Armageddon Postponed

Only those who had stayed up through the night had seen how Pere's original 1.4 per cent lead in the exit polls and early returns had eroded ;and eventually been replaced by an even smaller - but nonetheless decisive - lead for Netanyahu. Most people had gone to bed towards or after midnight, believing that Peres had been re-elected for four more years.

The election upset sent the Israeli financial markets reeling - for precisely three hours. After that, they recovered their balance and decided to look on the bright side.

On that Thursday, 30 May, the Mishtanim index of the 100 leading shares on the Tel Aviv Stock Exchange headed due south under a massive selling wave. By early afternoon, it was down more than 6 per cent, and the shekel had lost over 1.5 per cent against the dollar. Armageddon had arrived - or it seemed.

One week later, it was clear that Armageddon had been postponed, it not cancelled. Even on that first day, the losses had been trimmed during afternoon trading, with the index losing less than 5 per cent on the day. Over the coming sessions, most of this loss was made back and the market recovered to almost its pre-election level, which it had reached on a wave of optimism which had been interpreted as predicting a Peres victory. The shekel, too, recovered its poise, edging up above its pre-election price.

The markets' performance so far has thus been impressive, if not fully conclusive. The two key issues worrying the financial community in the wake of Netanyahu's electoral success were, what would happen to the Middle East peace process and how did he propose to handle the economy, which has been booming, but is suffering from a high current account deficit and renewed inflationary pressures.

He had been studiously vague about both throughout the campaign, positioning himself firmly in the centre, but avoiding specifics in a careful, and ultimately successful attempt to snare the floating vote.

His post-election pronouncements, while still strong on generalities and weak on details, went a long way toward diffusing fears at home and abroad.

Netanyahu repeatedly declared his support for the peace process, while stressing the need to slow the pace pursued by Peres and the late Yitzhak Rabin, his predecessor and partner in the historic rapprochement between Israel and the Palestinians. The clear impression is while Netanyahu's government will have a tougher negotiating stance, the process will continue, albeit more gradually.

But if Netanyahu's foreign policy is to be more cautious, his economic policy is unabashedly radical. In his Kennedy/Clinton-style address to Likud party activists at a post-election victory rally, which took the Americanisation of Israeli politics to new heights (or depths, depending on one's taste), he placed economic reform at the top of his agenda.

At the rally and subsequently, he has repeatedly stressed that his campaign commitment to