Senior economists met with new Kadima leader Tzipi Livni and Labor chairman Ehud Barak on Sunday night to discuss possible increases in state spending, after Tel Aviv stocks dropped 6.3 percent, the most in more than eight years.
Barak has reportedly set a number of conditions for joining a Livni government, including increasing spending in the 2009 state budget by 2.5% of GDP instead of by 1.7%, the figure recommended by the Finance Ministry.
No significant decisions were made at the meeting, however, as the economists could not reach a consensus. One supported the budget increase, three opposed increasing spending right now, and three economists opposed the proposed increase altogether.
"We are moving into a difficult period of time as the global financial crisis is inevitably turning into an economic crisis that will also affect the local economy," Tel Aviv University professor Dan Ben-David, one of the economists present at Sunday's meeting, told The Jerusalem Post.
"But for coalition-building purposes, you don't want to increase budget expenditure. This is not the right time to raise the government's expenditure ceiling. In a time of crisis you need to convey seriousness. This is not the time for petty politics," he said.
Following steep falls on US stock markets on Friday, stocks on the Tel Aviv Stock Exchange dropped sharply Sunday. The Tel Aviv-25 Index dropped 6.3%, to 793.59. The TA-100 index fell 7.08%, to 707.03, and the Tel-Tech Index slid 11.49%, to 165.73.
Separately, Meitav Investment House reported that its Index of 40 Wall Street-traded Israeli companies, the New York-40 Online Index, dropped 14.7% last month, while the Nasdaq fell 12% during the same month. The weighted Index covers the 40 Israeli shares with the largest market capitalization trading in New York.
From the beginning of the year through September, the negative sentiment across global stock markets continued to weigh heavily on Israeli companies traded in the US. The New York-40 Online Index plunged 29.4% over the nine months, while the Nasdaq Index declined 21.5%.
Finance Minister Ronnie Bar-On and Prime Minister Ehud Olmert reiterated calming messages earlier on Sunday in an effort to block a snowball effect of the global financial crisis on the country's economy.
"There is no sign of real concern," Bar-On said. "It would be wrong to deviate from budget targets we have set. We should not open the budget because of the global financial crisis."
Also on Sunday, the German government announced it would guarantee all private savings accounts, joining Ireland and Greece in taking drastic independent action to head off financial crisis.
"The local government should have done this a long time ago," Ben-David said. "They are debating the issue, but they are worried about creating more panic. The question is whether at this time such an announcement would be beneficial or detrimental."
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