PM Netanyahu talks geopolitics-Interview with Maria Bartiromo, CNBC



Maria Bartiromo: So can you characterize the Israeli economy for us today? How are things going?

PM Netanyahu: Well, it’s going well. It’s going probably better than most advanced economies. The news since we last spoke is that Israel is now officially ranked as a developed economy as opposed to an emerging economy.

Bartiromo: Exactly.

PM Netanyahu: And it has undergone a free market revolution. So it’s a knowledge-based economy which has undergone a free market change, and these are two very powerful engines that drive growth.

Bartiromo: The economy has generated growth of some 4.7 percent on the annualized basis in the second quarter, 6.2 percent unemployment. I know when you first took over as finance minister that was actually double. How is it possible that the economy has done so well despite Israel’s two recent wars and, obviously, diplomatic difficulties?

PM Netanyahu: Well, I think there are innate powers of creativity and innovation and entrepreneurship that waited to be unleashed. And what I’ve done both as prime minister and before that as finance minister, and before that as prime minister, was to do basically three things. We cut spending, we cut taxes and we removed barriers to competition. Now, I’m telling you in advance that that is what we did for a speedboat. I don’t know what I would have done if I was a captain of an aircraft carrier or a cruise ship. That’s different. But for us that worked. A small economy, we worked very rapidly to bring our spending in line, cut taxes to incentivize investment and work, and then also removed a lot of barriers, a lot of barriers to competition.

Bartiromo: I want to ask you more about that because you’ve spoken about those barriers quite a big. But you mentioned a moment ago moving beyond being an emerging economy. So Israel was accepted into the OECD. How will that impact growth? Why is that important?

PM Netanyahu: Well, it’s important because it’s a report card of who we are, that we’re part of the developed economies, the 30 or so developed economies in the world; and not at the bottom of the list, either. It’s important also because there are certain standards that the OECD tries to impart to its members, and  – if I can say that openly – it’s a way that we take the international membership to force changes that we want to have to help enforce and encourage changes that we want to bring into the country. For example, participation in the work force or changes in education. Educational reform is very tough in most countries. It’s also tough in Israel. But be part of that larger group that says, look, here are our objective recommendations, and you really ought to do this, this helps us effect those reforms.

Bartiromo: And of course, all of this in the face of uncertainty facing the political landscape. So how would possible hostilities with Iran affect the economy in Israel?

PM Netanyahu: They’ll affect, I think, the global economy. It’s not merely our problem, it’s the problem of the entire world because you can see what Iran is doing today. It’s got beachheads in Yemen, in the Arabian Peninsula, in Eritrea, in the Sudan. It’s got, of course, its terror proxies Hamas and Hizbullah in Lebanon and in Gaza. It’s sending tentacles here to South America. This is what Iran is doing today without nuclear weapons. Imagine what they would do with such weapons. And you can see how dangerous that is for the entire world, not just for Israel. So I   think Iran is a global problem, and I think the solution has to be led by the United States harnessing the international community to make it clear that Iran’s nuclear program would be stopped.

Bartiromo: So you’re on a five-day visit, you’ve spoken with Vice President Biden, you are meeting with Hillary Clinton. What are you looking to achieve?

PM Netanyahu: We want to move the peace process forward. We want to move it not merely for the sake of the economy. The economy has moved forward on its own with great power. And I have helped create an economic boom in the Palestinian areas in the West Bank. The Palestinians deserve credit for freeing up a lot of their economic restrictions, and we’ve removed a lot of barriers, hundreds of checkpoints and other barriers to movement so that we have this growth of the Palestinian economy. But we’d like to see the economic piece coupled with the political piece, and for that we need to do one thing. We’ve got to negotiate. You can’t successfully conclude a peace negotiation unless you begin it. We began it, and I think it’s important to continue it. And that’s what I’m going to discuss with Secretary Clinton.

Bartiromo: So going home, what will it take for you to feel this was a successful trip? What do you want to see?

PM Netanyahu: I want to see those negotiations resumed. And frankly, what I have in mind is not merely to achieve a peace between us and the Palestinians, but a broader peace with most or all of the Arab states. Now, that is a game changer because we’d have political benefits for all of us, everybody understands we have a common adversary in Iran. So that sort of concentrates the minds that we should try to fashion a peace between us. It would enhance security. It would certainly have great economic benefits because we could participate with a lot of the Arab countries, and I’m especially impressed with the Gulf States who’ve understood that economic relations are not a zero-sum game, that all parties benefit. I’d like to see that expand to a broader peace between us and our Palestinian and other Arab neighbors. That I think is something that would work well for the benefit of all.

Bartiromo: Do you worry that the continuation of the settlement build-out will stir up more conflict?

