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What happened: The Likud and Blue and White have appeared to reach a compromise to avoid early elections.

• Both parties said they will support a bill drafted by the Derech Eretz faction that postpones the deadline to pass the budget, thus averting the automatic dissolution of the Knesset in late August and subsequent elections.
• In a rare move, yesterday’s cabinet meeting was cancelled as both sides traded incriminations in the Israeli media, accusing each other of failing in their public responsibilities during a time of national crisis.
• The coronavirus cabinet did meet yesterday and also saw angry confrontations. Defence Minister and Alternate Prime Minister Benny Gantz accused Prime Minister Benjamin Netanyahu of never intending to honour the coalition agreement between the two parties. In turn, Likud’s Finance Minister, Yisrael Katz, demanded that the Gantz allow the cabinet to vote immediately on the NIS 8.5 billion financial aid plan.
• Blue and White ministers held a meeting yesterday in which Gantz said: “When they fire missiles at us from outside, we unite, and when there’s a gigantic internal crisis like the coronavirus, we mustn’t do any less. It’s a once in a century challenge. We’re trying to prevent division, hatred, and incitement, and that’s why we’re in the government. Make no mistake. I neither do nor will I regret having done the right thing for the state of Israel and having entered the unity government.”
• Coalition Chairman Likud MK Miki Zohar said in an interview to Army Radio this morning: “The Likud cannot continue to function this way. If the coalition isn’t stabilised in a way that we can work together in cooperation, including passing a one-year budget, which we believe in — if these things aren’t ultimately worked out between the sides, this partnership is going to unravel. The Likud has not given up on a one-year budget. I hope that the prime minister will continue to fight for that because it’s important.”

Context:  Israel has not had a budget for over two years due to the political stalemate and three rounds of elections.

• The governor of Bank of Israel, Amir Yaron, yesterday warned that new elections would have a negative impact on the economy.
• According to analysis in Yediot Ahronot, another election could damage the country’s credit rating, which in turn could lead to raised interest rates on the loans that Israel will have to take. Moreover, the austerity measures that the government will have to impose on the public — new taxes and cuts in services — will cause more businesses to collapse, and Israel could hit the million mark of unemployed citizens.
• According to the coalition agreement, the parties agreed to pass a two year budget. However, Netanyahu is suspected of supporting a one-year budget because it would leave him with the option of dismantling the coalition early next year and remain Prime Minister for early elections, before the alternating premiership arrangement could go into effect in November 2021.
• The Likud is under pressure to support the Derech Eretz bill because Yesh Atid-Telem are considering introducing another bill this week that would prevent anyone who has been charged with criminal offenses from forming a government. By agreeing to delay the budget deadline, the Likud hopes to stop Yesh Atid-Telem-sponsored bill.
• The Derech Eretz faction is part of the Blue and White bloc and has two members: Minister of Communications Yoaz Hendel and Chair of the Knesset’s Foreign Affairs and Defence Committee Zvi Hauser. They were formerly part of Moshe Yaalon’s Telem party, who remain in the opposition alongside Yair Lapid’s Yesh Atid Party. Both served as senior officials under Prime Minister Netanyahu in the past. Their main priority is national unity and fully support the coalition government.
• In an interesting development, Ma’ariv quoted a United Torah Judaism official saying yesterday that: “In the last few days we’ve been weighing the option of announcing that in the event of early elections, the party won’t join the right-wing bloc again and won’t announce, as in the past, that it’s going only with the bloc and with the Likud.”
• If the unity government fails, the Likud are also exploring another option to avert new elections, by forming a narrow right wing government.  They would need to persuade Yamina (currently in the opposition)  along with the Derech Eretz faction and rebels from the Blue and White Party in order to reach 61 MKs without Blue and White.  However these efforts have so far been unsuccessful.

Looking ahead:  August 25 is the deadline to pass a budget or the government would automatically fall.

• The Derech Eretz bill will be voted on this Wednesday in a preliminary reading in the Knesset. The bill will give the government until mid December to come to an agreement.