Sunday May 13, 2012

I've Been Thinking:

Last week I was critical of Turkey and of the Turkish economy. The S&P had downgraded them and I explained that it was a direct result of their economic and diplomatic POV. That POV, I explained, made them an economic risk - or at least no longer an exceptional economic choice. As I wrote, Turkey went ballistic over the downgrade.

Well, at the end of last week Moody's - which is the other index or rating company, downgraded Israel from stable to negative.

Israel was downgraded for several reasons. A high percentage of domestic bank loans to huge Israeli corporations was one very important reason.

Geopolitical tensions was another important reason given for the downgrade. These tensions make international investment in Israel risky. Moody's was referring to the Arab Spring and to threats from Iran.

The report stated that in the past these tensions have not stopped Israel from growing, that Israel has bounced back and has been able to show creativity and economic stability despite the risk factors. This is a critical factor in understanding the position of Israel within the region.

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