Bibi, it’s cold outside: Israel’s improbable coalition

Hey, Ryan Reynolds here wishing you a.

Very happy half off holiday because right now Mint Mobile is offering you the.

Gift of 50% off unlimited.

To be clear, that's half price, not half the service.

Mint is still premium unlimited wireless for a great price. So that means a half day.

Yeah. Give it a try@mintmobile.com Switch upfront payment.

Of $45 for three month plan equivalent to $15 per month required new customer offer for first three months only. Speed slow 135 gigabytes of network busy taxes and fees extra. See mintmobile.com.

Hello and welcome to the Intelligence on Economist Radio. I'm your host, Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. There's a lot of dirty money flowing around the western Balkan countries as organized crime groups expand their efforts well beyond the region. And it appears that much of that loot is getting laundered through a deeply distorted property market. And something definitely seems wrong with the butter in Canada. It's just too hard. Our correspondent examines a mystery that's come to be known as Buttergate. First up, though, The political rivals of Benjamin Netanyahu appear to be closing in on a deal that would end his reign as Israel's longest serving prime minister. Yesterday, opposition leader Yair Lapid announced that in a week, the state of Israel can be in a different era. His is one of a group of parties attempting to form a coalition that would remove Mr. Netanyahu from power. Mr. Lapid labeled it a unity government. The prime minister in such a coalition would, to begin with, be Naftali Bennett, a former aide to Mr. Netanyahu who now leads his own right wing party. He said the partnership would rescue Israel from a tailspin. Arranging a workable coalition will be a challenge. The parties have fundamentally conflicting ideologies. Another obstacle, Mr. Netanyahu himself, who warned in his own press conference on Sunday that such a government would be a threat to Israel's security. After four elections in two years, political stability is long overdue in Israel. But a convoluted effort simply to unseat Mr. Netanyahu might not be enough to get there.

So it's going to be a very unwieldy coalition. Parties from all across the Israeli political spectrum.

Anshul Pfeffer is our Israel correspondent reporting from Jerusalem.

On the right, there's going to be Yamina, headed by Naftali Bennett, New Hope, which is a new party of Likud rebels, and Yisrael Beitenu, which means Israel, our home. From the center, the main parties Yeshati, the largest party in the opposition, led by Yair Lapid, who is also the architect of this government. Blue and White, led by Benny Gantz. And then there will be two left wing parties, Labour and Merets, which is the classic Zionist left party. And in the wings, there'll also be an Arab party, the Islamist conservative Ra', Am, which will be making up the numbers that they probably won't be actual members of the government. Instead, they will hold the rather influential Knesset Committees as part of their deal with the coalition.

So how did such a diverse coalition come to be formed?

So we've had four elections in Israel over the past two years, basically all ending in a stalemate. Netanyahu not being able to form a coalition of his own after any of these elections, remaining prime Minister because he is the caretaker prime minister. And on the other hand, in three of these elections, the opposition has on paper had a majority and could have replaced Netanyahu. But because of the diverse policies and ideologies of the various parties of the opposition, until now, they failed to get their act together and muster this majority. And this is what's changed. To get to this point where the opposition can get together and swear in the government, Yair Lapid, who is the leader of the largest party in the opposition, had to basically concede to Naftali Bennett the role of prime minister half of the term. Assuming the government is sworn in, Naftali Bennett, who is the leader of a much smaller party than Lapid's party, will go first and will serve for two years as prime minister. And only then will Lapid replace him and become prime minister at some point in late 2023.

And so do you think this will hold together? What stands between this plan and it becoming a government?

So so far, what we have now is a commitment of enough parties with enough members who have a majority to join this government for that government to actually come into being. The parties have to sign coalition agreements. And these are quite detailed, rather delicate documents. First of all, they have to allocate the various ministries to the different parties. So all these things are being talked about, and it looks like towards that point where Lapid can notify the President and say, I'm ready to form a government, and then the clock starts ticking seven days in which he has to actually bring that government to the Knesset and win its initial confidence vote.

So it seems the only thing that unites this broad coalition is opposition to Mr. Netanyahu, who in turn will probably be fighting this the whole way.

Indeed. And what makes it so difficult to form this coalition isn't just the fact that they need to reach all the agreements between eight different parties. But some of the parties are under intense pressure from Netanyahu not to betray the right wing, not to join what he calls a left wing government, even though the left wing is actually quite small within this government. But Netanyahu has branded this as a dangerous left wing government which will cause damage to Israel. And he's asking her, what will it mean with Israel's conflict with Hamas in Gaza, what will it mean with the Iranians, even as what will they think about us in Washington if this is the new government? Right now the coalition has a wafer thin majority. A number of the individual members are under very intense pressure. There are protests outside their homes, they're facing very nasty smear campaigns online. And they also have, some of them actually have real ideological qualms about joining a government which is not exactly the kind of government that they wanted to be part of.

But what would the agenda be once the agenda of getting rid of Mr. Netanyahu is accomplished? What would that broad coalition be aiming to do, do you think?

