COALITION UPDATE: WAITING ON BARAK

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 002293 SIPDIS E.O. 12958: DECL: 10/07/2018 TAGS: PREL PGOV PINR ECON EFIN IS SUBJECT: COALITION UPDATE: WAITING ON BARAK Classified By: Political Counselor Marc J. Sievers. E.O. 12958: Reason 1.4 (B/D) ¶1. (C) Summary: Halfway through her first two weeks' effort at coalition building, FM Tzipi Livni is laying the groundwork for an agreement with Labor that could lead to a coalition deal sometime after the end of the upcoming string of high holidays that conclude on October 21. This timeframe will likely mean she will need to avail herself of an additional 14 days' time to form a government beyond the initial tranche of 28 days that are provided by law. She has been handling many of the negotiations herself, and dispatching trusted allies, such as Kadima MK Tzachi Hanegbi to Labor and former Cabinet Secretary ISRAEL Maimon to Shas. The key to a new coalition remains with Barak, who may be on the cusp of a decision to join her government if and when he decides what he wants from it. End Summary. WHAT DOES BARAK REALLY WANT? ¶2. (C) Livni and Barak have begun discussions of what a Kadima-Labor partnership might look like over the next one-to-two years. Minister of Social Welfare, Isaac "Bugey" Herzog told the Ambassador October 7 that he anticipates a Kadima-Labor agreement between the two major parties within days -- as Kadima MK Tzachi Hanegbi and Barak's associates hammer out details. Meanwhile, Livni's people are downplaying public expectations and telling the press that more time will be needed to form a coalition than the initial 28 days provided for by law. ¶3. (SBU) The talk of the town is that Livni and her circle of advisors are still not clear on what exactly Barak wants -- despite a series of well-publicized intimate dinners, seminars (with economic advisors) and daily telephone calls. Culling from the commentary and spin picked up in the media, Barak's demands boil down to three basic sets of issues: -- Political: maintain the current coalition agreement and find a way to strengthen Labor's position as the "major partner" if not "co-equal" in Livni's coalition. -- Economic: more funds for security needs, university education, and pensions. -- Justice Minister Friedmann's efforts to constrain the High Court must be held in check. ¶4. (C) Barak himself may not know what he wants most, according to several Embassy contacts who know him well. He appears to be searching for a political strategy that will bolster his profile. Under his leadership the party's prospects have declined precipitously to the point that Labor might win just 10-12 seats if early elections were held now. One day Barak lays down a red-line, demanding Friedmann's head, and then he or his associates backtrack. During a recent cabinet meeting, a Barak ally, Agriculture Minister Shalom Simhon, passed Friedmann a note to reassure him that Labor merely wanted veto authority over some of Friedmann's policy initiatives, not his ouster. More recently, Barak and other Labor MK's laid down demands for increased security and social spending (for universities, pensions),but following the dive of the U.S. and Tel Aviv stock markets and after consultations with financial experts, Barak stated October 6 that "the most urgent order of business right now is dealing with the economic crisis. All of our budgetary demands -- pensioners, higher education, and defense matters -- stand, and we abide by our decision that the budget can be increased, but we must first focus on the crisis at hand." KADIMA WARY ABOUT BUSTING THE BUDGET ¶5. (C) Livni, backed by Finance Minister Bar-On and other senior Kadima leaders, is urging fiscal restraint in response to the global financial crisis. This is partly tactical, as Livni knows that she'll need to make some payouts to the ultra-orthodox parties (Shas and UTJ) once she has a deal with Barak. However, one MK who attended a Finance Committee meeting on October 6, suggested that Olmert's National Economic Council head Manuel Trachtenberg had also had an impact on Livni's strategic thinking: Trachtenberg has begun to caution Israeli lawmakers not to undertake new fiscal obligations before the impact of this crisis on ISRAEL is better understood. THE ULTRA-ORTHODOX DILEMMA ¶6. (C) Shas and UTJ have signaled to Kadima that they are not interested in joining the coalition at this stage in Livni's negotiations. Eli Yishai has done so by staking out more explicit demands that the new government pledge not to discuss Jerusalem with the Palestinians. Now that one of TEL AVIV 00002293 002 OF 002 Yishai's rivals, Arye Deri, is out of the running to be Mayor of Jerusalem, he could reenter national politics later next year - and perhaps supplant Yishai as the Shas political leader. This may explain why Yishai would prefer to hold elections sooner rather than later. But Shas and UTJ leaders know that early elections could yield results that would allow Likud, Kadima and Labor to form a government without the ultra-orthodox, a situation which could substantially reduce their leverage to demand greater allocations for child allowances and religious education. LIKUD'S PREDICAMENT ¶7. (C) The financial crisis has been a two-edged sword for Opposition Leader Binyamin Netanyahu. To date, he has used the global meltdown as an opportunity to present himself as the person with the most experience to tackle the implications for the Israeli economy. But many parties in the current Knesset begrudge Netanyahu some of his cost-cutting actions as finance minister, which, for example, have left the university system on the brink of collapse and reduced the social safety net for several, growing constituencies (the ultra-Orthodox and Israeli Arabs COMMENT: ¶8. (C) The wildcard remains Barak: he still appears unable to come to terms with the idea of serving as number two to Livni and could opt to throw in the towel and call for early elections. This is unlikely, according to one observer, as Barak missed the best political opportunity -- immediately after the Kadima primaries -- to demand early elections. Netanyahu seized on the Kadima primary elections as an opportunity to argue that Livni, while legally Olmert's heir, lacks legitimacy to serve as prime minister unless she wins a general election. Other parties in the opposition, such as Yisrael Beiteinu, are convinced that Livni will succeed in forming a coalition in the short-term, but that it will crumble soon thereafter over budget battles in the winter. ********************************************* ******************** Visit Embassy Tel Aviv's Classified Website: http://www.state.sgov.gov/p/nea/telaviv You can also access this site through the State Department's Classified SIPRNET website. ********************************************* ******************** CUNNINGHAM