Four weeks after war broke out between Israel and Hezbollah, diplomatic efforts to quell the fighting are in chaos, said David Usborne in The Independent. This week, with more than 900 Lebanese civilians and 90 Israelis dead, France and the US proposed a resolution calling for a cessation of hostilities and the disarmament of Hezbollah. Inevitably for a compromise resolution, it lacked detail and couldn’t satisfy everyone, as Economist.com pointed out. Lebanon and other Arab nations promptly called for an explicit demand for Israel to withdraw its troops, and Russia threatened to withhold support for a resolution lacking Lebanon’s approval.
The awkward issue of multinational troops with the authority to use force to disarm Hezbollah has been left for later. “There is a depressing amount of diplomatic wrangling still to be done,” said The Independent. A muscular multi¬national force is vital, said The Times. Hezbollah is a “cuckoo in the Lebanese nest” that prevents Lebanon functioning as a state. The largely Shia Lebanese army “has neither the capacity, nor perhaps the will” to disarm Hezbollah militias and destroy their stockpiles; if it tried to do so alone, it would risk civil war.
Meanwhile, the extent of the economic impact on Israel and Lebanon is coming to the fore. In Israel, the damage has on the whole been limited to the north of the country, although the overall tourism industry is also suffering. The actual conflict has cost $2bn to date. But before the fighting, the Israeli economy was looking robust, heading for growth of 5.2% in 2006, thanks to structural reforms, strong foreign investment and subdued inflation. According to Goldman Sachs, provided a ceasefire is reached within a fortnight, growth will be reduced by 1% and public finances should remain healthy; Standard & Poor’s is still pencilling in growth of 4% this year.
However, as far as Lebanon is concerned, it’s “back to square one”, according to the governor of its central bank. The fighting between 1975 and 1990 wiped two-thirds off the country’s GDP, after adjusting for inflation, but the economy gradually rebounded, as Heather Stewart noted in The Observer. Growth was tipped at almost 5% for 2006 after a political crisis caused the economy to stagnate last year. According to John Sfakanias, writing in Lebanon’s Daily Star, if the conflict ended this week, the cost of the war would total over $5bn, or 24% of the country’s GDP. Damage to infrastructure comprises half the sum, with the rest accounted for by falling overall output – notably the impact on tourism – which accounts for 20% of GDP.
Inflation is set to shoot up from its current subdued level of 4%, given the scarcity of everyday products following the land, sea and air blockade. The economy is likely to contract by at least 2.5% this year, said Bryan Plamondon of the World Markets research centre, and if the violence does not end soon, “the impact could be far more severe”.
Indeed, Lebanon could face a “full-blown financial crisis”, as it will now have trouble servicing its huge debt burden of 180% of GDP, said Stewart. This war could well lead to a return to “the chaos and mass unemployment” of the long war years – which will only augment support for extremism.