Election Primer

BMI View: Israel's upcoming parliamentary elections will likely see current prime minister Benjamin Netanyahu forming a right-wing coalition government with nationalist and ultra-orthodox parties. As a result, Jerusalem's foreign policy will slide further to the right, with risks that Israel will wage war on Iran increasing in 2013, while prospects of peace with the Palestinians are as grim as ever. As a result, Israel's growing isolation on the international stage will increase.

Israel will hold parliamentary elections on January 22 2013, and most polls predict that current Prime Minister Benjamin Netanyahu will win another term as prime minister. His right-wing Likud party will run with the pro-secular, nationalist Israel Beiteinu party of former foreign minister Avigdor Lieberman. However, Lieberman's resignation from the government as a result of his indictment for fraud and breach of trust in December contributed to a decline in polling support for the joint Likud/Yisrael Beiteinu list. This could increase Netanyahu's dependence on small parties, most likely right-wing or ultra-Orthodox formations which have seen their support rise over the past few months, in order to form a majority.

Parliamentary Elections: The Basics
Source: BMI, US Congressional Research Service
Elections to Israel's 120-seat Knesset will take place on January 22 2013. elections are direct, secret, based on a proportional party list system with a 2.0% threshold of entry. Elections must be held at least every four years, but are often held earlier due to difficulties in holding coalitions together. Turnout in elections since 2001 has ranged between 62-65% of registered voters, while it ranged between 77-80% before.
A Central Elections Committee is responsible for conducting and supervising the elections, which includes representatives from parties in the current Knesset and is headed by a Supreme Court justice.
Thirty-four party lists have registered for the January 2013 elections. National laws provide parameters for candidate eligibility, general elections, and party primaries-including specific conditions and limitations on campaign contributions and public financing for parties.
The task of forming a government is given by Israel's president to the Knesset member he/she believes has the best chance to form a government as prime minister. The would-be prime minister has 28 days to assemble a majority coalition, and the president can extend this period for an additional 14 days.
The government and its ministers are installed following a vote of confidence by at least 61 Knesset members. The ministers determine the government's course of action on domestic issues, while military and national security action are directed through a "security cabinet" consisting of nearly half the ministers.

Coalitions Building: Three Scenarios

We see three main scenarios out of the elections, with the formation of a right-wing coalition as the most likely outcome.

Scenario 1: A Right-Wing Government

Under our core view whereby the Likud/Beiteinu emerges with the largest Knesset (Israel's parliament) representation, Netanyahu would play the leading role in shaping the new coalition and government. Netanyahu's immediate interest would be to build a coalition with the support of nationalist and ultra-orthodox parties. In particular, Ha'bayit Ha'yehudi (the Jewish Home), a nationalist party which is hawkish on both the Palestinian issue and Iran, will be a key element of the new government, as confirmed by Likud's top officials on January 15. As the party will gain approximately 14 seats in the Knesset according to latest polls, compared to only three in the last elections in 2009, the government coalition would position itself further to the right of the political spectrum compared to the current one. In particular, our core view sees Netanyahu's policy vis-a-vis Tehran and the Palestinians becoming more hawkish after elections.

Government coalition: Likud/Beiteinu (35 seats); Jewish Home (14); Shas (11); United Torah Judaism (6). Total: 66 seats out of 120

Core Scenario: A Right-Wing Government
Israel - Possible Post-Election Knesset Coalition Scenarios

Scenario 2: A Centre-Right Government

A second scenario could entail the exclusion of ultra-orthodox parties from the coalition. Given the secular nature of Beiteinu, the party has a longstanding interest in seeing the housing and interior ministries taken out of the control of ultra-orthodox factions, as well as to replace the Tal Law, which used to enable ultra-orthodox Torah students to defer army service. As a result, ultra-orthodox parties could be excluded from the governing coalition. Netanyahu could opt to excluding Jewish Home instead, in order to marginalise Naftali Bennett, which he sees as a potential rival for the leadership of Israel's right. However, Likud's rank-and-file appears willing to enter in a coalition with Jewish Home, which makes its exclusion highly unlikely.

Under both variants, Netanyahu would have to form a government with the support of left-leaning or centrist factions, such as the Movement or Yesh Atid. Given that Kelly Yachimovich, the Labour party's leader, declared that her party will not enter in a coalition with the Likud/Beiteinu under any circumstances, her involvement in a coalition with Netanyahu appears less likely at this stage. In any case, a centre-right government could see Likud's hawkish position vis-a-vis the Palestinians and Tehran moderating significantly compared to our core scenario. This implies that risks that Jerusalem's relations with neighbouring states and Western countries will deteriorate ( see below) would mitigate significantly.

