Jerusalem – Israel PM Says Brexit To Have No Direct Impact On Israeli Economy, Sets Up 24-hour Situation Room To Monitor Effects

Jerusalem – Finance Minister Moshe Kahlon on Sunday said that the Finance Ministry had set up a 24-hour “situation room” to keep tabs on economic repercussions from the United Kingdom’s Thursday vote to break from the European Union.

“We have a strong and stable economy that is prepared to deal with any scenario and challenge,” Kahlon said, noting that he was coordinating closely with Bank of Israel Governor Karnite Flug and Prime Minister Benjamin Netanyahu, with whom he met over the weekend to discuss the British exit, or Brexit.

The TA-100, representing the largest 100 companies trading on the Tel Aviv Stock Exchange, opened down roughly 3% Sunday, the first day of trading following the referendum.

Netanyahu also sought to calm markets. “There is no direct effect on Israel apart from the fact that we are part of the global economy,” he said at Sunday’s cabinet meeting.

“I can say one thing: The Israeli economy is strong. It has very considerable foreign currency reserves; therefore, to the extent that there is some effect, it is not expected to be strong, other than unrest in the global economy.”

A report from the Finance Ministry’s Chief Economist on Sunday estimated that the effect on Israel’s capital markets would be similar to the shocks of the 2012 euro crisis, which resulted in a 6.5% drop in Israeli capital market indexes.

While many of the repercussions for Israel will be indirect, the EU represents Israel’s largest regional trade partner. By country, the UK is its Israel’s second-largest export market (excluding diamonds), just behind the United States.

But the Finance Ministry analysis predicted that the overall effect on Israeli exports would amount to about 0.1%. It also noted that, in the long run, the decision could be an opportunity for Israel. Less competitive terms of trade between the UK and EU could create an opening for Israeli exporters to compete with British goods in the EU and European goods in the UK.

The British vote to leave the EU sent the British pound crashing and global stocks reeling, as it opened up a prolonged period of political and economic uncertainty.

British Prime Minister David Cameron said he would step down, and would leave it to his successor to invoke Article 50 of the EU Lisbon Treaty, which sets off the process for its exit. Article 50 will kick off a two-year timeline for the UK to renegotiate its trade relationship with the EU, though negotiations are expected to take longer. It also must redefine the trade deals it has with all the countries that trade with it as an EU member state–including Israel.

The political repercussions could also see other EU states opt to leave, and renewed efforts by Scotland and Ireland to separate from the United Kingdom.