Israel and Germany: It's Complicated

Summary

Podcast Summary: What's Your Number?

Episode: Israel and Germany: It's Complicated
Date: September 3, 2025
Hosts: Yonatan Adiri & Michal Lev-Ram (Michal Avram)
Produced by: Ark Media

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Episode Overview

This episode dives into the evolving and complex relationship between Israel and Germany, Israel’s largest European trade partner and its second largest trade partner overall. Against the backdrop of a stagnating German economy, shifting global political alliances, and Israel’s own economic and security challenges, hosts Yonatan Adiri and Michal Avram examine how Germany’s current crossroads could impact Israel economically and diplomatically. The discussion also touches on Israel’s booming defense tech sector, signs of domestic consumer weakness, and broader implications for Israeli-European relations.

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Key Discussion Points & Insights

1. Numbers of the Week: Snapshots of Israeli Economy

• $80 million: FIMI’s winning bid to acquire Lamda Labs, a major Israeli printing company that had struggled financially ([00:10]).
• 85,000 passengers: Ben Gurion Airport’s record daily traffic since October 7, signaling a return of local air travel but still weak foreign tourism ([00:35]).

Quote:
"This company cannot fail. I'm super excited that FIMI won the bid and I hope that this bid goes forward and the company gets resurrected."
— Yonatan Adiri ([00:13])

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2. Windex Update: Israeli Public Companies’ Performance

• Strong Performers:
  • Monday.com rebounding (+8.5%) after a recent market cap loss
  • Nova Measurement up 4.17%, boosted by Nvidia’s semiconductor report
  • Elbit rises 6.5% amid new defense deals ([03:35])
• Weak Performers:
  • Lemonade continues its decline
  • Zim Integrated Shipping down after Turkish port bans and management changes ([05:26])

Insight:

• Israel’s public market is heavily weighted toward digital, cyber, and AI sectors. Struggles among “real economy” firms are a concern ([05:26]).

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3. Early Signs of Consumer Weakness in Israel

• Only 28% of households are managing to save money at month’s end, down from 40% pre-war ([06:22]).
• First August in five years to see a decline in credit card activity.
• Foreign investors pulling out of Israeli Stock Exchange for three months straight.
• Real estate slowdown for the middle class.

Quote:
"We're seeing macro data indicating that Israelis are starting to get concerned… These are not radical moves, but they're notable."
— Yonatan Adiri ([07:00])

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4. Defense Tech Boom: Elbit’s New $1.6B Deal

• Elbit wins a high-profile $1.6 billion deal with Serbia (originally Russia’s contract, re-opened post-war).
• Israeli defense exports are impressive, but growth brings diplomatic frictions in Europe, as other countries like France, Sweden, and Turkey compete ([08:58]).
• Risk of overconcentration in defense tech; historic caution from Israel’s 1970s defense overcommitment.

Quote:
"This Israeli sort of constant winning of these contracts may actually also introduce some pain and some friction into the diplomatic arena."
— Yonatan Adiri ([09:28])

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5. The Long Play: Germany’s Economic Woes and Connection to Israel

a. Germany’s Economic Stagnation

• GDP around $4.5 trillion (3rd largest globally), but growth since 2017 only 1.6%—below EU average ([11:00]).
• Former “engine of Europe,” now described as its “anchor” ([11:00]).
• Lost competitive edge in chemicals, automotive, and now faces difficulties in AI, software, and microchips ([12:15]).

Quote:
"The formula… was: We need cheap electrons, convert them to expensive molecules, and export them. Cheap electrons from Russia; molecules—chemicals, cars—exported globally. That’s dead now."
— Yonatan Adiri ([12:52])

b. Germany a “Welfare State Under Threat”

• Public spending on pensions and healthcare = 25% of GDP.
• Chancellor Mertz (fictionalized) says, “the welfare state can no longer be financed” and calls for radical reform, even if it risks his own coalition ([16:16]).

Memorable exchange:

• Michal: "Sounds like a really fun Oktoberfest, by the way."
• Yonatan: "Exactly, you’re kind of leveraging—everybody’s drinking beer..."
  ([17:17])

c. Pivot to Military Expansion and Debt

• Intends to create Europe's biggest military by 2030.
• Altered debt ceiling to borrow an additional €500 billion, much of it for defense ([18:01]).