Government coalition (variant one): Likud/Beiteinu (35 seats); Jewish Home (14); the Movement (10); Yesh Atid (9). Total: 67 seats

Government coalition (variant two): Likud/Beiteinu (35 seats); Shas (11); United Torah Judaism (6) the Movement (10); Yesh Atid (9). Total: 71 seats

Less Hawkish Foreign Policy Positions Possible
Israel - Possible Post-Election Knesset Coalition Scenarios

Scenario 3: A Centre-Left Government

A third scenario could see left-leaning and centre parties agreeing to form a government, with Kelly Yachimovich as leader. However, such a scenario remains highly unlikely at this stage. For one, negotiations by the heads of the Labour party, the Movement and Yesh Atid to create a unified bloc failed on January 7. Moreover, the coalition would be large and compromised, as it would include parties such as Jewish Home, ultra-Orthodox parties and possibly Meretz, an opposition left-leaning party, and it would be highly unlikely to last many months as a result.

Government coalition: Labor (18 seats); Movement (10); Yesh Atid (9); Jewish Home (14); Shas (11); Meretz (4). Total: 66 seats

An Unlikely Scenario
Israel - Possible Post-Election Knesset Coalition Scenarios

Economy: Slower Fiscal Deficit Narrowing Under A Left-Leaning Government

Israel's economy, which we estimate to have grown 3.0% in real terms in 2012, will remain in a soft patch, with real GDP projected by BMI to increase only 3.1% in real terms this year. Moreover, according to figures released on January 13, Israel posted a budget deficit equivalent to 4.2% of GDP in 2012, the same figure which we forecast in our latest fiscal policy article ( see 'Fiscal Deficit Remaining Elevated In 2013', 29 November 2012), and well above the 2.0% target of the government. As a result, Netanyahu has come under increasing criticism from the left, which has tried to regain some ground by waging an economy-focused campaign.

We forecast the fiscal deficit to remain elevated in 2013, particularly as the 2013 budget is unlikely to be discussed before Q213. However, we believe that a Netanyahu-led government will manage to reduce the fiscal deficit significantly from 2014 onward. Conversely, under a scenario whereby a left-wing coalition wins elections, the fiscal deficit will likely remain relatively elevated over the medium term. Indeed, Lab our (Israel ' s largest left-leaning party) encouraged Netanyahu's spending spree over the past year, and, given its focus on improving social equality and welfare, it would be unlikely cut social spending significantly going forward. That said, with Israel's economy remaining highly dependent on global developments, the make-up of the government coalition is unlikely to make a drastic difference to the outlook for the economy.

