Israeli Prime Minister Benjamin Netanyahu speaks as he and Finance Minister Bezalel Smotrich hold a news conference to present their plan to deal with price increases in Israel’s economy at the Prime Minister’s Office in Jerusalem on January 11, 2023.
Ronen Zvulun | Reuters
Israel’s shekel is down nearly 6% in February and at a three-year low against the dollar, as political unrest mounts over controversial legal reforms pushed by Benjamin Netanyahu’s right-wing government.
An estimated 160,000 protesters took to the streets of Tel Aviv over the weekend, and tens of thousands more gathered in other cities to demonstrate against the ruling coalition’s planned judicial overhaul, which would significantly weaken Israel’s judiciary.
Signs carried by scores of protesters read “No Constitution, No Democracy” and “They shall not pass.” Members of Israel’s business, academic, legal and even military communities have warned against the changes.
Former Israeli Prime Minister Ehud Barak called the plans “an assassination of the declaration of independence, which will turn Israel into a dictatorship”, and described the current situation as “the worst crisis since the formation of the state”.
Thousands of Israeli protesters rally against the Israeli government’s judicial review bill in the coastal city of Tel Aviv on February 25, 2023. Protesters confronted police and blocked the Ayalon highway.
Gili Yaari | Nurphoto | Nurphoto | Getty Images
Prime Minister Netanyahu has called the protests – now approaching their third month – an attempt to “create anarchy” and trigger another election. Israel, deeply divided, has had five snap elections since April 2019.
What are the proposed changes?
In short, the proposed judicial overhaul will severely limit Israel’s Supreme Court’s ability to review and strike down laws it deems unconstitutional. The Knesset – Israel’s parliament – voted last week to advance a large part of the reforms.
They essentially have four main clauses:
- Allow the Knesset to override Supreme Court decisions with a simple majority of 61 out of 120 seats while the court can currently block any laws it deems unconstitutional
- Remove the Supreme Court’s ability to assess Knesset legislation and other government decisions for “reasonableness”; this principle was exercised in the court’s recent decision to judge one of Netanyahu’s ministerial appointments as “grossly unreasonable” due to previous criminal convictions.
- Give the greatest control over the appointment of judges to the ruling coalition, rather than to a current committee of legal experts and representatives
- Allow ministers to appoint their own legal advisers and remove the latter’s authority to make binding decisions
Netanyahu and his Justice Minister Yariv Levin say the changes are needed to prevent the Supreme Court – which is unelected – from overly interfering in government and Knesset decision-making.
“The claim that this reform is the end of democracy is baseless,” Netanyahu said in response to the barrage of criticism. The prime minister himself is currently under investigation on numerous corruption and other charges, meaning he would likely benefit from a weaker judiciary.
He argued that “the balance between the branches of the system of government has been violated over the past two decades, and even more so in recent years,” and that the reforms would “restore the proper balance between the branches.”
But large sections of Israeli civil society, along with current and former lawmakers, strongly disagree.
“All functioning, healthy and robust democracies have a clear separation of powers as well as checks and balances to ensure that no individual or institution has too much political power,” Yohanan Plesner, president of the Israel Democracy Institute, told CNBC.
“The biggest danger arising from the planned judicial review is that this package will (in effect) do just that – concentrate all political power in the hands of the executive branch, which already gives significant control to the Knesset, our legislative branch of government.”
Netanyahu says the adoption of the changes is part of the mandate he won when he was re-elected to power in November. But Avi Himi, head of the Israel Bar Association, said of the prime minister during a recent rally: “You were never given a mandate to change the regime, you were never given a mandate to destroy democracy. It is our right to shout, it is our duty to shout, that’s how it is in a democracy.”
The crisis is now extending to Israel’s economic future and has already hit stocks and the national currency, with the Tel Aviv Stock Exchange’s benchmark TA-125 index down nearly 4% last week.
“While a significant political premium now appears to be embedded in the ILS (Israeli New Shekel), risks to the shekel remain in the near term,” Goldman Sachs wrote in a research note on Friday. “With the increased market anxiety surrounding the legal reform, simple benchmarking suggests that roughly an 8% risk premium has appeared to be building into the shekel.”
People protest against Israeli Prime Minister Benjamin Netanyahu’s bill limiting the powers of the judiciary and his right-wing policies in Dizengoff Square in Tel Aviv, Israel on February 25, 2023.
Mostafa Alkharouf | Anadolu Agency | Getty Images
Zvi Eckstein, a former deputy governor of Israel’s central bank, explained the risk this could pose to the country’s crucial technology sector.
“Israel’s economy is very unusual – 17% of Israeli production, 11% of the workforce, is engaged in research and development in the high-tech sector,” Eckstein said. “All this is financed by venture capital that comes from abroad, almost 90% of it.”
The proposed legal reforms, he warned, now mean “great uncertainty for the economy, huge uncertainty for local and foreign investment in Israel.”
Plesner of the Israel Democracy Institute agreed.
“Investors, and the global economy as a whole, not only seek stability, but are often drawn to countries with independent institutions such as the judiciary and a strong central bank,” he said.
Curtailing the institutions’ independence “leads to a reduction in foreign investment and a downgrading of their credit rating,” Plesner warned. “We can only hope that Israel’s leadership understands the risks it poses to the Israeli economy.”