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Israel Facing Major Economic Consequences for 50 Day War on Gaza

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The 50 day war on Gaza has cost the Israeli economy tremendously from various aspects.

Shir Hever is an economic researcher in the Alternative Information Center, a Palestinian-Israeli organization active in Jerusalem and Beit-Sahour. Hever researches the economic aspect of the Israeli occupation of the Palestinian territory, some of his research topics include the international aid to the Palestinians and to Israel, the effects of the Israeli occupation of the Palestinian territories on the Israeli economy, and the boycott, divestment and sanctions campaigns against Israel. His work also includes giving lectures and presentations on the economy of the occupation. He is a graduate student at the Freie Universitat in Berlin, and researches the privatization of security in Israel. His first book: Political Economy of Israel’s Occupation: Repression Beyond Exploitation, was published by Pluto Press.


SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries coming to you from Baltimore.

The 50 day war on Gaza has cost the Israeli economy tremendously from various aspects. Very little attention has been paid to the debates that are going on within Israel, in terms of the cost of this war.
Joining us today from Göttingen, Germany, is Shir Hever. Shir is an economic researcher in the Alternative Information Center, a Palestine-Israel organization active in Jerusalem and in Beit Sahour.
Shir, thanks for joining us today.


PERIES: Shir, so shed some light on what’s going on in terms of the debates within Israel about the cost of this war.

HEVER: So Israel is in a crisis of standard of living, which has accumulated over many years now. And, in fact, a lot of Israelis are protesting and have protested very vigorously against the drop in income or the stagnating income while cost of living is going up so sharply. And, in fact, this has altered the Israeli political situation. So now there are big political parties in the parliament and in the government who have made promises to try to improve the situation.

And what’s amazing is how the entire public debate in Israel has seemed to forgotten this debate, the economic debate that existed merely days before the war against Gaza started. And in that debate, there was a very heated argument between the Ministry of Finance and the Ministry of Defense about cutting the defense budget. Israel is spending more on defense as a proportion of its total public expenses than any country in the world, or at least any developed country. And this has taken a very heavy burden on the population. There has been an attempt to try to cut down the cost of the military. And the army has threatened that they’re going to not be able to provide Israelis with enough security. They basically tried to scare the public about various menaces. And when it seemed that the Ministry of Finance is maybe going to win, that’s exactly when the conflict erupted, first with this operation Brother’s Keeper, in which Israel invaded the West Bank. Netanyahu, Prime Minister Netanyahu, wanted to blame Hamas for this escalation. So he diverted the aggression towards Gaza. That’s actually what started this 50 day onslaught on Gaza known as Protective Edge. And now all of this debate has been forgotten. Everybody forgets that this all started with the attempt of the Ministry of Defense to protect their own budgets. And the situation now is that the debates that we see in the news are not about whether the defense budget can be cut or how much can it be cut, but how much is it going to be increased.

PERIES: And from your perspective, this is also an opportunity for Israel to receive more foreign aid from the United States and other countries now in terms of addressing—for example, they got money for the iron shield, yes?

HEVER: They did put pressure on the United States to give them more money for the Iron Dome system. And during the war, they’ve actually kept on importing ammunition from the United States as they were shelling the Gaza Strip, shelling civilian neighborhoods.

But I think actually the opposite has happened, because the United States has become somewhat concerned that this sort of violence, this level of violence is not sustainable. The United States is very interested in—or the United States government, at least, is very interested in selling its weaponry in the Middle East. But they’re not interested in destabilizing this sort of status quo that Israel is able to use American weapons to maintain its hegemony in the region.

Now, if Israel is spending to much money and using too much violence and getting too much international criticism over its actions, then the United States government becomes concerned. Barack Obama actually disallowed a shipment of antitank missiles to the Israeli army. I should say, antitank missiles are not used against tanks of Hamas, because the Hamas Party obviously do not have any tanks, but they are often used against residential buildings and bunkers. So he ordered to stop a shipment of these missiles while the fighting was going on. This caused quite a lot of panic in the Israeli army. So they were hoping that this would not become a precedent, because if the United States will start making restrictions on the kinds of weaponry that it’s willing to sell to the Israeli army, then the dominance of the Israeli army in the region is clearly at stake.

PERIES: And, Shir, what does this mean in terms of the impact on the Israeli economy and what people are experiencing?

HEVER: So here we have the Israeli government coming to believe that Gaza is a soft target and that they can just bombard Gaza, and as the very cynical term goes, mow the lawn every couple of years and also experiment with new Israeli weapons and so on. This has indeed happened in the last four attacks of Israel against Gaza. This time, the Hamas Party said they’re not just going to take this lying down, and they’re going to try to fight back, even against overwhelming odds by the Israeli army, and that they refused, actually, to accept the Israeli terms for a ceasefire. Israel simply demanded sort of a surrender. Hamas wouldn’t take that option. So that turned into a 50 day war. And a 50 day war is something the Israeli economy was not prepared for. The Israeli government did not wish it. And it affected every aspect of the Israeli economy. There has been massive damage to the area—economic damage, I mean; not so much physical damage, but economic damage to the areas surrounding the Gaza Strip, where people were afraid to go to the factories, so the factories stopped working. Farms have stopped working as well and produce was not harvested. And there has been a slowdown in the shopping habits of Israelis. There’s been fewer cars being bought, fewer houses being bought. Tourism has taken a very serious hit. So more than 25 percent reduction in tourism. And for 50 days of slowdown of the economy, that has very long term impact on the Israeli economy.

