David Rosenberg
February 29, 2009

Benjamin Netanyahu plans to apply the same small-government policies when he becomes Israel’s prime minister as he did six years ago as finance minister. Then, his tax and spending cuts helped lift the economy out of recession. They may be less suitable this time around.

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The Likud party leader, who has until April 3 to form a coalition, faces a shrinking economy, a growing budget deficit and a frozen corporate bond market. The recession in the U.S. and Europe has clobbered Israeli exports, which account for about half of gross domestic product in a country whose economy is smaller than Singapore’s. His only fiscal tool for the moment is a budget drawn up in August and stalled in the parliament.

“Israel must take steps in same spirit as the U.S. and Europe, to allow an even bigger deficit,” said Avi Ben Bassat, a professor of economics at the Hebrew University in Jerusalem. “The situation requires a change in economic policy.”

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