Could a cost of living crisis decide the Israeli elections?

As Israel goes to the polls today, the ballot has attracted very high international attention. This is largely because political momentum appears to be ebbing from Benjamin Netanyahu, Israeli’s polarising and second longest-serving prime minister.

Latest election surveys show growing support for the Zionist Union, which is a pact between the Labour Party, headed by Isaac Herzog, and former justice minister Tzipi Livni, who leads the Hatnua party. While this centrist bloc’s focus is primarily on the economy, the prime minister is placing greatest emphasis on international security issues. One of his key messages is his belief that he is the only figure who can maintain the safety of the country at a time of international danger.

Moreover, in the last 48 hours of the campaign, he has even suggested that there is a global conspiracy to topple him. Yesterday he argued that “I turn to the public out of concern that we [Likud] will not be able to form the government because of the enormous support to them [the Zionist Union] from foreign associations which are giving them tens of millions of dollars…this support is provided because those giving it know that if elected they will accept the dictates of the international community."

It remains possible that this "security card" could yet help grant Netanyahu a fourth term of office, but his credentials here have been assailed by a chorus of critics. These include former Mossad chief Shabtai Shavit who asserts that Netanyahu has actually undermined Israel’s safety with a number of his foreign policies.

Shavit has been particularly critical of the prime minister’s Iran policy which has caused tension with the Obama administration, threatening a breach in the traditional pattern of bipartisan support for Israel in Washington. While Netanyahu has significant support from Republicans, he would need, should he be re-elected today, to work with the current White House until power changes hands in January 2017. Yet, after his Congress speech, he will have even less support within the Obama team.

Indeed, a US-led framework deal with Iran this month may only exacerbate the rift in bilateral relations if the prime minister is re-elected. Especially in these circumstances, a unilateral Israeli strike against Tehran’s nuclear programme facilities could not be ruled out.

Netanyahu has also alienated many in Europe, too. There was significant European concern expressed last year, for instance, during the war in Gaza, with UK Deputy Prime Minister Nick Clegg condemning Israel for a “deliberately disproportionate form of collective punishment” and the “unimaginable human suffering” of the Palestinians.

Many in Europe have also been frustrated by the lack of energy and inclination that Netanyahu has shown toward negotiating a peace deal with Palestinians in recent years, despite US pressure. This disillusionment has only been heightened during the Israeli election campaign as the prime minister’s team declared that his so-called "Bar Ilan speech" from 2009, in which he expressed support for a “demilitarised Palestinian state,” is no longer official policy.

Yesterday, Netanyahu asserted that “anyone who goes about establishing a Palestinian state today and vacating territory is giving attack territory to extremist Islam to be used against the state of Israel. That is the real reality that has been created here in recent years. Whoever ignores this is putting his head in the sand."

Partly driven by frustration with Israel’s recent stance, the European Parliament approved a resolution in December recognising, in principle, “Palestine” as a state. This mirrors votes in several national legislatures, including the United Kingdom, Spain, Ireland and France.

It is in this context that the Zionist Union has said it would seek to improve ties with the Obama administration and Europe. It would also try to rejuvenate negotiations with the Palestinians, although prospects for a breakthrough should not be over-estimated.

While international issues form the backdrop to the election, domestic economic issues are uppermost in many Israeli minds. Specifically, the rising cost of living, including housing costs.

Last month, for instance, a report by the Israeli state comptroller put “substantial blame” on the Netanyahu government for a greater than 50 per cent rise in house price over the past 5 years, in part because of the bureaucratic delays holding back the speed of house building. Moreover, according to the Bank of Israel, a basket of basic products was 12 per cent more expensive in Israel than the OECD average last year.

Official statistics indicate over 40 per cent of Israelis are in a constant state of overdraft. And it is this economic context which helps explain why Netanyahu’s domestic opponents now sense there is significant opportunity to unseat him.

However, even if the Zionist Union wins more seats than Netanyahu’s conservative Likud party, it will still need to overcome the hurdle of forming a coalition with a variety of nationalist and religious parties to secure the requisite 61 seats in the Knesset. This will not be easy, especially as the prime minister remains a formidable dealmaker and his ability to forge a potential coalition across the fragmented political landscape should not be under-estimated. Thus, even if Likud wins less seats today than the Zionist Union, he could yet remain in office.

Taken overall, at a moment when the country faces key international challenges, an unstable coalition is more likely than a decisive victory. Given the fragmentation of the Israeli political system, this could not just mean further political uncertainty but also complicate the new government’s task of developing a clear, coherent domestic and international agenda.