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6. Why Germany Matters to Israel: Quantitative & Qualitative Aspects

• Germany is a vital trading partner, especially for machinery and materials ([18:49]).
• Extraordinary moment: Germany purchasing Israeli missile defense—"an irony of history… Germany is buying its air defense from the grandchildren of the Jews..." ([19:04]).

Quote:
"It is an irony of history that not 100 years from the Holocaust, Germany is buying its air defense from the grandchildren of the Jews, some of which died in German death camps."
— Yonatan Adiri ([19:31])

• Germany’s political clout in the EU often acts as a shield for Israel amid potential European sanctions or diplomatic pressure ([20:39]).

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7. Risks: Declining Germany = Declining Israeli Support

• Double risk: Germany's waning economic power AND possible erosion of popular support for Israel among German voters ([21:24]).
• Possible future: If Germany’s political leadership turns more radical or is replaced by less Israel-friendly coalitions, Israel loses vital EU backing ([21:59]).

Quote:
"Chancellor Mertz may be the last chancellor that has the clout to deliver… This is a risk not just geopolitically… it is a macroeconomic risk for Israel..."
— Yonatan Adiri ([22:18])

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8. Beyond Defense: Industrial, Tech, and Cyber Collaboration

• Little software innovation in Germany; Israel leads in cyber.
• Potential for new strategic dialogue: industrial base partnerships, shared R&D in chip design, cyber protection, AI ([23:46]-[26:36]).

Quote:
"Germany has no cyber prowess to speak of on the commercial side. Israel is probably number one or two in the world in that. So that's an area where things can work really well together."
— Yonatan Adiri ([24:31])

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9. Looking Forward: Key Signals to Watch

• Will Chancellor Mertz survive “October of reforms,” maintaining his coalition and pushing through needed changes? ([27:03])
• Will Israeli political leadership step up to rejuvenate the bilateral relationship?
• Expansion of day-after-Gaza rebuilding partnerships between Israeli and German/EU firms.

Quote:
"The Chancellor is doing the right thing… Does the coalition withstand? I hope it does. That’s sign number one for me."
— Yonatan Adiri ([27:03])

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10. If Germany Falters: Alternative Partners for Israel

• The US relationship is irreplaceable, but uncertainty looms.
• EU as a whole is politically precarious; Israel looks to India, Saudi Arabia, and potentially the “S8”—smaller innovation-driven economies (Netherlands, Switzerland, Sweden, South Korea, Taiwan) ([29:48]).

Quote:
"Is there an alliance to be made among the S8 that kind of crosses through the classic blocks? That's what I would try to explore in parallel to these processes."
— Yonatan Adiri ([31:17])

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Timestamps of Major Segments

• Numbers of the Week: [00:10] – [01:28]
• Windex and Market Discussion: [03:11] – [06:22]
• Consumer Weakness / Macro Risks: [06:22] – [08:35]
• Defense Tech Boom (Elbit, EU Friction): [08:35] – [11:00]
• Germany’s Economy in Depth: [11:00] – [18:33]
• Why Germany Matters to Israel (Trade, Diplomacy): [18:33] – [21:24]
• Risks & Scenarios for Israel-Germany Relations: [21:24] – [24:06]
• Potential New Areas for Cooperation: [24:06] – [26:36]
• Signals for the Future / German Reform Outlook: [26:36] – [29:24]
• If Germany Stagnates—Alternatives for Israel: [29:24] – [31:32]
• Words of the Week (Brad Smith/MSFT Protest): [31:32] – [36:24]

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Notable Quotes & Memorable Moments

• "This is a pivotal moment for Germany. There was 45, there was 91, and there's 2025… If we don't make those choices right now… this is going to happen from the radical sides." — Yonatan Adiri ([16:24])

• "It is an irony of history that not 100 years from the Holocaust, Germany is buying its air defense from the grandchildren of the Jews." — Yonatan Adiri ([19:31])

• "Economic crises bring out the anti-Semites. Therefore, the success of Chancellor Mertz is consequential for Israel on so many fronts." — Yonatan Adiri ([22:18])

• "Germany has no cyber prowess to speak of... Israel is probably number one or two in the world in that." — Yonatan Adiri ([24:31])

• "We're not in Kansas anymore. This is not the world we knew 15, 20 years ago. Defense is not some make believe stuff that creates wars… it’s a necessity." — Yonatan Adiri ([33:54])

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Tone and Language

• Analytical, pragmatic, occasionally wry.
• Hosts balance hard economic data with candid, sometimes humorous observations and anecdotes.
• Regular use of memorable phrases ("anchor" vs. "engine," "not in Kansas anymore," etc.) and historical references to root arguments.

