Peace with Egypt won't be a quick tranquilizer for this country's erratic economy. Indeed, it may initially bring just what Israel needs least: more inflation and greater dependence on the United States.
There is already plenty of both. Last year, prices rose 35 percent. This year, they may rise 40 to 45 percent. Since 1974, the annual increases have consistently averaged more than 30 percent. In the same period, American aid has totaled nearly $10 billion, more than half of it in grants.
In short, the economy remains one of Israel's soft spots - technologically advanced in some sectors, woefully inefficient in others, and everywhere difficult to control. To some observers, notablyThe Economist of London, the economic mess, not foreign policy, poses the gravest danger to Menachem Begin's government.
Maybe so. Recent strikes by teachers, postal workers and El Al Airlines mechanics attest to the social strains of raging inflation. The backlog of telephone applications (now equal to nearly four years worth of installations) continues to grow, and the government is expected soon to raise the basic food prices by reducing subsidies. That could prompt an putbreak of hoarding.
But contradictions abound, and ample evidence exists to buttress the rival view - embraced by U.S. officials - that the inflation statistics alone present a misleading, exaggerated picture.
To the naked eye, this seems to have dented a highly visible prosperity.
In the past two decades, Israel has transformed itself into a mass consumption society with all the familiar trappings from bubble gum to plastic shopping bags to traffic jams. Although the country is about 90 percent self-sufficient in food, farming occupies only 6 percent of its population. About one-third of families own cars, nearly 90 percent have televisions and three-quarters, washing machines.
Nor do Israelis recoil from spending and enjoying themselves. They have enthusiastically adopted a western recreational habit: the weekend exodius to beaches and resorts. On a recent four-day weekend, they deserted the cities by the thousands, filling virtually every hotel and camping site in the country.
Israel clearly has managed an astonishing adaptation to inflation - abeit with great uncertainties. Wages are automatically indexed to 70 percent of inflation. On top of that, the Histadrut, the powerful central labor organization,. bargains for further increases, and individual unions can press for even more. Consequently, over the past four years, average wages have kept slightly ahead of inflation, and even with tax increases, real consumption remained virtually level between 1973 and 1977. Unemployment has stayed below 4 percent.
There shuold be no delusion, though, that this stand-off could have occurred with massive U.S. aid. Even with it, the Israelis had to bring their economy to a virtual halt between 1975 and 1977 to dampen demand for imports, making room to pay for needed defense goods and higher-price oil. That unemployment did nor increase significantly reflects the government's sponge-like ability to absorb new job seekers (sfour-fifths of them in the public sector) and ignores higher unemployment among Arabs from the occupied areas.
Paradoxically, the slowdown induced the inflation. The cut in subsidies for food production raised food prices, and the government delibrately allowed the currency to depreciate in an attempt to keep exports profitable. A dollar is now worth about 18 Israeli pounds, against 4.2 pounds in 1971. But that raised import prices, and because non-defense imports equal about 40 percent of the nation's output, the huge inflation - now sustained by a wage-price spiral - resulted.
This stiff medicine, though, has has some effect. Exports expanded far more rapidly than imports, and the current account deficit (excluding defense imports, which are a special case) declined from $2.2 billion in 1975 to a somewhat more manageable $1.5 billion in 1977.
Now, however, peace brings new uncertainties. The immediate problem is the relocation of the three air bases and thousands of settlers from the Sinai to fulfill the agreement with Egyptian President Anwar El-Sadat. The cost could approach $3 billion, which, for a country with a gross national product of $12.8 billion in 1977,is a staggering sum.
Even if the United States pays some of the cost and the use of foreign workers and equipment reduces the risk of bottlenecks, the infusion of so much money into a tiny economy cannot but intensify price pressures. Finance Minister Simha Ehrlich promises to make the budget cuts elsewhere, but none of his Cabinet colleagues have volunteered their programs for the chopping block.
The real economic promise of the peace is more distant and uncertain: the prospect of an Israel-Egyptian interdependence based on trade, tourism and a mutual prosperity that neither side is willing to jeojardize with war.
On paper, it could happen. Optimists here hope that the posibility of joint Israeli-Egyptian tours will double the number of foreign visitors from one million to two million. And, logically, the nearby Egyptian market of about 40 million (more than 10 times bigger than Israel) should offer vast opportunities for Israeli manufactured goods, vegetables and technical consultants.
As for Egypt, Sadat plan a partial demobilization that will free funds for economic development. There's already a proposed Israeli bus fare to Cairo - an indication of the widespread expectation that thousands of Israelis will journey there. And, in some industries, notably textiles, steep Israeli labor costs could make Egyptian products highly competitive.
No one knows whether this vision will materialize, but Israel urgently needs it. The economic alternative is slow growth or prolonged economic dependence on America - a risky path. More important, though, it's needed for a lasting peace, which now depends almost completely on Sadat's good health. Economic self-interest alone may not assure peace, but, without that common interest, it may have no future at all. It could die with Sadat.