Thoughts On Political Parties
Party Leader MK's in the current Knesset 2013 Polls Features
Source: BMI, Israel Embassy in Washington, US Congressional Research Service
Likud/Beiteinu list Benjamin Netanyahu 42 (HaLikud 27 + Yisrael Beytenu 17) 35 Likud Beytenu is a formation of two parties running together in the upcoming elections, Likud and Israel Beytenu. The Likud, officially formed in 1973, first came to power under Menachem Begin's leadership in 1977 and has been in government for 26 of the last 35 years. It is currently the biggest party in the Knesset and is a centre-right party in regards to security and the Israeli-Palestinian conflict. Netanyahu is as well a fiscal conservative and has warned of spending cuts ahead. Israel Beiteinu is a right-wing party founded and headed by Avigdor Lieberman, until recently the Foreign Minister of Israel. The party stresses nationalistic issues such as a "loyalty pledge" for Israeli Arab citizens, mainly attracting Israelis who emigrated from the former Soviet Union.
Avoda (Labour) Shelli Yehimovitch 13 18 For nearly fifty years, the Labour party was either the controlling party or the major opposition party. In the last decade the party has weakened and today, under the leadership of former journalist Shelli Yehimovitch, is trying to regain its status as a major political force in the Israeli parliament. This election cycle the party is focusing mainly on reducing inequality and improving social services while trying to attract a large pool of voters from all parts of the political electorate. The party is downplaying its traditionally leftist stance on the Israeli-Palestine conflict and peace process.
Ha'bayit Ha'yehudi (The Jewish Home) Naftali Bennett 3 14 A new version of the National Religious Party Mafdal, Habayit HaYehudi is a right wing party focused on the Israeli-Palestinian Conflict. It is polled to win 14 seats in the Knesset, up from only three in 2009. The party denounces a two state solution and supports a tough stance both against the Palestinian Authority and Hamas. Its leader Naftali Bennett, a former special forces officer and chief of staff for PM Netanyahu, is also hawkish on Iran.
Ha'tnua (The Movement) Tzipi Livni First time running 10 Hatnuah was founded by Tzipi Livni, who served in several ministerial positions such as Minister of Foreign Affairs and Minister of Justice. HaTnuah focuses on the Israeli Palestinian conflict and presents itself as an alternative to Benjamin Netanyahu and the Likud party. HaTnuah supports a return to the peace process with the Palestinians and a two state solution.
Yesh Atid (There is a Future) Yair Lapid First time running 9 The party was founded recently by popular media personality Yair Lapid, and portrays itself as a centrist middle class party, trying to attract a large share of the Israeli voters that are disappointed with the current political parties. The formation supports a two-state solution, a reform to the electoral system and national or military service for all Israelis, including Haredi Jews.
Shas Rabbi Ovadia Yosef (Spiritual Leader), Eli Yishai, Aryeh Deri, Ariel Atias (Political Leaders) 10 11 Shas is a religious party that represents the Haredi- Sephardic and Masorti constituencies. On security issues, while considered officially a right-wing party, it is in fact a centrist. The party focuses on securing funding for its religious institutions, promoting social benefits for its core constituencies, and maintaining the status quo between religion and state in Israel.
Yahadut Hatorah (United Torah Judaism) The party has no established hierarchy and its MKs represent the senior rabbis of the Haredi-Ashkenazi factions in Israel. 5 6 Yahadut Hatorah represents the various Haredi-Ashkenazi factions in the Knesset. The party does not hold an official position on security issues and focuses mainly on securing funding for Haredi institutions and opposing any change in the relations between state and religion, as well as threats to Haredi autonomy regarding education and religious institutions.
Meretz Zahava Gal-On 3 4 Meretz is a secular liberal party from the political left. The party promotes a two states solution, and is a major proponent of environmental laws and of social economic policy.
Ra'am/Ta'al Ibrahim Sarsur, Ahmed Tibi 4 4 Ra'am Ta'al is a party attracting mainly the Arab citizens of Israel and is comprised of two movements: Ra'am (United Arab List) is a religious party representing the Islamic movement in Israel. Ta'al (Arab Movement for Renewal), focuses on the Israeli Palestinian peace process and on promoting the rights of Arab - Israelis in Israeli society.
Hadash Mohammed Barakeh 4 4 Hadash (Democratic Front for Peace and Equality) is a communist party that promotes social economic policies, and an establishment of a Palestinian state on the territories Israel captured in 1967. The party attracts mainly the Arab-Israeli voters.
Balad Jamal Zahalka 3 3 Balad (National Democratic Alliance) is a secular Arab party that supports eliminating Israel's defining character as a Jewish state, and promotes Palestinian nationalism among the Arab citizens of Israel. The party also supports the withdrawal of Israel from the territories captured in 1967.
Kadima (Forward) Shaul Mofaz 28 2 Founded by former Prime Minister Ariel Sharon in 2005 as a popular party in the centre of the political spectrum, Kadima served as the ruling party under former Prime Minister Ehud Olmert in 2006-2009 and as the major opposition party under Tzipi Livni in 2009 - 2012. The current leader, former Minister of Defense Shaul Mofaz offers himself as an alternative to PM Netanyahu, supports a two states solution with the Palestinians, and promotes a civilian agenda stressing the need to recruit Haredi Jews to the Israeli Military. However, the party is in the midst of a crisis, with its support base having dramatically eroded since 2009 and several MK's have left the party in 2012.

Politics: Moving To The Right

Under our core scenario wh ereby a right-wing coalition le d by Netanyahu is formed, we believe that Israel's foreign policy will slide further to the right. Among the main consequences we highlight:

Iran War Risks Rising...

A victory in elections would allow Netanyahu to push forward his foreign policy stances more robustly. In particular, the prime minister will encounter less domestic pressure against his putative plans to undertake a military attack against Iran, in order to block the Islamic Republic's alleged programme to produce nuclear weapons. Indeed, Netanyahu declared on January 11 that stopping Iran from getting nuclear weapons remains his first priority. Moreover, Bennett repeatedly declared that military strikes on Iran is necessary in order to guarantee global and regional security, as well as Israel's security. As a result, we reaffirm our long-held view that a military would become more probable in 2013 ( see 'Scenario: What Would An Israel-Iran War Look Like?', November 23 2012).

