A Digest of debkafile Round-the-Clock Exclusives In Week Ending August 20

14 August: Israel’s chief of staff, Lt.-Gen Moshe Yaalon put his hand in a hornet’s nest when he said in an interview: If you ask me if an agreement (with Syria) that is correctly balanced is theoretically possible, I say that mindful of Israel’s military needs, one can be attained which leads to Israel’s withdrawal from Golan. The army is capable of defending Israel’s borders wherever they are.

He also noted Syria has missiles that can reach all parts of Israel and chemical capabilities, thus making the point that as long as those threats remained, the strategic plateau was a vital element of Israel’s security. Nothing he said departed from the Israeli military conception of the effectiveness of buffer zones against hostile Arab armies. But the general’s timing was badly off.

He sounded as though Israel was opening a door to the unpredictable Syrian president Bashar Assad at the very moment that Washington was straining to keep it shut.

An unofficial emissary from President Bashar Assad to Washington last week proposed a rendezvous between Powell and Syrian foreign minister Farouk a Shara somewhere in Europe to discuss a deal. The answer he received was: Tell Assad to show some tangible action first, before we talk. American doors stay shut to dialogue because the Syrian ruler’s actions tell a completely different story from the messages he keeps on sending.

General Yaalon’s interview dropped jarringly amid Washington’s dismissal of Assad’s diplomatic initiatives as a load of theoretical claptrap – as long as, in practice, he actively backs three dangerous terrorist movements – Iraqi, Palestinian and Hizballah.

Cloudy Forecast for Stocks

16 August: The TA25 (index of 25 highest market value shares in the Tel Aviv stock market) climbed consistently from the second half of 2003 up until the record high of 565 points at the start of July 2004. In Israel, modest losses in July, found temporary support in the important 440-445 level. The lead player on the Israeli market is the hugely successful and popular Teva generic pharmaceuticals. The precipitous 20% downturn of its stock in recent weeks (from $32 to annual $25 last week) weighed heavily on the local market on top of the high volume of public redemptions of stock from mutual funds. In the last trading week, TA25 finished at 513 points, slightly above the 510 points support level. The Israeli stock market might find temporary relief this week from government approval of the 2005 State Budget of NIS266.9 bn ($60 bn), although it sparked trade union announcements of general strikes from September 1. But the Tel Aviv stock exchange’s direction in the near future is south; so long as technical corrections in the coming weeks stay below 540-545 level in TA25, the Israeli market will continue its downward trend.

What can we expect from markets in the near future?

In the medium to long term, there is hope. The US presidential election in November will reduce some of the uncertainty preying on world markets and may even relieve some of the terrorist fears leading up to that date.

More immediately, September and October are traditionally slow months on American markets, especially in stocks. Big losses in equities often accrue during these months. At the technical analysis level, the picture remains gloomy: as long as stocks dip, we are left with the possible NASDAQ price target of 1,600 points for the future. Only a break into the 1850-1900 levels and above can pull out the NASDAQ index out of the trough in which it has been floundering since April 2004.

After the US election, a new economic program would have to be set in motion by whoever occupies the White House, for the US stock market to turn around early next year.

Sharon Bludgeons Likud with State Budget

17 August: The frantic maneuvering that went on to whip recalcitrant Likud ministers into line was not strictly motivated by rigid adherence to the clauses of the 20045 State Budget drafted by finance minister Binyamin Netanyahu. It was aimed more at edging the prime minister into position for his second confrontation with his Likud at the party convention meeting Wednesday, August 18.

The convention was called by Likud anti-disengagement rebels, led by minister without portfolio Uzi Landau, for the express purpose of vetoing the integration of the opposition Labor party in the government coalition as a device for tilting the cabinet in favor of the coming evacuation from the Gaza Strip and Sharon’s disengagement program as a whole.

The original cabinet vote earlier this year went against the prime minister. The finance minister, foreign minister Silvan Shalom and education minister Limor Livnat led the Likud revolt against Sharon in the cabinet and forced the Gaza evacuation’s postponement to March 2005 for a second review. Co-opting Labor would enable Sharon to push the evacuation process through cabinet much sooner and sideline his Likud opponents.

To achieve this, the prime minister wielded the budget like a weapon.

He won Netanyahu over by firmly endorsing his budget proposal against a chorus of critics and shooting down its loudest voice, that of acting prime minister, Ehud Olmert. He then isolated Shalom, who suspects that his foreign affairs portfolio will be the first offering presented to Labor. Livnat was lured by an extra NIS 700 m ($156 m) for education. Defense minister Shaul Mofaz, ever Sharon’s staunchest champion, was rewarded with the gift of immunity from the across-the-board NIS1.6 bn ($356 m.) budget cutback. Defense was permitted to spread its cut over several years and granted a “loan” against the 2006 defense appropriation.

The first consequence of the battle of the budget was a declaration by the Histadrut Trade Unions Federation of national strikes starting September 1 with the budget-starved local councils, many of whom have not paid wages for months.

Sharon has never been known for respecting the niceties of the democratic process when they interfere with his decisions. Will Shalom and Landau stand up to him at the risk of splitting the Likud? Will they put forward a motion to sack their party leader? Not likely. Sharon, at 76, with a repertoire of political wiles, ruthless manipulation and complete tone deafness to any wishes but his own, has survived the first half of his second term as head of the most docile cabinet ever seen in Jerusalem. Will that be his epitaph?

With Palestinian terrorist threats building up again on the West Bank – repeated alarms in Jerusalem whose protective fence has been abandoned only one-third finished; the discovery this week of Qassam missiles in production in Nablus – the Sharon government might have shown some inventive initiative to get the fence up and working against all odds. This has not happened. Since this barrier is a vital component of Sharon’s disengagement program, its unfinished state leaves the entire disengagement plan very much on the drawing board.

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