A former Israeli economic official warns: This is how the sanctions on Putin will hurt the West

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Dozens of leading companies in the economy announced the closure of their businesses in Russia, following the economic sanctions imposed on Moscow and President Putin following the invasion of Ukraine.

Former Governor of the Bank of Israel, Prof. Jacob Frenkel, Spoke with Anat Davidov on 103FM and referred to the economic war: “These sanctions are unprecedented in that the pace at which they were imposed was unprecedented. European countries are proud that they have managed to unite significantly and go together. There is not only an economic message but a unique political message.” . It has failed to stop Putin and probably will not succeed either because sanctions need to be in place over time and the clock of the humanitarian crisis and the other crises that are in the moment is working at a much faster pace than the clock of collapse and economic effects. “

“However, it should be remembered that Europe is very dependent on gas coming from Russia. 50 percent of Germany’s gas comes from there, as well as in Italy, Poland and the European Union in general very dependent. Sanctions are a double-edged sword, on the one hand it directly affects Russia and on the other hand it negatively affects the economies of those who impose the sanctions. That is why the balance is very sensitive, “he added.

The former governor of the Bank of Israel described the impact of economic sanctions on Russia and said: “The ruble has collapsed, the Russian stock exchanges are closed, no international transaction can be made. He built up a very large pool of international reserves, close to $ 700 billion, which he thought would allow him to go through a rainy day. “Putin has taken into account that the isolation will be so significant.”

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Also referring to the effects of the sanctions on the West, Prof. Frenkel said that “they are major manufacturers in the field of metals, things that are very important raw materials in the various industries. It will also affect the supply chain and delay production of several lines and also increase costs. And of course, along with the increase in world fuel prices, transportation increases will also increase. “

Asked whether he would recommend reducing excise taxes in Israel, the former governor said that “the costs to the Israeli economy, especially of the things we import, will go up. There is no escape and no way any government can or should completely neutralize phenomena that affect us as they affect the whole world. “One thing is easier, so what are they strict about? The whole question is who will pay for the costs that the Israeli economy will have to bear, and of course this is the Israeli economy.”

“Everything that is done is rising, and if it is rising we need to find a way to finance it. The Israeli economy relative to European countries is in a much better or worse situation today, we are less dependent on what is happening. However, there is no doubt that wheat prices are rising. “We use wheat. As I said – we are much less dependent,” he added.

Wheat field (Photo: REUTERS / Eduard Korniyenko / File Photo)

He also supported the start of the upward process of moving interest rates, saying: “Inflation in the US has risen sharply and in the past year it has reached around eight percent. Numbers that the US has not seen in 40-50 years, a huge period, so there is no doubt that the negative interest rate that was in the US created as a result of a desire to deal with the code crises, it is time now in light of the rise in interest rates. “There was a question until not long ago, until the beginning of the war and the Russian invasion, whether the American governor should raise at half a percent or a quarter of a percent, there was no question at all whether to raise.”

“In England the interest rate has already risen. My opinion is that there will be no escape in the US from raising the interest rate, it will not be half a percent but only a quarter of a percent. The real interest rate in Israel is negative, it is known. Therefore the pressures are less compared to these countries, however the Bank of Israel is part of the world economy and therefore it will not be able to ignore the fact that interest rates are rising all over the world. “I assume that the Bank of Israel will look at this issue and reach the right conclusions,” he said.

At the end, Prof. Frenkel said that in order to maintain the state coffers and the goals set by the government, we need to “ask ourselves to give to the other without taking from one, how to increase the cake, how to increase productivity and how to create greater product and not just how to divide it.” “Human capital, education and all these things that take time to create but their rate of return is very high. We must move away from the concept of musical chairs and move to the concept of increasing growth and expanding resources. Then it will be possible to give everyone more.”

Assisted in the preparation of the article: Shani Romano 103fm

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