PM Netanyahu: I think it’s a bogus issue. We haven’t really changed the policy successive Israeli governments for the last 40 years. And this building did not prevent peace from being established with Egypt, peace being established with Jordan. It didn’t impede the advances towards peace in the last 18 years between Israel and the Palestinians, and it won’t impede an agreement now because it’s so minor, it doesn’t change the peace map, it doesn’t change facts on the ground. Contrary to reports, it’s just miniscule. But I think the larger issues are can we fashion real recognition of Israel. As we’ve recognized the Palestinian state, will they recognize the Jewish state? Will we end the conflict? Because we don’t want a Palestinian state to be a state which continues the conflict but one that ends the conflict. Can we fashion security to buttress the peace? And in our part of the world, the only peace that holds is a peace you can defend. And I think that’s important not only for us but, frankly, also for the Palestinian Authority and for some of our other neighbors. All of these questions are intertwined and have to be negotiated.

I said that we should take the coming year and try to fashion this historic peace agreement, and people said, well, how can you finish it in a year? And I said you can finish it in a year–if there’s a deal out there, you’ll finish it in a year. And if there’s not a deal out there, then more time will not change it. This is what I intend to speak to Hillary Clinton about, and this is what I hope and I believe that the Obama  administration wants to achieve. We’re partners for that. I hope the Palestinians are, too. It’s going to be difficult for both of us, but we’re ready.

Bartiromo: Real estate prices in Israel up 30 percent in two years. Is there a real estate bubble?

PM Netanyahu: Well, there appears to be a threat of one because there’s incessant growing demand. Our population is growing at 1.7 percent a year. That’s new couples, they want homes, they want schools, they need all the construction that such growth requires. But it’s impossible to build in Israel, just impossible to build. I will say it’s impossible to close a porch, and it’s very hard to build. I mean, we’re ranked 140 in the world in the difficulty or the process of registering property.

Bartiromo: OK.

PM Netanyahu: And we’re ranked 120 in the world in the time it takes to get a building permit. Now, you see, my response with that is that’s an opportunity because if we can bring that down by pushing in reforms that we’re now pushing in our Knesset, in our legislature, then we can actually create growth. We can increase the supply of land, which will reduce the real estate prices, or at least slow them down, and we’ll get extra growth. So in fact what I’ve been concentrating on the last year as prime minister is to expand the possibilities for construction in Israel by, A, crisscrossing the country with fast roads and rail, by making more land available, and then by simplifying the planning process so that we can have, in fact, 1 to 2 percent extra growth to GDP, which is totally independent on what happens in China or the United States. It’s internally generated growth. That will obviously take care of any real estate bubble, but it’s also important for us.

So the real opportunity for growth in Israel and in many developed economies derives from two sources. For us, brain power. It’s vitally important and vitally important to the economy of tomorrow. But the second, if you’re  lucky enough to have a bureaucratic jumble, a lot of constraints that prevent growth, then just by removing them, just targeting them and taking them away one by one, you create growth in real estate. Obstructions are a very promising area for growth. So I’m concentrating on that. It’s very tough to do politically.

Bartiromo: What has been the impact from Europe? Europe, of course, still seeing some real stagnation and weakness in their economy. How has that impacted Israel?

PM Netanyahu: Well, Europe is was our main trading partner, so the first impact is that Israeli exporters who are turning out to be quite nimble have to redirect their efforts to other markets, principally Israel, and they’re doing it. I think part of the reason that Israel has not experienced some of the things that some of our European neighbors have experienced, is because we did the tough things earlier on. I mean, I raised the pension age to 67. I haven’t yet found a single voter who voted for me because I did that. We had to cut child allowances that were going through the sky, and I didn’t find people who voted for me for that, either. We took a third of the assets of the banks, which were very powerful oligopolies and put them out to market, the long-term savings. We did a lot of changes that were hard to do, but we did them early on and we sort of bit the bullet, and as a result, the Israeli economy has been in much better shape. And I think that people who are watching this show should take a look at it because this is a prime example of a high-tech economy that has reformed along market lines, and I think it promises great opportunities in the future. With or without peace, we hope with peace.

Bartiromo: So strong that the Central Bank raised interest rates about 1 1/4 percent in the last year. What are your views on how the US has approached this strategy, so-called QE2 or buying $600 billion in securities?

PM Netanyahu: I’m a speed boat captain, not a cruise ship captain. I’ll leave the cruise ships to the cruise ships. It’s a big difference. The American economy is a fifth of the world economy. We’re a small droplet. But I think we have an easier time, in many ways. It’s harder, but easier in some respects.

Bartiromo: Have you seen an implication to the shekel? I mean, the dollar’s weakness obviously has been a big story here.

