The powerful Shas ultra-Orthodox religious party, a key member of Sharon’s coalition, has already threatened to quit if the budgets of any of the ministries it controls are cut, or if Sharon cancels legislation that would increase government allowances for families with many children. But another key partner, the center-left Labor Party, has said it will quit if the government doesn’t cancel the allowance increase.

European Delegation Pushes Peace Talks

Sharon was forced to turn away from economic matters again Sunday, however, to meet with a visiting delegation of European Union officials who spent the weekend trying to persuade Israeli and Palestinian officials to return to peace negotiations.

“The Europeans want to underline that after the 12 days of relative quiet recently there is a need to relaunch the peace process,” Belgian Prime Minister Guy Verhofstadt, head of the delegation, told reporters after the talks with Sharon.

Sharon repeated his insistence that there be a week of complete quiet before Israel resumes truce talks with the Palestinians. His statement came on the eve of Powell’s scheduled speech in Louisville, Ky., in which the administration is expected to say that Israel’s demand for seven days of quiet is unrealistic.

The Europeans have sought to pave the way for a new effort by the Bush administration to end the killing that has claimed nearly 900 lives here since September 2000. Powell is expected to reaffirm U.S. support for a Palestinian state, and to urge the parties to ease violence and start implementing the blueprint created by a panel headed by former Sen. George J. Mitchell for securing a cease-fire and returning to peace talks.

“We are committed to the Mitchell report and its sequence, and that says seven days . . . of full cessation of violence, terror and incitement,” Sharon told a press conference. “Then, in a meeting between myself and the Americans, we decided then that we needed seven days in order to watch how [Palestinian Authority President Yasser] Arafat implements the cease-fire. That is what we agreed, and that is our position, and that is going to be our position.”

The Mitchell plan calls for both sides to make gestures to restore confidence, including a complete freeze on settlement construction in the West Bank and Gaza Strip by Israel.

A Western diplomatic source in Jerusalem said last week that the Bush administration decided it made a mistake in agreeing to Sharon’s demand for seven days of complete quiet before the Mitchell steps can begin, a move that the administration believes has left the process hostage to extremists on both sides.