So, in addition to that, we cannot forget the impact of the international boycott movement against Israel, boycott, divestment, and sanctions, because every time Israel is using so much violence, more and more people joined this movement. And there have been some very large successes of that movement to make the Israeli economy accountable for the crimes committed by the Israeli government and the Israeli army. And we should also not forget the cost of the defense budget. And that’s something that now, as the government is facing with trying to restore the economy and trying to compensate—there are over 3,000 demands for compensations from Israeli businesses and farms for damage inflicted during the war. But instead of being able to compensate these factories and farms, the Israeli government has announced a widespread cut that is planned for all of the ministries—health, education, transportation, everything—in order to finance a massive increase in the Ministry of Defense. And that shows that this war has really been unsustainable for the Israeli economy.

PERIES: And how are they financing this war?

HEVER: So, actually, they don’t have a source to finance this war. Right now—well, the first idea was just to increase the deficit, meaning to borrow, use borrowing to finance the war. That would increase Israel’s budget deficit to a level where the Israeli credit rating by international credit rating agency, is certainly going to drop. And that’s something the Israeli government is very worried about, because, of course, if you increase your debt and at the same time your credit rating drops, you’re going to pay a very high interest rate on the debt that you’ve accumulated. And that’s going to mean that a larger part of the Israeli budget is actually going just to pay the interest and to service the debt rather than to provide those services, the public services that are so direly needed.

A lot of Israelis realize this. This is not just some kind of secret that only economists are aware of. This is something that’s very well understood by the general public. And because of that, many Israelis are leaving. And, in fact, right after the end—well, it’s not really an end of this particular war; it’s more of a ceasefire. But right after the ceasefire has been announced, there has been a poll among young Israelis, and a third of young Israelis responded that if they have the chance, they would rather leave Israel.

PERIES: Shir, I guess the entire international community is wondering whether the divestment campaign has had any real impact in the Israeli economy. Has it?

HEVER: Every time Israel attacks Palestinians and kills innocent civilians, this motivates a lot of people around the world to join the BDS movement. BDS stands for boycott, divestment, sanctions. And indeed this is now no longer a secret inside Israel. Every Israeli knows what BDS is. They know that this is one of the prices that the Israeli economy has to pay for these attacks. And during this Operation Protective Edge, there’s been more people joining the BDS movement and more campaigns of the BDS that have been successful than ever before. We’ve seen even cargo ships of the Israeli shipping company, Zim, which were prevented from docking in several ports in North America. And this is something that is very concerning for Israeli companies. So, of course, this is a very important impact and part of that cost of the war on the Israeli economy.

PERIES: Shir, can you give us some specific examples of how the BDS campaign is having effect on the Israeli economy on the ground, in terms of real, everyday life?

HEVER: So most Israeli citizens have some kind of financial savings scheme, for example a pension plan or an insurance plan, which is part of, for example, their monthly payment or deductions from their salary. And these large institutional investors invest a very large proportion of their money into these massive Israeli corporations that dominate and monopolize the Israeli economy.

These are the same corporations that are actually targeted very effectively by the BDS movement. Some of these corporations or the ownership of these corporations, being so concerned about the BDS movement and the fact that there’s so much criticism, are trying to move their investments outside of Israel and abroad, and they’re doing that very fast. Some of them, particularly [?], they are the biggest—well, at least in the top five or six capital owners in Israel, they have made their shift of investment outside of Israel so fast that they made very bad investment decisions and got almost to the verge of bankruptcy. And that means that every Israeli citizen who’s invested into these corporations through their pension fund or through their insurance scheme suddenly lose money. They actually lose money from this. Israelis don’t like to talk about this. The Israeli newspapers, economic newspapers, don’t really like to talk about this. They try to frame it in other terms, to say that it has nothing to do with the occupation, nothing to do with the war; it’s because of the international financial crisis. But the truth of the matter is that those companies that are within the crosshairs of the BDS movement, that are being made accountable by the international community for their involvement in the occupation and for their support of the Israeli government and its crimes, are also the same companies that have the biggest losses.

PERIES: Shir, finally, does the Israeli state have anything to gain financially from reconstructing and redevelopment of Gaza?

HEVER: Right now we see that the biggest voice inside Israel that calls on the Israeli government to allow reconstruction of Gaza, to allow the entry of construction materials and so on, so that some of the damage can be eased, is the defense sector, which is very surprising. I mean, these are the same people who called for use of maximum amount of violence, maximum amount of ammunition against the people in Gaza, against civilians, against the population, half of which are children. Now they’re saying we have to be generous, we have to help them rebuild, we have to help restore them. And the reason is exactly that the defense industry in Israel understands that they need this enemy that they can attack again. If the humanitarian catastrophe in Gaza is allowed to unfold and expand, then this is going to transform the whole political situation and Israel might not be able to launch another attack. And that’s something that the Israeli military elite are very concerned about. If Israel cannot launch another attack, they have a serious problem.

Now, the Israeli military-industrial complex needs enemies, and they tried to put Iran as an enemy. But that’s a problem, because Iran can defend itself, and because the international political situation doesn’t allow Israel to just willy-nilly attack Iran without provocation. They tried to make Lebanon their enemy and attack Lebanon, but the Hezbollah in Lebanon are actually able to defend Lebanon quite effectively, and in the war of 2006 they delivered a painful humiliation to the Israeli army, which was, again, a war that cost Israel more than the Israeli society and government were willing to absorb. And so Gaza remained the sort of soft target, the target that they believe they can just attack again and again every two years or so in order to test their weapons and then sell these weapons and so on and make a profit. I’m not so sure this can continue like this, because the Hamas Party basically said there is no sacrifice they’re not willing to make in order to make this difficult for Israel, and they were willing to keep on fighting for 50 days, which is something that nobody expected. And so I think that the profits of these Israeli military-industrial companies are now at risk.

PERIES: Well, Shir, thank you so much for joining us.

HEVER: Thank you, Sharmini, for having me.

PERIES: And thank you for joining us on The Real News Network.

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