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US in the doldrums

Since Israel’s independence, its most important economic and financial partners have been in Europe and the US. In the past few years, however, this situation has changed dramatically.

On the plus side, Israel’s position in the Middle East has improved, despite the chaos that has overtaken the region since the so-called “Arab Spring” of 2011. Not only is Israel militarily stronger, but due to the threats from Iran and Islamic State, Israel’s relations with its Sunni Arab neighbors have undergone a dramatic transformation, as those countries realize that Israel can be an important asset. Thus far this rapprochement has been largely behind the scenes, but no less marked because of that.

The recently signed energy alliance among Israel, Cyprus and Greece, made possible by the discovery and development of natural gas reserves, cooperation with Russia and the possibility of reestablishing friendly relations with Turkey, have contributed to this regional improvement.

With reference to South Asia and the Far East, especially India, China, South Korea, Taiwan and Vietnam, Israel has greatly improved its economic and financial relations, as well as developed important areas of cooperation in agriculture, high-tech and education.

All this has made it possible for Israel to maintain a good record of economic growth and development, despite political instability, terrorism, wars with Hamas in Gaza, and social conflicts. Most remarkably, this has been achieved despite the decline of Israel’s traditional partners. The European situation is bad enough, with economic stagnation, immigration problems, terrorism and rampant anti-Semitism.

But most worrying of all is the current situation in what has been by far Israel’s most important partner, the US. The chaotic ;and bizarre political situation, an outgoing administration openly pro-Islamic and anti-Israel, economic stagnation to the point of inspiring talk of another recession without a real intervening recovery, studies demonstrating that the real rate of unemployment is three times the published rate, the growth of the BDS movement, particularly in universities and academic associations – all of this is bad enough, although so far it has not affected the extremely close and productive defense cooperation with the US armed forces.

But the lack of any substantial economic growth since 2008, coupled with ever-increasing disparities of wealth and income, and the effects of technological innovation on the situation of much of the former middle class, has led to what can only be termed a toxic mix of rage and fear on the part of a significant portion of the American people. Some estimate thirty to forty percent, which explains the extreme alienation from the political, social and economic elites of the country and has resulted in the political phenomena of Bernie Sanders and Donald Trump.

Most serious of all, however, is the fiscal situation emphasized by the just-released report of the Congressional Budget Office (CBO), a respected and entirely independent Congressional think-tank. This report demonstrates that if current trends are not reversed drastically, both the annual deficits and the total debt of the country will continue to grow to proportions which will result in the country being faced with a choice between defaulting on the debt or inflating it away. The figures are unquestionable and it is very doubtful whether any administration taking over the reins of government in January 2017 will have the ability to enforce the measures of austerity and the reforms of the entitlement systems which will be required to avoid such an outcome.

The traditional pillars of Israeli foreign diplomatic and economic relations are crumbling and will most likely continue to do so for the foreseeable future. Policy should continue to be adjusted accordingly.

This piece was originally published in Globes