Well, that's a very good question because the most controversial issues on the Israeli agenda, mainly things to do with the Palestinian conflict, there is no agreement there and that would automatically tear this new coalition apart. They've basically agreed to disagree, to try and stick to the status quo as much as possible and to focus on other matters, to focus on social issues, to focus on economic issues, on rebuilding the Israeli economy. After COVID 19, those are the main things that this government wants to focus on. Obviously events will dictate what they actually deal with and that may rock this coalition.

And what about the man who would ultimately replace him, at least for the first couple of years, Naftali Bennett. Tell me about him.

So Bennett is a high tech entrepreneur, made a lot of money already by his mid-30s and decided he's got enough money, wants to go into politics. And his very first job in his political career in 2006 was as Chief of staff to the then leader of the opposition, Benjamin Netanyahu. Bennett, I think hero worshiped Netanyahu from afar for many years, but very quickly he fell out with Netanyahu. The fact that Bennett is now joining a government with centrists and left wingers does seem on the surface of it, surprising. But I think it really shows where Israeli politics is right now. It's not about right or left, it's not about any specific policy. It's about whether Israel continues under the Netanyahu administration, or it breaks with that finally and launches a new government and perhaps even a new political era. And this is what basically Bennett was saying in his statement on Sunday night, it's time to you say goodbye to Netanyahu. There's too much distrust towards him.

But is that enough, do you think, Simply opposition to Mr. Netanyahu? If this is how it has to happen to draw people together around that one issue, is that itself a recipe for political stability?

I think at this point in Israeli politics, the answer would be yes. I mean, first of all, the fact that they are joining together proves that that is enough, at least for the time being. Will it last more than a few months? Nobody can tell right now because Israeli politics has for so long been built around this one commanding personality, Benjamin Out. I mean, he'll still stick around. He'll be the leader of the opposition in some ways. I think the fact that he will be exerting so much pressure to try and bring this new government down, this may actually help keep the government together because the different partners will know that, that if we bail, Netanyahu has got a good chance of getting back in again. And this non ideological but very visceral need that they feel to replace Netanyahu could be the joint purpose that keeps them together for a while.

Thanks very much for your time, Anshul.

Thank you for having me.

For more analysis like this from our international network of correspondence, check out a subscription to the Economist. Get a great introductory deal@Equality.com IntelligenceOffer the link is in the show notes. The former Prime Minister of North Macedonia. Nikolo Gorowevsky was charged with money laundering last month amid allegations he used political donations to buy property and then conceal its ownership. He says from Hungary, where He fled in 2018 to claim political asylum, that the case is politically motivated. But it's the Balkan country's organized crime outfits that are often accused of using dirty money to buy property. More and more high end apartment blocks are being started, yet many remain unfinished. Many others are empty. Meanwhile, prices just keep going up. It's a trend that's distorting the market and enraging ordinary house hunters.

Money laundering is a booming industry in the Balkans.

Tim Judah is our Balkans correspondent.

There's been a lot of illegal activity. A lot of that was migrant smuggling along the Western Balkan route. But in recent years, drugs have become increasingly important. And what's become increasingly clear over the last few years is that for the big money, real estate and construction is the place to launder your money.

But why the housing market in particular, though? Why is that the new target?

I have to say it's not really a new target. It's kind of relatively new to the Balkans. Balkan mafias are getting big. They want to launder money and have some property back home. Properties are sort of good investment in general terms. You can live in it, you can rent it, and hopefully your investment will go up in value. Having said that, I did ask Fationa Medini. She's an Albanian researcher for the Global Initiative Against Transnational Organized Crime who've done a major new report on this. And she said the problem is that these mafias, these gangsters, basically lack imagination. You could see your bricks and mortars property. They're not really interested in investing in sort of more interesting businesses, which might also grow in value.

And so what impact is all of that money flowing into the construction and the property market doing?

Well, it has different effects at different levels. The first is that like anywhere else in the world, if the prices of property in a certain area are going up, then that's having a displacement effect across the rest of the market. It means that if gangsters and corrupt politicians are laundering money at the luxury end of the market in Tirana or in Pristina or in Belgrade, it's inflating the prices of real estate, of flats and houses for ordinary people across the rest of the market. And of course, that's making ordinary house hunters extremely angry. To give you an idea, the value of all real estate transactions in Albania rose by almost 7% last year, when, of course, like everywhere else, the economy contracted because of COVID In 2017, the value of a property square meter in tirana was about €860. And now it's anywhere between €1,400 and €2,000, and it even goes up to 4,000. I mean, can you imagine? Tirana was a village a generation ago, and now people are paying that much money for luxury apartments. Now there's a second level where it's having an effect. The fact is that you can't money launder large amounts of money into property and into real estate or into construction, unless you've got friends in high places. So it has a kind of corrosive effect across the whole of society in that sense.

But as you say, this is a problem that has faced the Balkans for years in different forms. What are governments doing about it as it sort of changes its ways?