That said, an attack is still not inevitable. For one, a poll conducted in January by the Times of Israel showed that only 12.0% of Israelis saw Iran as the top priority facing the next government, compared to 43.0% who pointed to economic problems. As a result, the government could focus more on socio-economic issues than on waging war on Iran this year. Moreover, international opposition to an attack will likely remain elevated. In particular, US President Barack Obama nominated Sen. Chuck Hagel to head the Department of Defense on January 7, who is widely considered as having a moderate approach vis-a-vis Iran. As a result, it is unlikely that Washington will provide active military support to Israel, a stance which would certainly increase risks associated with the attack.

...While Peace With the Palestinians Is As Far As Ever

Netanyahu has generally promoted the construction of Israeli settlements in the West Bank during his latest term in office. According to reports, 38.0% of the construction started in the West Bank during Netanyahu's government have been deep inside the territory, compared to just 20.0% under his predecessor Ehud Olmert. Moreover, the current prime minister pledged to move ahead in January on the so-called E1 project, which includes plans for tenders of 3,000 housing units in a key area of the West Bank. Under our core scenario that a right-wing coalition will form, the Likud's pro-settlement policy will accelerate. Indeed, Bennett, which will see his political clout increasing in the next government, has called for the unilateral annexation of approximately 40% of the West Bank to Israel. Given that one of the Palestinian National Authority's preconditions to negotiate an agreement on borders is to halt the construction of new Jewish settlements in the West Bank, prospects for peace appear as grim as ever.

Moreover, risks of renewed violence between Hamas and Israel remain elevated, despite the declaration of a ceasefire on November 21 ( see 'Israel-Gaza Lasting Truce Unlikely', November 22 2012). Indeed, Bennett was against the decision to hold the ceasefire, having declared on November 22 that no peace was possible until Hamas was totally dismantled. In addition, Palestinian President Mahmoud Abbas and exiled Hamas chief Khaled Meshaal met in Cairo on January 9, in an effort to expedite a stalled reconciliation between the two factions, a development which Netanyahu declared as significantly reducing the prospects for peace. As a result, relations between Israel and the Palestinians will continue to worsen over the coming years.

International Isolation Growing

I srael has been facing a distinctly more hostile geopolitical environment since the Arab Spring of 2011. Although Egyptian President Mohamed Morsi's Muslim Brotherhood-dominated coalition government is upholding its peace agreement with Israel, there has been little faith between Cairo and Jerusalem since the overthrow of Egypt's former ruler Hosni Mubarak. Moreover, Israel must keep a close watch on neighbouring Jordan, the only other Arab state to have signed a peace treaty with it. Indeed, the majority of the country's population is Palestinian, and a continuation of Israel's pro-settlement policy will only worsen Israel's relations with the Arab kingdom. Finally, relations with Turkey have deteriorated significantly since Netanyahu's government refused to apologise for the Mavi Marmara incident in 2010, when nine Turkish citizens were killed by Israeli commandos boarding a vessel owned by an Islamist Turkish NGO, which was sailing toward Gaza.

Israel's relations with Western countries have also cooled off significantly. Netanyahu backed Mitt Romney in the 2012 presidential elections in the United States, and Obama's administration has repeatedly criticised Jerusalem for his policies vis-a-vis the Palestinians. Netanyahu's administration also took a hit when the EU overwhelmingly voted in support of the de facto recognition of a Palestinian state at the United Nations General Assembly in December 2012. Finally, the US secretary of state, Hillary Clinton, and British foreign secretary, William Hague, criticised Israel following its decision in December to build fresh settlements on occupied territory in the West Bank.

Netanyahu may back down from some of his more hawkish pre-elect ion pledges, as he tries to accommodate domestic priorities with international constraints. However, u nder our core scenario whereby a right-wing coalition government is formed in Israel, the country's isolation on the international stage will likely increase . This will likely worsen the Israeli public's perception of the country's domestic security situation. In turn, support for parties which prefer a security solution over negotiations with the Palestinians and Iran will likely increase further. This will certainly keep political risks elevated in the Middle East and North Africa region over the coming years.

This article is tagged to:
Sector: Country Risk
Geography: Israel, Israel

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