Israeli Agreement Broadens Netanyahu’s Powerbase

Photographer: Scott Eells/Bloomberg

Israel's Prime Minister Benjamin Netanyahu. Close

Israel's Prime Minister Benjamin Netanyahu.

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Photographer: Scott Eells/Bloomberg

Israel's Prime Minister Benjamin Netanyahu.

Prime Minister Benjamin Netanyahu’s agreement to team up with Israel’s biggest opposition party gives him a broad powerbase to steer issues ranging from budgets and Middle East peace talks to a possible attack on Iran.

“Netanyahu once again revealed how confident and smart he is on the political side,” Aaron David Miller, a senior fellow at the Woodrow Wilson International Center for Scholars in Washington, said after yesterday’s deal with the Kadima party. “It broadens and legitimizes the Netanyahu government with Netanyahu having to pay no price -- at least for now.”

The coalition of Netanyahu’s Likud party and Kadima, led by Shaul Mofaz, a 63-year-old former general, creates a new majority of 94 seats in the 120-member Knesset, the biggest since Yitzhak Shamir commanded 97 seats in 1990. That may enable Netanyahu to pass a range of legislation that would previously have proved problematic, including the elimination of most military service deferments for ultra-Orthodox Jews.

Freed from the demands of religious parties, Netanyahu may find it easier to make compromises with Palestinians that could lead to a breakthrough in the peace process. Netanyahu, 62, may also have an easier time making controversial decisions, such as the bombing of Iranian nuclear facilities, since there is less risk of his coalition collapsing.

‘Stunning Move’

The coalition agreement is scheduled to be officially ratified in parliament today, followed by the swearing-in of Mofaz as a government minister, Knesset spokesman Yotam Yakir said in a phone interview.

The alliance with Mofaz may reduce the disproportionate influence of the smaller religious parties, said David Makovsky, director of research at the Washington Institute for Near East Studies. At the same time, it will probably ensure that Israel’s leading proponent of an attack on Iran, Defense Minister Ehud Barak of the five-seat Atzmaut Party, will remain in office, he said.

“It’s a stunning move,” Makovsky said in a telephone interview. “It’s a new world.”

Netanyahu surprised opponents when he reversed his May 6 call for early elections in September, and revealed a pre-dawn agreement with Mofaz to form a so-called unity government. The prime minister said later at a Knesset news conference that he “jumped at the opportunity” because teaming up with Kadima would provide “stability” to extend his term to November 2013.

Stocks Fall

Israeli government bonds dropped for the first time in more than a week after early elections were canceled, as a result of concerns that he may be pressured to spend more to appease his new coalition partners, according Sagie Poznerson, head of trading at Leader Capital Markets (LDRC) Ltd. in Tel Aviv.

That could test the fiscal discipline demanded by Bank of Israel Governor Stanley Fischer.

The yield on the 5 percent bond due March 2013 today rose two basis points, or 0.02 percentage point, to 2.54 percent at the 12:02 p.m. The shekel weakened 0.2 percent to 3.8152 a dollar. Israel’s benchmark stock index, the TA-25, was down 0.5 percent to 1,139.84.

Tensions over the Iranian program helped drive Brent crude prices to about $125 a barrel in March, the highest in more than 3 1/2 years. Prices fell more than 2 percent on the next trading day after Iran and the world powers broke a 15-month stalemate on the nuclear conflict during talks April 14 in Istanbul. Negotiations are set to resume May 23 in Baghdad.

Odds compiled by Intrade.com that Israel or the U.S. will strike Iran by the end of this year dropped to about 23 percent yesterday, from 33 percent at the end of March and as high as 62 percent in February.

‘Difficult Decisions’

Even so, Netanyahu is sending a message “that there is a wide coalition government in Israel that can take difficult decisions regarding Iran if the superpowers appear to be dragging their feet on the issue,” Rafi Gozlan, chief economist at I.B.I.-Israel Brokerage & Investments Ltd. in Tel Aviv, said in a phone interview.

Standard & Poor’s issued a statement yesterday saying its A+ rating and outlook of “stable” for Israel have not been affected by the government shakeup.

Under the accord, Mofaz, a former defense minister and military chief of staff, will become deputy prime minister and a minister without portfolio, Likud party spokeswoman Noga Katz said.

Labor Party chief Shelly Yacimovich, whose faction holds eight seats in parliament and who will now lead the opposition, told Army Radio the Netanyahu-Mofaz agreement was “an alliance of cowards.”

Opportunity for Talks

Netanyahu said at the Knesset that Palestinian Authority President Mahmoud Abbas should “take advantage of this opportunity” to restart direct talks. Formal discussions have been suspended since September 2010, when Netanyahu declined to extend a 10-month freeze on construction in West Bank settlements demanded by Abbas.

Abbas’s spokesman, Nabil Abu Rudeina, urged Netanyahu to establish a “coalition of peace, not a coalition of war” and quickly negotiate a peace settlement, according to the Palestine News & Information Agency known as Wafa.

Danny Danon, a Likud Knesset member who opposes concession to the Palestinians, criticized the agreement with Mofaz. The accord “spells trouble for the Jewish communities” of the West Bank, he said in an e-mailed statement. “We must not abandon our traditional partners by moving the coalition to the center and reviving the political corpse that is the Kadima party.”

Iranian Roots

Mofaz, who was born in Iran, immigrated with his family to Israel in 1957 and rose through the army ranks to become its top general. As defense minister, Mofaz oversaw the withdrawal of troops and Jewish settlements from the Gaza Strip in 2005. He was a member of Likud until 2005 when he departed with former Prime Minister Ariel Sharon to form Kadima.

Netanyahu acted as his government faced political decisions over the next few months that threatened his coalition’s stability. He suffered a setback this week when Israel’s High Court of Justice ordered the destruction of five apartment houses in the West Bank Jewish settlement of Beit-El, and criticized the government for trying to stop demolition orders.

In February, the court also invalidated the so-called Tal Law, which has enabled more than 50,000 students a year in ultra-Orthodox seminaries to avoid being drafted for military service that is obligatory for Israeli Jewish men and women. Shas and United Torah Judaism, two religious parties in the coalition, are demanding that the exemption be maintained.

Distribute Burden

Mofaz yesterday said the new coalition will pass a law that will distribute the burden of army service more equally among the population and said he has new ideas on how to restart peace talks with Palestinians. He spoke at a joint press conference with Netanyahu in Jerusalem.

Mofaz is a pragmatist on the Palestinian issue and on Iran, according to Miller, a veteran of U.S. teams mediating Israeli-Palestinian peace talks.

The coalition agreement will enable Netanyahu’s government to move forward with measures to break up corporate monopolies and increase business competition, analysts said.

To contact the reporters on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net; Calev Ben-David in Jerusalem at cbendavid@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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