As Israel confronts West Bank unrest, its judicial reform plan spurs economic worries

March 2 (UPI) -- Less than two months after Benjamin Netanyahu and his hardline coalition of lawmakers returned to power in Israel, the nation finds itself grappling with dual political challenges over West Bank settlements and new proposals to significantly change the nation's judiciary.

Both issues have sparked public, and even violent, protests, and now some observers are even saying the nation will suffer economically because of Netanyahu's proposed changes to how judicial appointments are made in Israel. Multiple credit-rating organizations this week raised red flags on the topic, suggesting the domestic turmoil caused by Netanyahu's judicial plans could negatively affect Israel's credit rating if investors continue to be increasingly concerned.

The Knesset, Israel's parliament, is considering adopting a new law proposed by Netanyahu's coalition that would hand over the power to make judicial appointments to the sitting government, CNBC reports. The proposal has sparked large public protests, drawn the ire of members of the Israeli military, and now has given pause to global credit-rating agencies, and economists.

The risk in such a move will damage Israel's democracy, economy and security, critics say. And many observers say giving sitting governments control over making judicial appointments could eliminate an important system of checks and balances within the government, even taking away power from the nation's Supreme Court.

The perceived instability over Israel's democracy, political infighting and an increasingly violent conflict have the big three global credit raters warning that Israel's economy and the global economy could be negatively affected. Moody's, S&P Global Ratings and Finch Group each have said that the decision to move forward with the proposed judicial reform would have a negative effect on the nation, though they still rate Israel in good credit standing, according to CNBC.

A report from Moody's obtained by CNBC said, "implementation of such changes would clearly be negative for our assessment of the strength of institutions and governance, which we have so far considered to be a positive feature of Israel's sovereign credit profile." Credit-rating drops lead to higher interest rates because they make borrowing more expensive.

These economic uncertainties and tension over Israel's sovereignty -- which have been tested by the recent global response to its proposed new West Bank settlements, including from the U.N. -- have given Israel's international business partners pause of late when it comes to investing in the country.

Meanwhile, hundreds of Israeli economists signed a letter on Thursday urging the government not to move forward with the law implementing changes to Israel's judicial branch. Among the notable signees were Nobel Prize-winning psychologist Daniel Kahneman, former Bank of Israel Gov. Jacob Frenkel, and former adviser to the finance minister, Omer Moav.

"Experience from other countries where judicial and financial institutions were harmed and research from recent decades shows that we can expect long-term damage to economic growth and Israelis' standard of living," the letter stated. "It is still not too late to stop the train before it leaves the station."

Israel is the second-biggest economy in the Middle East in terms of gross domestic product, trailing behind only Saudi Arabia.

Israel's economy already has been waning for some time. The shekel has fallen to a three-year low against the U.S. dollar, and the Tel Aviv Stock Exchange fell 8% in February, according to CNBC. But Netanyahu and his coalition have remained steadfast on many controversial legislative changes.

Despite the public outcry, Netanyahu's judicial plan does have notable support, though.

From the world of academia, 120 professors -- described by The Times of Israel as "right-wing" --penned the first "large-scale" statement in support of the government's plan. Signees of the statement include Yisrael Aumann, a professor at Hebrew University, Talia Einhorn, emeritus professor at Ariel University, and Hillel Weiss, professor emeritus of literature at Bar Ilan University.

The professors reportedly argue that the law is necessary because of judicial overreach by former Supreme Court President Aharon Barak. In a 1995 decision in the case of Bank Mizrahi v. The Minister of Finance, Barak reached an opinion that placed Basic Law above Knesset legislation, giving the Supreme Court the power to overrule legislation, according to Columbia Political Review from the University of Columbia.

"As far as is possible, it would be good to establish dialogue and to seek broad agreement, but the positive process of repairing the legal system must not be harmed, which has in recent years greatly crossed the boundaries of other branches of government," the letter obtained by The Times of Israel said.

While Israel wrestles with decisions that could affect the future of its democracy, conflict with Palestinians in the West Bank continues to cost lives on both sides and attract world attention and criticism.

Recent days have brought increasing news of violent confrontations between Israelis and Palestinians. On Sunday, a Palestinian gunman killed an Israeli soldier and his younger brother in the occupied West Bank. Following the shooting, a group of Israelis torched homes in a Palestinian settlement in Huwara, killing at least one person. On Monday another Palestinian gunman opened fire on a highway near the city of Jericho, killing a dual citizen of the Israel and the United States.

Amid the actual violence in the region has come more heated political rhetoric, too.

On Wednesday, finance minister Bezalel Smotrich -- leader of the Religious Zionist Party and a supporter of annexing the West Bank -- called for the Palestinian village in Huwara to be destroyed. Smotrich has been known to make controversial statements that Opposition Party Leader Yair Lapid has said are an incitement of "war crimes," Axios reports. U.S. State Department spokesperson Ned Price condemned Smotrich's comment, saying it was "irresponsible, repugnant, and disgusting."

"Just as we condemn Palestinian incitement to violence, we condemn these provocative remarks that also amount to incitement of violence," he said in a press briefing.

In testament to just how contentious the climate is today, the prime minister's wife, Sara Netanyahu, needed to be escorted from a hair salon because of protests from bystanders. The Jerusalem Post reports Netanyahu said she was trapped in the salon as protesters blocked the exit for several hours. Israeli security forces had to intervene to sneak her out of the building while protesters believed she was still inside.

Though Netanyahu did not directly address Smotrich's comments, he did condemn the burning of homes in Huwara, though his live statement did draw some criticism. Netanyahu seemingly compared the Israelis who started the fires in Huwara with the protesters of the Knesset's judicial reform law in Tel Aviv, The Times of Israel reports.

"We won't accept violence in Huwara and we won't accept violence in Tel Aviv," Netanyahu said during a live news broadcast. "Freedom to protest is not a license to drive the country to anarchy."

Netanyahu's statement drew pushback from his political opponents. Lapid said his comments were "shocking" and will only cause more discordance, and National Unity Party leader Benny Gantz said there is no comparison between the two events. Both agreed there should be a pause to have a deep conversation about the proposed legislation, something Netanyahu has said he is not against. But Netanyahu and those who support the law also do not want to halt the legislative process to facilitate those talks.

Until such dialog happens, Israel's political climate remains heated.

Protests have continued in Tel Aviv with police deploying stun guns and water cannons against demonstrators. At least 50 people have been arrested and about a dozen injured. Meanwhile, no plans exist for a discussion between political parties on the controversial judicial reform proposal.

On Israel's West Bank problems, though, there has been some action that could be seen in a positive light. Israel has agreed to set aside plans to expand settlements in the West Bank, at least for the time being.

Diplomats from the Palestinian Authority, Israel, Jordan, Egypt and the United States met earlier this week in Jordan to discuss a pathway toward de-escalation, Axios reports. Israel agreed it would not continue discussions of new settlements for at least four months. The Israeli and Palestinian officials agreed to pursue measures to lessen tensions as previously discussed.

The meeting comes after the U.N. condemned Israel's plans for new settlements. It has urged against taking unilateral measures in hopes of preserving a two-state solution and possible peace talks. Both Netanyahu and Palestinian Authority President Mahmoud Abbas have discussed their willingness to engage in a peace agreement in recent weeks, but an actual meeting still between both sides is far from expected anytime soon.