Israel battles quiet internal upheaval after passage of controversial bill on weakening Supreme Court

Jerusalem: Angry protests following the passage of a controversial bill by Israel's Parliament this week on a controversial bill that could limit the Supreme Court's powers has given way to a quiet upheaval in the country with threats of mass emigration, resignations in critical positions, army desertions, strikes and flight of capital.

Israeli Parliament approved the contentious law that prevents judicial checks on political power and forms a key part of Prime Minister Benjamin Netanyahu's plan to reshape the country's justice system, after weeks of unprecedented protests that have crippled the Jewish state.

The bill passed on Monday with 64 votes in favour and zero against it, with the opposition boycotting the final vote on the bill in protest.

It was the first major bill to pass in the government’s much-criticised judicial overhaul plans.

Multiple last-minute attempts within the Knesset (Israel's Parliament) to amend the bill or to come to a broader procedural compromise with the opposition failed.

Credit rating agency Moody’s Investors Service on Tuesday warned about “negative consequences” and “significant risk” for Israel’s economy and security situation following the passage of the first bill.

Moody’s had in April lowered Israel’s credit outlook from “positive” to “stable,” citing a “deterioration of Israel’s governance” and upheaval over the government’s bid to dramatically overhaul the judiciary.

“More specifically, we believe the wide-ranging nature of the government’s proposals could materially weaken the judiciary’s independence and disrupt effective checks and balances between the various branches of government, which are important aspects of strong institutions," Moody’s noted.

“Israel has no written constitution and its institutional set-up relies to an important extent on judicial oversight and review,” it said adding, “The executive and legislative institutions have become less predictable and more willing to create significant risks to economic and social stability".

Moody’s also pointed out that some of its earlier concerns regarding the proposed reforms’ impact on Israel’s economy are also starting to materialise.

Moody’s still expects the country’s economy to grow at a rate of 3 per cent both this year and in 2024, but cautioned that the projection does not “incorporate a negative effect from a prolonged period of social and political tensions”.

Unfazed by the critical report by the global credit rating agency, the government put out a statement rebuffing it as a “momentary response” adding that when the “dust settles it will become clear that Israel’s economy is very strong”.

“The Israeli economy is based on strong fundamentals and will continue to grow under experienced leadership that is enacting a responsible economic policy,” read the joint statement by Prime Minister Netanyahu and Finance Minister Bezalel Smotrich.

US investment bank Morgan Stanley on Tuesday lowered Israel’s sovereign credit to a “dislike stance” citing “increased uncertainty about the economic outlook in the coming months”, Times of Israel reported.

US bank Citi told institutional clients that the environment in Israel is “much more tricky and dangerous”, advising investors to hold off until the dust settles, the news portal said.

“The current events in Israel are challenging… and making investors increasingly nervous with regards to Israeli assets,” Citi VP Michael Wiesen was quoted to have written in a note.

“We urge caution here and to wait for better levels/calmer market”, he reportedly said.

Israeli shares turned to losses and the shekel weakened on Monday as angry protesters took over the streets following the passage of the bill.

Almost 70 per cent of Israeli startups are taking active steps to pull money and shift parts of their businesses outside the country due to the uncertainty created around the proposed judicial overhaul, a survey by Start-Up Nation Central, which tracks the local tech ecosystem, was cited in local media as saying.

The findings of the survey showed that 68 per cent of Israeli startups have started to take “legal and financial steps,” including the withdrawal of cash reserves, moving their headquarters outside of Israel, relocating employees and conducting layoffs.

Overall, 78 per cent of the surveyed startup executives reported that the government’s controversial plan to weaken the country’s judicial system is “negatively” impacting their operations, and 84 per cent of venture capital investors said it has a negative influence on their portfolio companies.

“Companies and investors are taking active steps to move activity away from Israel and this behaviour has increased significantly over the past three months,” Start-Up Nation Central CEO, Avi Hasson, was quoted as saying.

“Concerning trends like registering a company abroad or launching new startups outside Israel will be hard to reverse,” Hasson said.

Another survey carried out on Tuesday found that nearly one-third of Israelis are considering leaving the country.

The Channel 13 poll found that 28 per cent of the respondents were weighing a move abroad, 64 per cent were not, and 8 per cent were unsure.

Over half of the survey’s respondents, 54 per cent, said that they feared the judicial overhaul was harming Israel’s security, and 56 per cent were worried about civil war.

The poll carried out by pollster Camille Fuchs queried 711 respondents and had a margin of error of 3.7 per cent.

Meanwhile, security-related concerns in the country have also deepened with threats from various quarters.

Several senior scientists on the Israel Atomic Energy Commission have threatened to resign to protest the government’s judicial overhaul, as per local media reports on Tuesday.

The scientists are among several dozen experts who are “responsible for the development of Israel’s nuclear capability,” Channel 13 reported, referring to foreign reports about the Jewish state’s alleged nuclear weapons arsenal.

Israel maintains ambiguity regarding its nuclear capabilities.

The report, which did not cite sources, said the scientists had been discussing their possible resignations in recent weeks, but there was no collective protest action, and that each of the scientists would decide on the matter individually.

The military warned on Tuesday that combat readiness may soon be harmed if reservist troops do not show up for duty over a lengthy period of time, amid efforts to insulate the army from national tensions over the government’s controversial judicial overhaul.

Thousands of reservists have threatened to end their volunteer reserve duty in protest of the overhaul in recent weeks, forcing Israel Defence Forces (IDF) Chief of Staff, Herzi Halevi, to issue a rare video statement on Tuesday calling for unity within the military.

The IDF has said that the "cohesion" or unity of the forces has already been harmed amid the protests against the judicial overhaul, and "it will take time to fix".

The army however claimed it is still fully battle-ready even though harm to the IDF’s readiness has already begun.

Should the thousands of reservists in key positions continue to not show up for duty, actual damage to the IDF’s “competence” may occur within weeks, security officials said.

“At the current point in time, the IDF is competent. There was an increase in requests to end reserve service, and alongside this, there is a dialogue between commanders and service members,” military spokesman Rear Adm Daniel Hagari told reporters.

“If reservists do not report for duty for a long time, there will be damage to the army’s competence. This is a gradual process that will be affected according to the reporting for duty of the reservists,” he added.

There have been at least two isolated cases of reservists not showing up for duty when ordered to, according to the IDF.

One was handed a NIS 1,000 (USD 270) fine and the other was given a 15-day suspended jail sentence, media reports said.

Some 1,200 Israeli Air Force reservists in a letter on Tuesday reportedly announced their intention to end their volunteer service.

According to a report, 60 per cent of them are said to have notified their commanders that they would no longer show up for duty.

Reservists not showing up for volunteer service have not faced any disciplinary action.

Israel's famed espionage agency Mossad has also reportedly seen "high tensions" internally over the issue.

Mossad Director David Barnea was widely quoted in the international media as saying that if the government goes the wrong way, his agency will come out on the right side of history.

On Monday, Barnea said that the government's repeal of the reasonableness standard had not crossed the line into bringing the agency into a legal dilemma, but if such a point arrived it would always remain loyal first to the rule of law, The Jerusalem Post reported.

All the six living former chiefs of the spy agency have explicitly opposed the reasonableness standard repeal with five of them holding Netanyahu responsible for tearing the nation apart.

Organisers of protests against the government's Judicial overhaul initiative have vowed to "fight till the finish" after having successfully organised mass rallies for 29 consecutive weeks since the beginning of the year.