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Conclusion

This dense, insightful episode frames Israel-Germany relations as pivotal for Israel’s future—economically, technologically, and diplomatically—while candidly addressing the underlying risks if Germany falters. The hosts urge readiness for a multipolar world, continued diversification of Israeli global partnerships, and active efforts to deepen bilateral industrial and tech ties with Germany beyond the defense sector.

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For Further Listening

• Next episodes will pivot to Israel-India relations and deeper global economic trends as Yonatan travels to India.
• Ongoing coverage of shifting attitudes in Silicon Valley towards defense tech and public sector collaborations.

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Transcript

[Adam James Levine]

Foreign.

[Michal Avram]

You are listening to an art media podcast. Yonatan, what's your number this week?

[Yonatan Adiri]

My number is a small number. It's $80 million. That's the winning bid of Israel's top private equity firm, Fimi F I M I for Lamda Labs. If you remember, we discussed the giant printer company, a very important company coming out of Israel that failed, went into sort of an equivalent of chapter 11. This company cannot fail. I'm super excited that FIMI won the bid and I hope that this bid goes forward and the company gets resurrected.

[Michal Avram]

Well, my number is 85,000, and that is the number of passengers that have passed through Ben Gurion airport all time high since October 7th, by the way. And this was a number that was hit just one day in mid August. Not clear what percentage of those are Israelis traveling abroad for, you know, one last hurrah before the school started. And maybe you were one of those on that same day on a ton.

[Yonatan Adiri]

So for me personally, it was not a good number. You know, I had a personal experience with four kids and my wife in Ben Gurion having 85,000 people coming on one day. Jokes aside, it's a good number. It's a positive number. It's mainly Israeli, so it's not picking up the way we want in terms of tourists. But I agree it's a significant number of things are kind of coming together from an air traffic perspective. But I do believe a Landa print resurrection is critical. I hope it works. I think it's a consequential number. So I'm siding with a number this week.

[Michal Avram]

I'll give it to you. You win this week.

[Adam James Levine]

All right.

[Michal Avram]

Yonatan, it is around 9am here in Palo Alto.

[Yonatan Adiri]

It is 7pm in Israel. We are on the 2nd of September. All my four kids went to school yesterday after a long period and a very long trek in the Alps, which was phenomenal. A lot of fun. We try to do that at the end of every year. And meet my wife's grandfather, who's turning 100 years old. Some funny conversations about 1930s. Well, actually, some were not so funny in terms of like, how history repeats itself. But it's been a great summer. It's great to be back. It's great for the school year to start. So 2nd of September is a good time to record an episode.

[Michal Avram]

Well, we now have all of our collective children back in school. I think we can sigh a big sigh of relief and move forward. I love routine. All right, on today's episode, we are focusing on Israel's relationship with its business, biggest European trade partner and its second biggest trade partner overall and that is Germany. Jonathan, why are we talking about Germany?

[Yonatan Adiri]

So you know, Israel's an export driven country without being able to export. You know, we're a small market, we're sort of landlocked. We don't have neighbors around to build an economy and a joint market with. So we are very sensitive to changes of radical importance.

[Adam James Levine]

Right.

[Yonatan Adiri]

With trade partners. The EU is the biggest trade partner for Israel within the eu. Germany is a leading country. But it is obviously far more than just a trade partner. When, when Germany gets a cold and it sneezes goes all the way up to Israel and Germany is definitely having a cold, maybe it even has a flu. So it is very important. Double click on what's going on in Germany from an Israeli perspective.

[Michal Avram]

Well, we are going to get to that in just a bit. But first as usual, let's take a look at some of the week's other pressing news AKA our big shorts of course. That includes the latest update on the Windex, the what's your number index tracking the performance of publicly traded Israeli based or Israeli founded companies. On to our big shorts. Let's kick things off with the Windex. Yonatan, how are things looking?

