WASHINGTON (Reuters) - The Palestinian government’s bid for statehood would “not necessarily” destabilize Israel’s economy, Bank of Israel Governor Stanley Fischer said on Saturday.
“They are a small economy relative to us, they are a small economy in the region,” Fischer told Reuters a day after Palestinian President Mahmoud Abbas asked the United Nations to recognize a state for his people.
“They are not going to be, in that regard, important,” Fischer said on the sidelines of the International Monetary Fund and World Bank meetings in Washington.
But if the Palestinian request leads to violence or other negative political developments, Fischer said it “could be very important economically.”
The Israeli economy is about 20 times larger than the Palestinians’. It is forecast to grow 4.8 percent in 2011 and 3.6 percent the following year. Fischer voiced concern about the slowdown in the United States and the debt crisis in Europe and said it will “certainly have an impact on us.”
Europe’s debt problems intensified over the weekend with growing speculation of a Greek default. In his strongest words to date, Treasury Secretary Timothy Geithner on Saturday told Europe to get its act together and take the threat of cascading defaults and bank runs off the table.
Fischer declined to comment on whether the EU crisis would influence the central bank to cut rates when it issues its monetary policy decision on Monday. But he said there was a “worsening of the mood and less optimism.”
“Those parts are hard to quantify but not less important,” Fischer said. “It isn’t working its way through numbers, but the degree of pessimism that I hear here is really quite remarkable.”
Economists polled by Reuters last week forecast the Bank of Israel to leave its key interest rate at 3.25 percent after a series of rate hikes earlier this year.
When asked whether Israel was closer to developing economic ties with Arab countries hit by uprisings, Fischer said: “So far it’s been more negative than positive.”
“We are only 8 months since they started. They haven’t had elections, they haven’t formed new governments by in large, it depends on both sides.”