PM Netanyahu: Well, the shekel has gotten to be a strong currency, and that’s a reflection, ultimately, I believe, of the relative strengthening of the Israeli economy over the last decade as we’ve pursued a lot of these reforms. But I find it absolutely impossible to predict currency flows and currency exchange. And I always admire people who know what to do about this or say they know what to do about it. I haven’t a clue. And I don’t know how much you can control, certainly if you’re a small country, how you can build dams against these kinds of things. And it’s the one area that I leave to our very able bank governor, Stanley Fischer, whom I appointed when I was finance minister as our central banker. He’s very good at it, but he says that we’re very limited in that, too. So we rise and fall with the ebb and flow of currency exchanges that rise and flow ultimately with the competitive nature of the economies.

Bartiromo: But a lot of this, at the end of the day, rests on the possibility of peace. Isn’t that true? Because economic vibrancy comes as a result of peace. So how do you get there?

PM Netanyahu: Well, I think peace is crucial, but it’s crucial for our own lives, it’s crucial for our security. It’s not necessarily been the driving force – it could be the driving force of great economic progress. For example, I think we could link Asia to Europe through a rail link that we’re building in the south of the country. So you connect our Red Sea ports with the Mediterranean, the Mediterranean port of Ashdod, and goods bound for Asia that are flooded and have to wait in line for their turn to push through the Suez Canal can also get on a railroad and just cut the travel time. That is one of the options, obviously, that we could do.

But there are countries who are at peace who had less successful economies, and countries who’ve not been at peace who had extraordinary economies. South Korea was an example of great growth, despite the fact that it doesn’t have peace with North Korea. And Israel was a country that made successful peace agreements but that wasn’t the driving factor of success.

The driving factor of economic success is the ability of your citizens, of your entrepreneurs, to openly experiment with their ideas and to profit by them, or fail. I think this is the driving element of success in our part of the world. Peace could enhance it enormously, but ultimately the internal engine is the innovation, the talents that drive them, just the scientific and technological ideas that are turned into business ventures. That’s a very, very powerful engine that exists in Israel. We have more startups than any other country, except the United States. We have more scientists and engineers per capita. We spend more than any other country on R&D, relative to GDP, number one in the world. So it’s a knowledge-based entrepreneurial society, and it’s been called, correctly, as a startup nation. But this doesn’t mean that we can rest on our laurels because economic competition, global competition require that governments constantly make themselves more competitive, constantly allow their business people to seize opportunities, and this is a constant challenge. We’ve had successes up to now. We need the success of peace, and we need the success of continual reforms. They never stop, just as competition never stops.

Bartiromo: Actually I love that book, because the military mentality of the country is so powerful and has been helpful in terms of entrepreneurialism, I know. But let me ask you about the budget because your Cabinet will draft a new two-year budget. Can you tell us what that will look like?

PM Netanyahu: First of all, we’re the first and only country so far that have adopted a two-year budget. When I came in a year and a half ago, I said, why should we budget every year? By the time you’re finished with passing the budget, you’ve got about three weeks before you have to start the next budget. And that’s a terrible thing. So I said, why can’t we have a budget every two years instead of every year? They said it’s never been done before. I said so? It’s still a good idea. Let’s do it. We did it. We passed a two-year budget, and now we’re passing another two-year budget, and basically it has certain caps on spending, it allows growth, but a reduction in the rate of growth. And it allows a lowering of taxes. We’re lowering tax rates on a multiyear program, so investors know and business people know what the tax rates will be over the coming years, and we’re bringing down all our tax rates. We haven’t stopped that, even in the height of crisis.

Bartiromo: Which is the story of the day, by the way, in the United States right now.

PM Netanyahu: Remember, we’re the little speed boat. We’re not…

Bartiromo: Has the Obama administration responded to your calls to get more active in terms of Iran?

PM Netanyahu: The president led a very important effort in the UN Security Council. He got them to pass a new round of sanctions. And then the administration proceeded to mobilize other like-minded countries to adopt tough sanctions of their own. And I can see that these are having an economic bite on Iran. There is no question about that. Will it be enough to stop the Iranian nuclear program? That remains to be seen. But I think that the combination of tough economic sanctions plus the knowledge that all options are on the table might force the Iranians to think more seriously about stopping their programs. And I think it’s the combination of the two that is required.

Bartiromo: Mr. Prime Minister, would you like to add anything else?

PM Netanyahu: I’d like to say that nobody should write off America. People constantly tell me, the Americans are stagnant, the Americans are this, the Americans are that. I don’t know of anyone who succeeded by betting against the American economy. I have a great admiration for the resilience and innovation and entrepreneurship that exists in this country, and in many ways we’ve borrowed a lot of that in Israel. So we believe that the American economy can surprise the world. And I’ll tell you something, it’s in our vested interest, and I think in the interests of many, many other countries, to see America succeed.

Bartiromo: Were you surprised at the midterm elections and how the people voted?

PM Netanyahu: Oh, I have enough of my own politics.

Bartiromo: Mr. Prime Minister, thank you very much for joining us.

PM Netanyahu: Thank you.