[Yonatan Adiri]

Windex in the green big time on a classic August hibernation week for Wall Street. So both S and P and Nasdaq basically didn't move fractions of a percent in each direction. Windex growing by 2.44%. Significant growth third week in a row, topping the movers Monday.com, very optimistic news there. Remember, they lost about a third of the market cap just a couple of weeks ago. So climb is eight and a half percent. Very important. Let's hope that this is indeed a sign that the speculation in Wall street that the referral model, the CAC, the customer acquisition cost machine that Monday.com built is not that affected by AI referrals yet. Very happy to see Monday.com sort of rebounding this week. Two other movers on the Windex this week. One also, you know, kind of dependent on overall growth. That's Nova measurement growing at 4.17% over the overall tide.

[Adam James Levine]

Right.

[Yonatan Adiri]

Related to the Nvidia report, NOVA is a key supply chain member of advanced semiconductor production and Elbit, which we're gonna discuss later over. Very interesting news. Rising six and a half percent. That's you know, I would say the notable greens for the week.

[Michal Avram]

And I feel like we can't mention Nvidia in passing without Also saying that last week while it's not an Israeli company but also, you know, very much as we've discussed, very connected to the Israeli market and Israeli R and D. So last week we saw Nvidia report their much awaited earnings, revenue of 46.7 billion representing 56% growth year over year. The stock dip slightly due to slower than expected data center growth and uncertainty over chip sales to China. And what we're going to see there but an amazing quarter. Amazing. It's insane. All right, who's in the red?

[Yonatan Adiri]

Yeah, so we have, we have a couple of companies in the red. Lemonade is still sort of seems to be still in the kind of sell side side. Some folks, you know, changing hands. I am concerned with a second week loss on Zim. Remember last week we discussed the Turkish decision to not allow Israeli container companies to dock in Istanbul. Istanbul is a major and other by the way ports in Turkey. This is a major part of the route. And that combined with the management buyout dynamics at Zim are significant. They're weighing on the stock. And you know, the Windex has a number of real economy companies. That's Israel Chemicals, that's Sim, that's Ormat, couple more, not a lot. And so you know, Israel is heavily dependent on digital, heavily dependent on AI. Obviously the Windex reflects that cyber. Of course not a good sign to see real economy Israeli companies struggling. Let's hope this is not a sign for the future.

[Michal Avram]

Well, let's turn our attention to what's happening inside Israel in other ways. We want to talk about consumer weakness, that we're seeing some early signs. So we saw some new data coming out that showed that only 28% of households are managing to save money at the end of the month, month compared to 40% which was the stat before the war. So they're still at a balance around 12% but that may flip very soon. This is the first August in five years in which we see a decline in credit card activity, by the way, compared to the previous year. So these are early warning signs for sure. How concerned are you, Yonatan?

[Yonatan Adiri]

Last week we saw the first kind of signal, you know, in the noise in the self improvement funds with the tax benefit that Israelis started to kind of eat through them. That was a bad sign. Second week in a row where we're seeing macro data indicating that Israelis are starting to get concerned. The stats that you just quoted are from the CBS central bureau of statistics. This is the golden standard when it comes to understanding Israeli spending habits. We're seeing Slowdown in new real estate activity for middle class apartments. So not the overall commercials actually bouncing back. I think the overall notion, and I think we were sort of like canary on this one. We were expecting the war to end and then again to end and then again to end. So they were kind of spending and we saw spending tracking and now they're like, hey, this may last longer than we thought. So let's just, you know, tighten the belt. These are not radical moves. We also saw foreign investors pulling out of the Israeli stock exchange third month in a row still, stock exchange is very high, indexes are high. But, you know, it's a notable sign there. I do not envy the chairman of the bank in his next interest rate decision because it's going to be major. September that we're in is a very dominant month. Is there going to be a political breakthrough vis a vis hostages, vis a vis an agreement with Syria? Some kind of breakthrough around the UN General assembly in New York that would allow Prime Minister Netanyahu to extend the government and build a new budget? Or are we going into an economic lift limbo, as we say in Hebrew, after the holidays? We'll have answers, so we'll keep following.

[Michal Avram]

Well, let's talk about an area of growth for Israel as the Israeli defense tech sector continues to grow. And just a small piece of news here. Not that small, actually. It's a $1.6 billion defense deal by Elbit. And we heard about this a little while ago, but it was with a mystery country. We now know who that country is. So, Yonatan, you do the honors. Who is it?

