12/16/2010
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Developments in the Global Economy: What to Expect


 

On September the seventh 2010 Israel officially became a part of the club of thirty-three developed nations known as the OECD.  Angel Gurria and Stanley Fischer were invited by the school of Economics at IDC to a panel discussion, together with Goldman-Sachs representative Michael Vaknin. In front of a distinguished public of economic and academic personalities, press and media as well as economics students, the panelists talked about the recent crisis, perspectives for the future and the newly-acquired position of Israel within the OECD framework

 

the governor of the Bank of Israel, Prof. Stanley Fischer: “OECD is a knowledge-based organization, whose members have an incredible memory in terms of problem-solving. Whenever a country has any kind of problems in the economic field, it can get help from other countries that in many cases had to deal with similar issues and can help find a solution. This is the primary reason why it was important for Israel to join the organization”.

 

Fischer himself recognized that Israel’s accession to OECD would not have been possible without the firm support of Angel Gurria, the secretary general of the OECD.

 

According to Gurria, "crisis in the contemporary world is like the Ebola virus: before you realize you have it, you already have to have your leg cut off. Europeans saw the subprime mortgage crisis in the United States, and they said ‘it’s all right, it’s just an American problem’. But then the financial crisis spread to Britain, and still continental Europe was saying ‘it’s ok, it’s just an Anglo-Saxon problem’. This way, the crisis was allowed to spread throughout the world”.

 

“So much wealth has been lost in the crisis” Gurria says “that recovery is going to be a cut-throat competition. Protectionism has re-emerged in a new, potentially devastating form: foreign exchange protectionism”. Countries keeping their currency artificially low in order to boost exports and arguably protect their job market are raising serious concerns about the healthiness of this ‘race to the bottom’.

 

In this problematic international context, Israel is doing fairly well, and Gurria did not hide it: “Israel is doing far better than the average: here the crisis had a weaker impact on unemployment and state debt”.   Yet Israel could do even better: it’s all about trying harder. “The most important challenge is to further integrate certain social groups, such as Arabs and Haredim, within the workforce, as well as keeping a competitive growth and investing on research and development. In face of all of these challenges, OECD is here to help.”

 

Prof. Stanley Fischer responds: “When the crisis came, we saw it approaching from afar in the form of currency appreciation, and we balanced this phenomenon with foreign exchange deals. When Lehman Brothers collapsed, we decided it was the moment to cut interest rates. As for fiscal policy, we were lucky: the Olmert government did not have the majority in order to pass a budget law involving fiscal expansion. We were just stuck with the previous year’s budget; which, in the end turned out to be a good thing”.