How Egypt's coup supports the Israeli economy

There is absolutely no doubt that the coup in Egypt has benefited Israel strategically and in terms of security. Yet, one must not overlook the more serious contribution that the coup has made in Israel’s favour in that it has contributed greatly to the development of the Israeli economy. Israel has been provided with more tools to combat the economic challenges that it may face at a time when Egypt is drowning in its own economic crisis resulting from the coup. Some may find themselves surprised to hear this; however, the figures speak for themselves

The clearest illustration of how Israel has benefitted from the coup is to look at the differences between its expenditure to counter the impact of President Morsi’s election and the way that this was dropped when the coup took place. It was very evident to Israeli decision-makers that they would have to pay a heavy price in rebuilding their military strength in the wake of Morsi’s victory.

Less than 24 hours after Morsi’s election win, and before he took over the reins of authority, the Israel Defence Force’s senior officers demanded the equivalent of $4.5 billion from the Ministry of Finance to finance the rebuilding of the southern front. According to Maariv newspaper (28 June 2012), the southern command had been receiving less attention than its compatriots and needed to prepare itself to confront any challenges from Egypt.

Foreign Minister Avigdor Lieberman predicted that rebuilding the Israeli army in the wake of Morsi’s win would cost the country $10 billion. Other estimates put the cost as high as $30 billion. A report in Yedioth Ahronoth said that the following steps were necessary:

1. The formation of new army brigades.
2. Greater investment in training and exercises covering possible large-scale war scenarios along with a reduction in special operations training.
3. More intensive intelligence gathering, especially in Egypt, either through military intelligence or Mossad, the Israeli spy agency.
4. Restructuring of the IDF southern command in a manner commensurate with any changes that may result in Egypt. The changes were intended to reflect that the southern command would become one of the largest and most important bodies within the Israeli army.
5. Expansion of the Israeli Air Force.
6. Building new airfields and expanding existing bases, especially in the Negev.
7. Employ financial resources to face potential military confrontations launched from the Sinai.

Such predictions contradicted the nature of security coordination between Egypt and Israel during Morsi’s time in office. They anticipated that the Sinai would be transformed into a major threat to Israel, with an increase in the arms smuggled into Gaza. This was coupled with an increase in the number of foreign workers along the Egypt-Israel border; foreign workers have come to represent a “demographic bomb” in Israel. These two factors also required an increase in financial resources to counter their effects.

The Israeli government has responded to these recommendations by starting to build yet another cement wall between Egypt and Israel at the cost of 2 billion shekels ($455 million). This will be built in an effort to reduce smuggling, which is one of many challenges in the aftermath of the Arab Spring. It is evident that the military coup and the ouster of President Morsi have saved Israel from such expenditure. In fact, Israel has since shelved its plans to strengthen the military and has been able to reinvest the budget into the economy.

Israel assumed that the Camp David agreement would be annulled if the Muslim Brotherhood and Morsi remained in power, which would turn Israel’s strategic plans upside down. A paper by the Begin-Sadat Centre for Strategic Studies speculated that the Egyptian president was quietly preparing to cancel the peace treaty. This was “confirmed” by a study published after the coup by orientalist scholar Liad Borat. Camp David represents a major part of Israel’s national security strategy because it gives the state priority and works for the benefit of the Israeli economy, which has been seen over the past four decades.

Aside from Egypt’s role in aiding the Israeli economy, one must also point out that its strength can also be attributed to steps taken after the 1973 war. It was Golda Meir’s government in 1974 that decided to increase the defence budget to approximately forty-seven per cent of the total national budget and thirty-seven per cent of the GDP. This was an unprecedented step that was taken in order to rebuild the army, especially in the country’s southern areas in the wake of the war. In order to illustrate further the enormity of the shift in the defence budget it is worth looking at the 2003 defence budget, which was estimated at around fifty-five million shekels or eighteen million dollars. While this is considered to be the largest defence budget in Israeli history, it represents a mere fifteen per cent of the total state budget and six per cent of the gross domestic product, which exceeds eight hundred and sixty-four billion shekels or two-hundred and one billion US dollars.

Due to the size of the economic catastrophe that befell Israel after the 1973 war, economists referred to the following years as the “Lost Decade”. During this time, Israel’s foreign debt repayments exceeded the budget for education, health, social welfare and housing combined. Its military growth came at the expense of its national economic growth. The country was on the brink of declaring bankruptcy were it not for the comprehensive economic reform plan created by the national unity government in 1985. Signing the Camp David agreement allowed Israel to redirect parts of its budget towards paying off its internal and external debt. In addition, portions of the Israeli national budget were redirected towards improving education, welfare and housing.

On the one hand, peace with Egypt enabled decision-makers in Tel Aviv to reformulate Israel’s priorities in order to overcome the economic crisis. On the other, it helped Israel to implement large-scale projects that continue to promote economic growth, combat recession and inflation, and reduce the recession significantly. By taking advantage of this new political outcome, Israel was able to absorb large waves of Jewish immigrants from countries of the former Soviet Union in the 1980s and 1990s. Economic expert Shlomo Maoz believed that the new waves of Jewish immigration benefited the Israeli economy greatly because it brought many professionals and technology experts. Not only did these new immigrants contribute significantly to the scientific and technological sector but they also contributed to the overall boom in the Israeli economy due to foreign exports, which increased from approximate fifty billion dollars in the 1980s to about eighty billion after the 1990s. (Ynet, 12-5-2010)

Economic analysts had suggested that Morsi’s victory would not lead to a significant increase in Israel’s security costs but there are many other factors that would contribute to an economic transformation. There would have been subsequent economic challenges faced as a result of reduced growth rates and an inevitable economic recession, which would reduce dramatically Israel’s GDP. This implies that Israel would have had to double the budget allocated for defence to around twice the amount of the national budget and this would have undoubtedly led the country to the same economic crisis it faced in 1973. Many people believed that Morsi’s victory would lead Israel to pursue an economic austerity plan that would lead the government to cancel plans to reduce taxes. The rationale behind this move is that in moments where national security and social welfare are both threatened, one must always choose national security without any hesitation. After Morsi’s victory, there was a reduction in the amount of money spent on public social security benefits. The surplus in the Israeli economy is normally spent on providing benefits to the disadvantaged classes in Israeli society.

A number of Israeli analysts have also warned that increased military spending in the wake of Morsi’s victory would inevitably lead to deeper ties with the United States, threatening Israel’s political independence. Economic researcher Omer Gendler believes that Israel will not be able to increase its military budget without outside help. At a time when no financial guarantees can be made due to the global economic crisis, this outcome would leave Israel with no choice but to ask the United States for a significant increase in military aid. Gendler believes that a request of this nature will further tie Israel to the United States and that this would hinder the efforts of the ruling political elite in Tel Aviv to reduce the strength of the relationship.

All of the factors mentioned above demonstrate clearly the manner in which the coup has benefitted the Israeli economy. The coup has been eager to fight off any confrontations or challenges that face Israel. After all that has happened can anyone now doubt that the coup against legitimacy in Egypt has benefitted Israel?

This is a translation of the Arabic text published by El Shaab newspaper on 20 November, 2013

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.