Time to Get Real on Israel and the Middle East

There are two things the US should do about the widening war in Gaza.

First, stop the mindless calls for a cease-fire. Like Pavlovian dogs, Washington officials always push for a cessation of hostilities whenever violence flares between Israel and Palestinian forces. This is supposed to show “evenhandedness” and to set the stage for yet another “peace initiative”. Why can’t Washington face facts?

Hamas wanted this war. It had dissed all of its Mideast patrons. Isolated, it figured a big conflict would change the political calculus, refurbishing its credentials as a major force and pressuring other states to pony up more money. That’s why it summarily rejected Egyptian attempts to arrange a ceasefire—for which the Israelis were game, wanting to avoid, if possible, waging a bloody ground campaign in Gaza.

But Hamas needed war. For Washington to treat both parties as morally equivalent is repugnant. Hamas is using as human shields and murderous fodder for propaganda images.

The US should remember that since Israel totally and unconditionally withdrew from Gaza in 2005 the territory has used the billions of dollars it’s received in foreign assistance not to build its economy but to wage war. Its system of tunnels through which it attacks Israel (and until a year ago received weaponry and supplies from Egypt) is elaborate. Its arsenal of rockets—and their sophistication—has expanded exponentially.

The FAA decision to ban (for a day-and-a-half ) US commercial flights to Israel, where tourism is a big part of the economy, handed Hamas its first political victory. Under the circumstances, a now physically isolated Israel must totally destroy Hamas’ military capabilities: No more tunnels, no more caches of rockets. To do less would only make Jerusalem’s increasingly dangerous security situation worse. John Kerry should pack his bags and stay away from the region, and President Obama should cease indulging his anti-Israeli predilections and let Jerusalem do what has to be done.

The second thing Washington should do is of a longer-term nature: Focus constructively on what it can do to help Egypt achieve a rapidly growing economy à la those of South Korea, Taiwan, Singapore and, yes, Israel, whose high-tech achievements now surpass those of all the EU members.

The Egyptian economy is in shambles, on life support from Saudi Arabian subsidies and IMF loans. The steps needed to be taken are basic.

Currency board. An economy can’t function well without a stable currency. The Egyptian pound is prey to speculative attack. Cairo should fix it to the dollar via a currency board, whereby the pound would be backed 100 percent by the greenback. Currency boards done properly always work. Hong Kong has had one—with its dollar fixed to the US dollar—since 1983. Bulgaria, Lithuania and other countries also have currency boards, with their monies fixed to the euro. The IMF will object, because it’s addicted to the notion that funny money hastens economic growth, even though it actually does the opposite. The agency should firmly be told to take a hike.

Taxes. Adopt a low-rate fat tax the way Hong Kong and over 30 countries have done. This will encourage local entrepreneurship and job creation.

New businesses. Make starting a new, legal business a simple formality, a process that could be completed within minutes. Follow the example of New Zealand. This, along with a simple tax code, would encourage new businesses and reduce the informal economy.

Subsidies. Don’t phase them out until the economy improves markedly.

Labour laws. Remove restrictive labour laws; they hobble hiring and fuel the shadow economy.

The combination of a very benign tax regime and a stable currency would put Egypt on the road to im- pressive growth. Given its history and overwhelming size, this would have a profoundly positive impact on this treacherous and bloody region.

Steve Forbes is Editor-in-Chief, Forbes USA