Netanyahu Juggles Coalition Talks to Steer Post-Fischer Economy

President Barack Obama waited six days before calling Israeli Prime Minister Benjamin Netanyahu to congratulate him for “winning a plurality of Knesset seats.”

There wasn’t much more he could say, because the fragmented results of Israel’s Jan. 22 election mean voters won’t learn who really won for another month or so. President Shimon Peres is set later today to formally give Netanyahu, 63, the go-ahead to start coalition talks. Because he emerged weakened from the vote, Netanyahu will have to cede to a variety of partners to build a sustainable majority in the 120-seat parliament.

Bank of Israel Governor Stanley Fischer’s surprise decision to step down in June may push Netanyahu to form a government with Yair Lapid, the centrist second-place finisher, and settlement champion Naftali Bennett, said Dani Filc, a political scientist at Ben-Gurion University of the Negev in Beersheba. That’s because the three agree on the need for fiscal discipline, even as political disputes linger, he said.

“This gives Netanyahu his third term, and it can work for all three of them,” Filc said. “He’s going to lose Fischer soon, so he needs to address the economic problems and he’s not in such a rush to deal with all the issues involved with the Palestinians.”

Coalition-building is a perennial exercise in Israel because no single party has ever managed to field a Knesset majority alone. Netanyahu’s Likud-Beitenu ticket captured only 31 seats in last month’s election, down from the combined 42 seats controlled previously by the Likud and Yisrael Beitenu parties, which formed an alliance for the election. Party leaders had said they expected 45.

‘Dance of Swords’

With 19 seats for his Yesh Atid party, Lapid was the first potential partner summoned by Netanyahu after the vote as pundits suggested he would be named either foreign, defense or finance minister. The popular television news host and columnist cautioned supporters in a Facebook posting that nothing was assured going into coalition talks, which he described as a “dance of swords” that may take more than a month.

Depending on which among 11 other parties in the Knesset Netanyahu brings to his coalition, Israelis could find themselves with a fiscally prudent leadership that slashes the $10.6 billion budget deficit, a socially liberal Cabinet that prods ultra-Orthodox rabbinical students into the army or an internationally isolated government that again threatens to bomb Iran and expands settlement construction in the West Bank.

Obama and Netanyahu have had a prickly relationship from the time they took office in 2009 within three months of each other, sparring on how to stop Iran’s nuclear program and whether Israel should freeze settlement construction.

Campaign Promises

Netanyahu needs another 30 seats to clinch the coalition and could use a few more to protect him against parliamentary no-confidence votes. His initial overture to Lapid suggests he’ll seek to move closer toward the political center, said Noah Efron, a philosopher and social critic who teaches at Bar Ilan University near Tel Aviv.

“The irony is that Netanyahu’s new coalition partners may force him to make good on promises he made in his last term, like getting ultra-orthodox men into the army and workplace, cutting middle-class taxes and resuming peace talks,” said Efron, author of the 2003 book, “Real Jews: Secular Versus Ultra-Orthodox and the Struggle for Jewish Identity in Israel.”

On the other hand, Netanyahu may embrace the settler movement by including Bennett, 40, head of the Jewish Home party that came in fourth with 12 seats, as well as the ultra-Orthodox Shas and United Torah Judaism parties. While newcomer Bennett’s early popularity fed campaign declarations that he was a natural partner for Netanyahu, settler leaders have been damping expectations since the results emerged.

Lacking Leitmotif

“Netanyahu doesn’t have a real leitmotif,” said Yisrael Harel, founding director of the Institute for Zionist Strategies and a former chief of the settlers’ Yesha Council. “His main motive is to be prime minister, and the only thing that’s deeply rooted in him is economics.”

Netanyahu has said he wants to establish the broadest government possible, a goal he briefly achieved last year when he recruited the Kadima Party’s 28 Knesset members and his coalition ballooned to 94. That arrangement lasted 70 days and broke down over the issue of drafting the ultra-Orthodox. Kadima won only two seats last week.

Probably left outside to lead the Knesset opposition are Labor Party leader Shelly Yachimovich, who came in third with 15 seats; Meretz, which advocates territorial withdrawal to make peace with the Palestinians; and three Arab parties that together have 11 seats. Also unclear is the fate of former Foreign Minister Tzipi Livni’s Hatenuah party, which gained a less-than-expected six seats after running as the only major party dedicated to engineering a peace agreement.

To contact the reporter on this story: Jonathan Ferziger in Tel Aviv at jferziger@bloomberg.net

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

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