(Bloomberg) -- Israel’s government did the expected by falling apart.
Coalition faction leaders voted unanimously Monday to dissolve parliament and call early elections for April 9. Elections originally were scheduled for November 2019, but no Israeli coalition in the past 30 years has served out its term. Speculation has been rife for months that the current government would fall, too, as Prime Minister Benjamin Netanyahu faces multiple corruption allegations.
“We seek a clear mandate from the electorate to continue to lead Israel on our path,” Netanyahu said at a hastily scheduled news conference. He gave no specific reason for disbanding the government other than to seek a fresh mandate from voters, predicting that his current government would be “the core of the next coalition.”
The government has been living on borrowed time since Defense Minister Avigdor Liberman resigned in November, leaving the coalition with the thinnest of parliamentary majorities -- 61 of the Knesset’s 120 seats. Israeli shares lost ground after Monday’s news, but the declines moderated in the afternoon to more closely track drops in U.S. markets.
It was a stunning Day 1 present for Bank of Israel Governor Amir Yaron, who took office earlier in the day. The shekel was down 0.1 percent against the dollar late Monday afternoon.
Polls have suggested a new vote won’t produce a significantly changed parliament, with Netanyahu projected to win a fifth term -- his fourth straight -- despite the corruption investigations. The prime minister has convinced his base that he’s the victim of a political witchhunt conducted by leftists and the media to topple his conservative government.
Channel 10 reported last week that the state prosecutor’s office believes there’s enough evidence to indict Netanyahu in at least one of the three corruption cases in which police have recommended he be charged.
“Obviously Netanyahu has realized this is a serious threat and the last thing he needs in the midst of an election campaign is the attorney general deciding to prosecute him,” said Reuven Hazan, a Hebrew University political scientist. “He wants to pre-empt this, he wants to win and he wants to turn around to the attorney general and say, ‘Before you decide to prosecute me, pay attention: The people of Israel have elected me for a fourth time. You cannot overturn the results of a democratic election.’”
Police say there’s evidence the prime minister committed bribery and traded regulatory favors in exchange for positive media coverage. The cases are the most sprawling set of corruption scandals in Israel’s 70-year history, and the greatest political threat Netanyahu has faced.
“He’s vulnerable. Now our job is to convince people that the change they’re looking for is us,” said Merav Michaeli, a legislator from the opposition Zionist Union camp.
Hazan said that even if Netanyahu comes out on top in the vote, the corruption investigations will likely be a key factor in negotiations toward forming a new government.
“It’s more than likely that he’s going to ask each party, will they support him if the attorney general decides to indict,” Hazan said. “I don’t think any party that says no will be part of the coalition.”
The Justice Ministry said its work on the Netanyahu cases would continue as planned despite the new election timetable.
The political upheaval won’t have major budgetary implications because the 2019 spending plan is already sewed up, according to Rafi Gozlan, chief economist at Israel Brokerage and Investments Ltd. in Tel Aviv.
“We’re entering a period of political uncertainty at a time when the entire world is gripped by uncertainty, so it’s not good timing to inject another element of uncertainty into the Israeli economy,” Gozlan said.
If the polls are wrong and Netanyahu loses after steering the country for 10 years, “there are definitely things that could change if there’s new leadership,” such as spending priorities, taxation and government services, he said.
Jonathan Katz, macrostrategist at Leader Capital Markets, said that in the past, the shekel has weakened moderately after early elections are called because of the uncertainty.
“Then you could see higher inflation, and then a response form the Bank of Israel,” in the form of further tightening, he said.
Trump Peace Plan
The Trump administration’s mooted Middle East peace plan has not yet been unveiled, and early elections may push it off even further. If the plan is presented during the election it’s likely to hurt Netanyahu, said Yohanan Plessner, president of the Israel Democracy Institute.
“It would force him to make a choice he’s not interested in, between the Israeli far right and his friendship with the American president,” Plessner said.
While Netanyahu managed to glue his coalition together after Liberman quit, his government was tottering. It lurched from that crisis to one over a Supreme Court order to rewrite an overturned law that would draft ultra-Orthodox Jews into the army.
Ultra-Orthodox parties threatened to pull out of the coalition, depriving Netanyahu of a parliamentary majority, if the bill were approved. A secular opposition party’s reported refusal to back the bill -- which it once endorsed -- drove home the current coalition’s inability to govern.
(Updates with analyst comment on economic implications from twelfth paragraph.)
--With assistance from Filipe Pacheco, Alisa Odenheimer and Jonathan Ferziger.
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