By Robert Berger
The debt crisis in the United States, including the downgrading of the U.S. debt rating by a major agency, had a negative impact on the first day of the trading week in the Middle East. Stock markets in Dubai and Egypt dropped about four percent, and the effects were even worse in Israel.
The Tel Aviv Stock Exchange delayed its open by 45 minutes to avoid panic but it did not help. The market plunged by seven percent in response to the downgrade of the debt rating in the United States.
“It is a powerful shock,” economist Yaakov Sheinin told Israel Radio. He said U.S. President Barack Obama and the Federal Reserve should do something to calm world markets.
For Israel, the stock market plunge is the second shock in two days. On Saturday, a quarter of a million Israelis took to the streets to protest the high cost of living and low wages.
It was the biggest event yet in a month of street protests over the skyrocketing price of housing, food and gasoline. A modest apartment in Jerusalem or Tel Aviv can cost $500,000 while the average salary in Israel is about $2,500 a month.
Israel’s booming economy is growing at an annual rate of five percent, but the protests point to a widening gap between rich and poor. Demonstrators are demanding that the government lower taxes, subsidize housing and bring prices down.
That is putting pressure on Prime Minister Benjamin Netanyahu whose approval rating has plummeted since the protests began, to just 32 percent. At the weekly Cabinet meeting in Jerusalem, Netanyahu expressed sympathy for the protesters, but said there is no quick fix.
The prime minister announced the formation of a panel of government ministers and top economists to meet with the protesters and draw up a plan to reduce the cost of living. But he said Israel must be cautious about public spending in the wake of the U.S. debt crisis. Netanyahu said Israel needs to improve the plight of the middle class, but stressed that the government must be “fiscally responsible.”