JERUSALEM, Jan 5 (Reuters) - Israel's new hard-right government seeks reforms to the judiciary to limit its influence on government policy and give politicians a bigger role in picking top judges, alarming opponents who fear it will hurt democracy and minority rights.
Justice Minister Yariv Levin unveiled his plan on Wednesday, describing it as a restoration of balance between the legislative, executive and judiciary.
It was greeted with delight by his partners in the nationalist-religious government of Prime Minister Benjamin Netanyahu, who have long accused the court of overreach and the bench of elitism.
Israelis opposed to the reforms fear for the country's democratic health, defending the court as a bulwark for minority rights.
The plan, which has yet to be written into law, includes limiting Supreme Court power to rule against government policy or Knesset laws, while increasing lawmaker and government influence in selecting the bench.
"The reform simply realizes the idea of absolute power," said Suzie Navot, a professor of constitutional law with the Israel Democracy Institute, noting that Israel's "checks and balances" are relatively fragile.
Israel has no constitution, only "basic laws" meant to safeguard its democratic foundations and one house of parliament in which the government controls a majority.
The reform risks corruption spreading, infringement of rights and stripping Israel of one of its main defences on international legal issues, if its judiciary is seen as no longer strong and independent, said Navot.
Netanyahu, on trial for corruption on charges he denies, said on Wednesday the reforms will "protect the right balance between the three branches."
His government has been dogged by criticism, even before it had been sworn-in, with opponents pointing to some coalition members' past of agitating against Arab citizens and gay rights and its eye on expanding Jewish settlement in the occupied West Bank.
Levin said voices of the legal system, experts and opposition lawmakers would all be heard when parliament discusses the reform.
Pointing to the greater role of elected officials, Eugene Kontorovich, director of International Law at the Kohelet Policy Forum, defended the plan.
"Implementing what is standard practice in America can't be the end of democracy in Israel," he said.
U.S. Ambassador Tom Nides said that keeping the countries' "shared values" in mind, Washington would not rush to judgement.
"This democracy will withstand a lot and that's why it's so vibrant," he told Army Radio. "I'm not in a position to tell Israel what to do. But I am certainly willing to express my concerns and anxiety from where we stand."
About 1,000 protesters gathered on Thursday outside the Supreme Court, which was hearing an appeal against the appointment of Aryeh Deri as cabinet minister despite his conviction for tax fraud.
"Democracy is crumbling in front of our eyes," said one protester, 48-year-old physician Ofer Havakuk.
Such sentiments, said economist Dan Ben-David, could have wider economic fallout. If liberal Israelis feel the democracy is being undermined, they could just up and leave.
"Israel is pretty much being held up by just a fraction of the population," said Ben-David, referring to the hi-tech sector, academia and health care workers including doctors.
He added: "Four percent of the entire population are in charge of the healthcare system and basically run the leading parts of the economy."
"You don't need a million people to get up and go, all you need is a critical mass of this group to say 'no', and that becomes irreversible," said Ben-David, of the Shoresh Institute for Socioeconomic Research.
One economist at a financial institution noted that the shekel has weakened recently partly due to "a change in view on Israel that has become more globally negative," and that the reforms could spell further trouble.
"This step to some degree affects Israel's risk score in the eyes of foreign investors, and not in a positive direction. It's more risk. And it may have a negative effect in capital flows to Israel," said the economist, who asked not to be named because of the sensitivity of the issue.
Leader Capital Markets Chief Economist Jonathan Katz said the reforms were unlikely to deter investors but that extra spending on the government's coalition pledges may be a problem.
"They're probably a little bit spooked regarding the possibility of a more expansionary fiscal policy," said Katz.
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