Yair Lapid, chairman of the Yesh Atid party, speaks during a press conference in Tel Aviv, Israel on Thursday, May 6, 2021.
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Six weeks into Israel’s fourth election in less than two years, things feel a bit like Groundhog Day.
The 28-day deadline for Prime Minister Benjamin Netanyahu to form a government expired at midnight on Tuesday. His failure to build a ruling coalition with sufficient multi-party support means that another politician will try to try again – with another 28 days’ notice.
The process goes as follows: After Netanyahu’s unsuccessful efforts, Israeli President Reuven Rivlin had the choice of either entrusting the task of forming a government to the 120-member parliament, the Knesset, or selecting another lawmaker from the Knesset to attempt this duty to meet. He opted for the latter and appointed opposition leader Yair Lapid as chairman of the center-left Future Party (Yesh Atid).
If Lapid fails, Israel will go to another parliamentary election – the fifth since 2019.
As unprecedented as that is, 70% of Israelis believe the country is heading for a fifth vote. This is according to an April Israeli Voice Index poll published by the Israel Democracy Institute think tank.
People are not optimistic: a majority of the country believes that negotiations to build a new coalition government led by Netanyahu’s opponents will fail.
But Israel’s president doesn’t seem to believe that.
“”[It] it is clear that … Yair Lapid could form a government that has the confidence of the Knesset, although there are many difficulties, “Rivlin said in a speech on Wednesday. Lapid received recommendations from 56 Knesset members, five without a majority, while the other key candidate for appointment, far-right settler leader and former Secretary of Defense Naftali Bennett, got just seven.
Rivlin described Israel as “trapped in a labyrinth for some time – if not in a political crisis”.
The political deadlock shows a country that is more divided than ever. Meanwhile, political actors representing Israel’s Arab minority have made historic election wins, and their buy-in will now be vital for Lapid and his allies to thrive.
Who is Yair Lapid?
Lapid, a 57-year-old former news anchor and finance minister, must now form a unified coalition from a broad and diverse range of parties, ranging from far-right and left-wing parties to Arab and Islamist parties.
The support of some of these parties will be vital for a Lapid parliamentary majority. The legislature is considered a center-left party, supports negotiations with the Palestinians and a two-state solution, but is considered hawkish on security. Popular with secular Israelis and the middle class, he is pushing for a unity government spanning a wide range of ideologies.
“After two years of political paralysis, Israeli society is hurting,” Lapid said in a statement on Wednesday. “A unity government is not a compromise or a last resort – it’s a goal, it’s what we need.”
“Lapid needs to bring together a very inhomogeneous and unnatural coalition of center-left and right-wing forces, including the support of at least one of the two parties representing the Arab minority,” said Yohanan Plesner, president of the Israel Democracy Institute.
“So it’s a very unusual coalition. And even if Lapid and Bennett manage to identify common denominators between all these different actors, they will still have a government with a relatively narrow majority,” Plesner told CNBC on Thursday.
The end of the Netanyahu era?
If Lapid succeeds, it would mark the end of an era for Netanyahu, the longest-serving prime minister in Israeli history. This would also end his right-wing Likud party’s 12-year takeover.
None of the players trying to form a government have an interest in a fifth election. But Netanyahu does; without it, his only remaining option will be to chair the opposition.
“If the other side cannot form a coalition, Netanyahu will automatically remain head of a transitional government and the country will vote again,” said Plesner. “He’s counting on that.”
The Hawk and right-wing Netanyahu, who faced several corruption charges in his 15th year as prime minister, has shown a willingness to cross borders in order to expand his power. Last month he advocated direct prime ministerial elections, which currently violate Israeli law, and his recent attempt to appoint a Justice Minister in violation of legal / state protocol has been ruled illegal by the Israeli Attorney General.
“Netanyahu has a proven track record lately that he will go pretty far to stay in power,” said Plesner, describing him as an attempt to “drive a wedge between potential partners in the group coalition.”
“So until the future government is formed,” he added, “I wouldn’t take anything for granted.”
Impact on the economy?
Without a functioning government, Israel cannot pass a budget. The last budget was approved in March 2018.
“That will create an unstable macroeconomic environment,” warned Plesner. The nature of the coalition’s makeup might not make much difference, he added, “but the mere fact is we need a government and if we don’t get one, the prolonged period of instability is sure to do damage.”
According to London-based consultancy Capital Economics, Israel’s world-leading vaccination campaign is set to “drive a strong economic recovery.” And venture capital flourished in the country: Israeli tech startups raised a record $ 5.4 billion in the first quarter of 2021 after a record year in 2020.
According to data from Israel venture capital fund OurCrowd, startups in Israel are currently well on their way to attracting $ 20 billion in investments this year.
When asked if the ongoing political deadlock was having any economic impact, OurCrowd CEO Jon Medved replied, “Absolutely none.”
“It is quite remarkable that the Israeli tech investment scene and the economy in general seem insensitive to the political deadlock,” Medved told CNBC’s Capital Connection on Thursday. “Remember, this has been the case for 2.5 years. And we seem to be doing well without the government.”
