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Israel's Silent Struggle

After decades of monopoly, Israel's banks are finally facing reform.

9:00 AM, Jul 20, 2005 • By DANIEL DORON
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NETANYAHU, with only the support of Israel's economic media and from independent pro-market think tanks was fighting very high odds. He enjoyed, however, the support of Prime Minister Ariel Sharon, who was convinced by some of his knowledgeable aides that the government had no choice but to go ahead with the reform, because the alternative was not just a return to economic stagnation, which is bad enough, but the risk of an Argentina-like financial collapse. Netanyahu also enjoys the backing of Professor Stanley Fischer, the new governor of the Bank of Israel. But even more encouraging, for the first time in Israel's history, university students' organizations, representing 80,000 students, publicly struggled for the reform in coalition with free-market advocates. Israeli universities, like their American counterparts, are usually left-leaning. That their students, who have been for so long under the influence of professors who are strident advocates of an extreme welfare state would join the fight for free markets in Israel represents a sea change. This change in mindset, and the structural changes that the economic reform will generate, could transform Israel profoundly.

In a country justly preoccupied by security concerns, economic developments, even if they have a great impact on the country's well-being and security, usually don't get top billing. Still, if banking reform is enacted, the Israeli economy will finally perform to its full potential, and the year 2005 will be remembered as an historical turning point not only for Israel's economy, but for its social and military strength as well.

Daniel Doron is Director of The Israel Center for Social and Economic Progress, an independent pro-market policy center in Mevasseret- Zion, Israel.