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Is Israel financially capable of waging war?

In the midst of ongoing discussions about a ceasefire, Israeli Prime Minister Binyamin Netanyahu is pushing for parliamentary approval of an emergency war budget. This budget includes increased funding for settlers in the West Bank and religious schools, as well as a significant boost to the military budget. This shift marks a departure from Israel’s long-standing commitment to a generous welfare state alongside a powerful military.

The economic impact of the war has been substantial, with Israel experiencing a 20% contraction in the economy in the last quarter of 2023. This, along with ongoing military expenses, has led to concerns about the country’s ability to sustain the conflict financially. Israel’s debt-to-GDP ratio has risen, and the government is considering measures to stabilize debt levels.

While Israel’s tech sector has managed to weather the storm relatively well, other industries have been severely impacted. Construction, agriculture, and tourism have all suffered, highlighting the widespread economic consequences of the war. The country’s reliance on low-paid Palestinian workers has exacerbated existing labor market challenges, further complicating efforts at recovery.

Despite these challenges, Israel’s central bank has taken steps to stabilize the economy, and markets remain optimistic about the country’s financial resilience. However, the government faces tough decisions about where to cut spending in order to maintain stability. Netanyahu’s proposed budget includes cuts to the welfare ministry, raising concerns about the support available for vulnerable populations affected by the war.

As Israel navigates the economic fallout of the conflict, tough choices lie ahead. Whether under Netanyahu’s leadership or a new government, the country will need to balance the competing demands of its military and welfare state. The decisions made in the coming months will have lasting implications for Israel’s economy and society.

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