Jan. 17 (Bloomberg) -- When he called for a national election a year before he was required by law last October, Prime Minister Benjamin Netanyahu was determined to obtain wider support for key decisions on talks with Palestinians and budget cuts. Israelis now are signaling that his options have narrowed.
While Netanyahu is set to win re-election on Jan. 22, polls show falling support for his Likud-Beitenu parliamentary list, which would emerge with fewer seats than it currently holds. Such an outcome would increase his dependence on smaller groups with other priorities, making it harder to form a coalition.
Potential partners, including the ascendant Jewish Home party, oppose concessions to Palestinians. That will make it difficult for a re-elected Netanyahu to respond to pressure from the U.S., Israel’s main ally, for negotiations to resume after more than two years. Bringing the opposition Labor party into an alliance, another option for the premier, may spell trouble for his plan to cut 14 billion shekels ($3.8 billion) of spending.
“Netanyahu is going to find it very hard to put together a coalition to move both his economic and political agenda forward, and is going to have to make some hard choices,” said Tamir Sheafer, a political science professor at the Hebrew University of Jerusalem. One result may be more friction with allies over the lack of progress on a peace accord, he said.
Israel’s equity market rally has stalled since Netanyahu, 63, called the vote on Oct. 9, suggesting investors are waiting for the outcome. The benchmark TA-25 index rose 0.1 percent since then, after gaining 17 percent in the previous year. The MSCI World Index of developed-market stocks advanced 5 percent in the past three months.
Likud’s alliance with former foreign minister Avigdor Liberman’s Yisrael Beitenu would win 33 seats in the 120-member Knesset, according to a Jan. 11 Dahaf poll in the Yediot Ahronot daily, down from the 42 seats they currently hold. Polls in October had shown them adding to that total.
Netanyahu has been attacked from both sides on the question of peace talks with the Palestinians as candidates avoid discussing what he says is the biggest threat confronting Israel, the prospect of Iran obtaining nuclear weapons. Wary of appearing partisan on an issue widely seen as above party politics, his rivals haven’t challenged his willingness to order military strikes to stop that from happening.
Instead some parties have condemned the failure to resume negotiations that broke down in 2010, while Jewish Home is poised to win seats at the expense of the premier by making opposition to a Palestinian state the center of its platform. It supports building more settlements in the West Bank and east Jerusalem, a policy opposed by the U.S.
Netanyahu has said he supports construction in areas with large settlements, while Jewish Home and others in his own party support such construction throughout the West Bank. Keeping them as partners would leave Netanyahu caught between domestic allies who want to abandon peace talks, and international allies pressing for their resumption.
“Jewish Home is picking up votes from many Likud supporters,” said Yehuda Ben-Meir, a fellow at the Institute of National Security Studies at Tel Aviv University. A coalition with Jewish Home along with other religious parties would put Netanyahu in a straitjacket on Palestinian issues, he said.
Jewish Home may win 14 seats, up from three in the outgoing Knesset, according to Yediot Ahronot’s poll. Its leader Naftali Bennett, a former aide to Netanyahu, said in an interview last month that he’s against attempts to “impose an untenable or impossible peace.”
Netanyahu favors a two-state solution if Palestinians are demilitarized, Israel keeps full control of Jerusalem and major settlements, and Palestinians renounce the right of return and formally recognize Israel as a Jewish state. His views, like those of George W. Bush on Iraq when he was president, are the subject of debate both abroad and at home. During Bush’s second term, half of Americans strongly opposed his administration’s plan to send more troops to Iraq, according to a Washington Post-ABC News poll published in January 2007.
While 53 percent of Israelis back a two-state solution, only 41 percent said it’s currently feasible, and 55 percent said Palestinian President Mahmoud Abbas isn’t a partner with whom an accord can be reached, according to a Jan. 4 poll in the Israel Hayom daily.
The fragmented Israeli electorate --- there are 17 parties in the Knesset -- is such that even though the survey found Netanyahu to be the “best suited” for prime minister, he still earned only 43 percent of public support.
With his own party’s share in the governing coalition reduced, Netanyahu may also struggle to push through plans to limit draft deferments for ultra-Orthodox Jews, who continue religious studies full-time while living on government grants.
The premier, backed by Bank of Israel Governor Stanley Fischer, says getting more of the ultra-Orthodox into the workforce is crucial for long-term economic growth.
While Jewish Home has expressed support for the plan, two other parties in the government, Shas and United Torah Judaism, have opposed changes to that subsidy. They are set to win a combined 15 seats, according to Yediot Ahronot.
Netanyahu’s alternative is an alliance with at least two of the three parties that support Palestinian statehood, Labor, Hatenuah and Yesh Atid, according to Ben-Meir. That may alienate parts of Likud, where primary elections saw gains for supporters of Jewish settlements at the expense of ministers closer to Netanyahu on the issue.
The premier may take the risk, Ben-Meir said. “This is probably Netanyahu’s last term as prime minister, and he has to be thinking now about his legacy,” he said.
Bringing those parties into a coalition may endanger another of Netanyahu’s goals: reducing the deficit. The premier cited his inability to get partners to agree on spending cuts for 2013 as a reason for calling early elections.
Since coming to power in 2009 at the end of an Israeli recession that followed the global crisis, Netanyahu has presided over growth of 14.7 percent, compared with 10.7 percent in Australia and 3.2 percent in the U.S., according to the Israel Finance Ministry. Still, last year’s growth of 3.3 percent was the slowest since 2009.
To keep the recovery going, the government exceeded its budget deficit target last year, and Netanyahu now plans to reduce it to 3 percent of output from 4.2 percent.
The government says growth will pick up this year as companies, including Delek Drilling LP and Avner Oil Exploration LLP, start extracting natural gas from Mediterranean fields, and budget cuts are needed for the economy’s longer-term prospects.
That agenda won’t be easy to maintain in an alignment with Labor. While Jewish Home and other right-wing parties have expressed support for much of Netanyahu’s economic program, Labor’s Shelly Yachimovich has focused her campaign on welfare issues and opposes cuts in social spending.
Knesset speaker Reuven Rivlin, a Netanyahu ally, cites the Palestinian talks, budget cuts and the ultra-Orthodox draft as key challenges, and says the electoral math won’t add up to a government capable of tackling them all.
To do that, he told reporters last week, would take “three different coalitions.”
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