Netanyahu Maneuvering to Stay Atop Israel’s ‘Wave of Populism’ Protests

Israeli Prime Minister Benjamin Netanyahu is aiming to stem growing protests against high prices that have already included mass rallies and demonstrators camped out in city centers.

Parliament approved a law yesterday to speed up housing starts in an effort to lower home prices. Finance Minister Yuval Steinitz signed an order on July 31 preventing an increase in gasoline prices. Netanyahu will introduce measures against monopolies and cartels to increase competition, said a government official who spoke on condition of anonymity because he wasn’t authorized to speak on the record.

The protests show an increased emphasis in Israeli politics on issues of social welfare that may undermine support for Netanyahu, who has appealed to voters by focusing on security and cutting the government’s role in the economy.

“The protesters’ main message is that security can’t trump everything else forever,” said Reuven Hazan, a professor of political science at Hebrew University. “It hurts Netanyahu because he has been so clearly associated with free-market economics and privatization, and gives his political opposition a chance to resuscitate itself.”

Netanyahu in previous stints as prime minister and finance minister was the key advocate in the sale of several government- owned businesses, including El Al Israel Airlines (ELAL) and Bezeq, the Israeli Telecommunication Corp., and is now trying to push through the sale of Israel’s ports and public land.

No Imminent Threat

While the protests have put Netanyahu on the defensive, they pose no imminent threat to his ruling coalition. A longer- term threat may exist if the protests persist and the demonstrators are able to transform their complaints into a political program, say analysts including Hazan.

Netanyahu’s popularity has declined since the start of the protests, with one-third of Israelis giving him a favorable rating compared with 51 percent two months ago, according to a poll by Dialog, a research organization. The study, published last week in the Haaretz newspaper, has a margin of error of 4.5 percentage points.

If voting for parliament was held today, a new political party dedicated to addressing the social issues raised in the protests could win 20 of 120 parliamentary seats, making it second only to Netanyahu’s Likud, according to a Smith Research poll with a margin of error of 4.5 percentage points that was published Aug. 2 in the Jerusalem Post and Globes.

‘Deciding Factor’

“If the protests lead to the formation of a new social- issues party, one that draws away working-class voters from the Likud and Liberman’s party and gets enough seats in the next election to be a deciding factor in determining the next prime minister, that could be a real threat to Netanyahu,” said Gadi Wolfsfeld, author of “Making Sense of Media and Politics.”

Netanyahu’s parliamentary majority includes Foreign Minister Avigdor Liberman’s Yisrael Beitenu and the religious Shas faction.

Israel’s next parliamentary election is scheduled to be held no later than October 2013.

Housing protests, which include hundreds of demonstrators camped out in city centers, come at a time when the Israeli economy is the envy of many nations. Unemployment dropped to a record low of 5.7 percent in May, while growth is expected to be 4.8 percent this year, according to Bank of Israel estimates.

Those figures don’t assuage middle-class Israelis who say they are increasingly pressed by the rising costs of some essential items, especially housing.

Breakeven Rate

Israel’s inflation rate has exceeded the government’s 1 percent to 3 percent target every month this year and was at 4.2 percent in June. The two-year breakeven rate, which reflects the rate of inflation that traders expect, was at 2.62 percent at 12:02 p.m. local time.

Housing prices have increased about 40 percent in the last three years, in part due to Israel’s “very slow” planning and construction process, Bank of Israel Governor Stanley Fischer said Aug. 1. Israel ranked fourth in the Knight Frank Global House Price Index for the first quarter of 2011, with a 12.1 percent increase in housing prices, trailing Hong Kong, India and Taiwan.

In response, the government proposed the National Housing Committees Law, intended to speed up home construction starts by removing obstacles to the approval of building permits. Although opposed by protesters who say the law would be exploited by contractors primarily interested in high-cost homes, Netanyahu’s coalition held firm to approve the bill in a 57-45 vote.

‘Wave of Populism’

“A wave of populism is sweeping over the country,” Netanyahu said in the Knesset after the measure was approved. He said he would address the issue of indirect taxes on goods that have become the target of public ire. The government has pledged to hold down levies on water and bread.

A Facebook group boycott, over the rising cost of cottage cheese, was joined by more than 100,000 Israelis in June. It prompted dairy companies, including Strauss Group Ltd. (STRS), to lower prices and the government to set up a committee to examine rising food costs. Steinitz announced yesterday that he was reducing customs fees on some dairy imports to improve competition.

More than 100,000 Israelis took to the streets on July 30 in Tel Aviv, Jerusalem, Haifa and other cities across the country to protest high prices.

“If these protests had risen in the weeks before an election it would have been a much more serious problem for Netanyahu,” said Avraham Diskin, a political scientist at the Hebrew University of Jerusalem. “He still has time for initiatives that address these issues.”

To contact the reporter on this story: Calev Ben-David in Jerusalem at Cbendavid@bloomberg.net.

To contact the editor responsible for this story: Louis Meixler at lmeixler@bloomberg.net.

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