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391 18 THE STALEMATE YEARS A CHANGING IS| aELI IDENTITY, 1984–1990 * * * * * * * * * * * * * * * * * * * * * * * When the Likud won only one seat more than the Alignment (the Labor Party and Mapam) in the 1981 elections, Begin was still able to form a coalition government, while the Alignment could not. In the 1984 elections the Alignment won three seats more than the Likud, but once again it was unable to form a government, since the Likud could muster a majority in the Knesset. In the 1988 elections the stalemate between the two major parties recurred. Throughout the 1980s the Israeli electorate refused to give either party exclusive power. There was no longer a party with a clear majority that constituted the basis of a governmental coalition. Given the election results Labor and the Likud were compelled to reach a compromise and form joint governments. From 1984 to 1990 Israel was led by national unity governments comprising the two major parties together with several satellite parties. (Mapam left the Alignment following the establishment of the first national unity government.) The first national unity government, established in 1984, tried to create the political conditions that would enable it to withdraw Israeli forces from Lebanon (see the previous chapter) and put Israel’s economic house in order. The Israeli economy’s malaise had begun in 1973. The heavy security burden that followed the Yom Kippur War, coupled with the global energy crisis, arrested growth, accelerated inflation, and increased the national debt. The years between 1975 and 1985 are considered the Israeli economy’s ‘‘lost decade,’’ with no significant growth at all. In 1984 inflation soared to an annual 400 percent, the balance of payments deficit worsened, and Israel’s foreign currency reserves dwindled. All the measures adopted by the various finance ministers failed to halt rising prices and devaluation of the currency. Banks had recommended that their customers purchase bank shares, and in 1983 the bank shares bubble burst. The shares lost their value overnight, and thousands of households and businesses were left destitute. Despite the trend toward liberalization and a market economy—which meant reducing government involvement in the economy—the government was forced to intervene to prevent a crash and in e√ect nationalized the banks. In 1985 the government led by Shimon Peres adopted an emergency plan to stabilize the economy. Government spending was cut, employees were fired, subsidies were canceled, the rate of exchange and wages were frozen, and super- 392 peace, war, and indecision vision was imposed on the prices of products and numerous services. The link between salaries and the cost-of-living index was temporarily frozen and the real wage value dropped. Additionally an amendment to the Bank of Israel Law prohibited the bank from extending credit lines to the government—i.e., from printing money. For the first time the Arrangement Law (also known as the Economic Policy Law) became part of the State Economy Basic Law, enabling accelerated passage of regulations and reforms in the broad framework of the stability plan. This combination of measures stabilized the currency; toward the end of the year, the rate of inflation dropped to 30 percent and continued to drop. The us administration supported these drastic measures with a special grant aimed at easing the balance of payments problem. The public reacted with understanding and restraint, which led to a slight drop in the standard of living. There was a feeling that fundamental change must come to avoid economic collapse. From then on the economy started to recover and economic growth resumed. In the framework of resumed growth, the government increased its promotion of liberalization and a market economy. The creation of easy terms for private capital investment in the economy and the beginnings of integration into the global economy created opportunities that formed the basis for renewed growth. Hevrat Ha¢ovdim, the Histadrut’s economic arm, could not adapt to these economic and political changes. Since statehood the Histadrut had embraced a broadening economic policy, which involved ensuring full employment and relatively high wages, especially in the peripheral areas of the country, and nondismissal of workers. The Histadrut economic leadership had assumed that it was carrying out a national mission and that its economic capabilities were secondary to its social tasks. This perception was fine before 1977, when the state would bail out failing Histadrut enterprises. But it did not work in an economy managed by a government unsympathetic to the Histadrut economy, which declared its...

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