All the Western Balkan six countries who are not members of the EU but want to join the EU have basically all adopted all the sort of Money laundering and anti crime sort of rules and regulations that are standard for the eu. The problem is in implementation and in enforcement, which tends to be patchy. If there isn't a will, then the criminals will find a way. What I mean by that is, for example, that if the rules are that a bank has got to report any transaction of more than €10,000, then they'll make 500 transactions of €9,999.99 until they've laundered their money. And if there isn't anyone to enforce those things, then the gangsters will get away with it.

So where do you see this heading then? If more and more money is being made and needs to be cleaned, what's going to happen to the Balkans property market?

Well, I suppose it will continue on the same trends. The real issue is, is EU enlargement dead or dormant as it seems at the moment, or is it a living and going concern? If EU enlargement is a going concern, then pretty much the Balkan governments are going to have to clean up their act at the moment. People tell me from the region that actually the problem is that Balkan governments tend to be quite ambivalent about this. On the one hand, yes, they understand that it's important that they would like to clamp down on this and they would like to sort of live up to their promises to the EU of cleaning up and making decent society for people to live in. On the other hand, the fact is that these criminals with cocaine money from South America selling in Western Europe are actually injecting quite a lot of money into these countries. That's employing a lot of people, a lot of people in the construction industry. And that has ripple effects which are ironically good for the economy, even if they're corrosive for the countries and for their futures as a whole.

Tim, thank you very much for your time.

Thank you very much for having me.

Last spring, as lockdowns spread, many people in the rich world turned to baking to occupy themselves. You couldn't move on social media without seeing the artisanal loaves of newly minted kitchen experimentalists. There was just so much sourdough. But in Canada, one pastry chef noticed a problem that would soon become something of a national obsession.

Last year, during lockdown, Julie Van Rosendaal, she's a pastry chef and a food writer. She lives in Calgary, which is a city in Alberta, noticed that her room temperature butter really wasn't as soft as it probably should have been.

Peg Fong writes about Canada for the Economist.

She did something that Most people wouldn't do. She tracked her observations over the year, and then she reached a conclusion. This was in December. The consistency and texture of butter had changed, in her opinion. She bought butter from different places, and she realized that the texture is different than it used to be in the past. And it's not just butter. Coffee shops have been complaining about the fact that their latte was not as foamy as it should have been. So Canadians have been concerned by these findings.

So what's the source of the mystery here? Why has Canada's butter changed consistency?

Well, Ms. Van Rosendaal believes that butter has become harder to get soft at room temperature. And some of the conclusions have been reached by other people who have noticed the same thing. They believe that farmers have been feeding their cows more palm oil products. And palmitic acid can be fed to cows. It helps them produce more milk. When Ms. Van Rosendaal posted her findings on social media, she got this onslaught of other people sharing her suspicions. Thousands of people kind of chimed in, and on social media, it was dubbed Buttergate.

So how did the farmers respond to that suggestion?

You know, the dairy farmers of Canada, they're an industry group, and they initially try to palm off critics with denials, but under pressure, they went from groveling to saying, we don't know if that's the case. We're looking into it. So they called an expert panel to assess the claims, and they've urged farmers not to use palm products while it's being investigated by experts. And they have academics from different institutions looking into the process of the butter being made.

Right, but why, though, would palm oil be sort of snuck in there in the first place?

Well, palm oil products has been used, and it's allowed to be used, but really the underlying cause is the lockdown. Like people everywhere, Canadians were trapped at home, and they began baking. And demand for butter soared by 12% last year, according to the farmers. The interesting thing about what happens in Canada is that Canada's dairy industry is protected by high tariff walls, which means that imports could not fill the shortfall. So American dairy farmers could not be sending up more butter in order to make up for the shortfall of the demand that grew for butter. So farmers have to stick to a supply management policy, meaning they cannot simply buy more cows when demand source. And in this case, this is what led to them deciding that they had to make each cow produce more milk, which is why they use the palm oil.

And if it was a problem that was caused by lockdowns, is it one that can be sort of reversed. Once lockdowns lift, life gets a little bit back to normal.

Well, people were baking because they were shut in homes. I believe that Canadians are going to start baking less and lockdowns are lifting in Canada. But the farmers have other problems looming. In the U.S. mexico, Canada agreement, Canada agreed to reduce certain barriers to American exports of dairy products and they have resisted reducing any barriers for a long, long time. Last December, the American dairy farmers, they filed an enforcement action claiming that quotas do remain a problem in getting their products to Canada. So if Canadians do buy more American dairy products, they will be better off butter wise in selection and choices. Protectionism has stopped the spread of dairy goodness. So we'll see what this new U.S. mexico, Canada agreement, maybe it will increase the choices that Canadian consumers have and.

Bring down the average hardness of butter. Perhaps.

Perhaps.

Peg, thank you very much for joining us.

Thanks, Jason.

That's all for this episode of the Intelligence. If you like us, leave us a rating and a review and see you back here tomorrow. Sam.