[Yonatan Adiri]

I think the focus on Israeli defense tech. I've been getting a lot of feedback on our episode with Josh Wolf and what's happening with Israeli tech from that perspective. So I have basically two comments. One, this was originally a Russia contract in Serbia. Russia was obviously precluded from executing on the contract, so Serbia had to reopen it and Israel had to compete with European giants. I don't think so many American companies were competing for this one. Again, size wise, this is not. This doesn't move the needle that much. But happy that Elbit won, happy this is out in the open and happy that it's been disclosed that it's Serbia. It's an important piece for the Israeli defense tech Dynamics. Two kind of, I don't say negative, but things to consider. One, it is not just Israel that's growing in defense sales. France, Sweden, Turkey, they're all competing for the same ones. And this Israeli sort of constant winning of These contracts may actually also introduce some pain and some friction into the diplomatic arena. We just saw the UK kind of pull a French trick, if you will, by precluding Israeli companies from presenting in the big defense fair happening in the UK this week. So European companies are losing to Israeli companies. More so given the war, more so given the effectiveness and price performance of Israeli tech. That's starting to create a strain also on the diplomatic and political side. The second piece is, you know, it's a concern. I don't think it's there yet, but it is a concern when you look and we'll see that in the next quarter of where all the VC money went to. If we don't want Israel to become a cyber software defense ecosystem, that's not an ecosystem that is not diverse enough. And there is a slight concern that defense tech is maybe kind of growing too much. In the 70s, when Israel doubled down on its defense spend, it ended up really badly. So let's hope that this combination of 140 billion shekel budget plus a defense tech rise, plus sort of a prolonged war, it doesn't push us over the edge again.

[Michal Avram]

Let's move along to our long play. Today we're diving into Israel's most important European trade partner, Germany. And Yonatan, we, we talk a lot about Israel's economic reality, of course. So I want to start just by giving listeners a better understanding of what the status is in Germany. And I'm sure many of you have been following the news, so we'll give a few numbers here and then we'll dive into some of the dynamics of where things are going next. Germany's GDP is around 4.5 trillion. It's the third largest economy in the world after the US and China, just ahead of Japan and of course the largest in Europe. And while the country has historically been known as the economic engine of Europe, it's kind of weighing it down now. It's, you know, been. I read one report that said it used to be the engine, now it's the anchor. So economic growth since 2017 has grown just 1.6%, which is well below the EU average. And this year estimates are varying, but basically showing stagnating gdp. That's the expectation. So talk a little bit, Jonathan. First, you know, again, in the spirit of just grounding people here, what is the economy? What does that exports really consist of? And then let's get to why we're seeing these declines.

[Yonatan Adiri]

Yeah, look, I think I'm gonna stand on the shoulder of a giant Wolfgang Muncha one of the top, you know, German macroeconom analysts. He wrote a book before the election of Germany in which he used the word and I'm taking the liberty of using in describing the German macroeconomic dynamics as kaput. That's literally the title of the book. And I had the privilege on the diplomatic side of meeting leadership in Germany 2008, 2012, including Ms. Merkel and her top aides. They were the miracle of Europe economically, not just the engine, the jet engine. They were taking Europe through German savings and no failed banks, and through the 2008 financial crisis. The formula, just to kind of oversimplify for our listeners of the German miracle, was the following. That was the posit. We need cheap electrons. We're going to convert them to very expensive molecules and we're going to export them around the world. If we can do that on a sustainable basis, we're going to continuously win. So cheap electrons came from Russia. That explains the sort of appeasement of Russia over the long term. Merkel had to defend the relationship with Putin over time. That's one piece. Including the Crimea takeover, which ended up, you know, kind of not even straining German Russian relationship. The molecule business, Right. So basf, one of the biggest, you know, chemical companies in the world. Everything we have in the world sort of has to do with a chemical from basf, or at least had to. And obviously German automotive, sort of this kind of core industry and an export market. That's why Germany fought hard for Portugal, for Greece, because it has a 450 million market with no foreign currency exposure. It can export right. Anywhere. And here we are, the year is 2023. No cheap electrons. The conversion to chemicals is dead for a variety of reasons we can get into. It's the green energy bill. It's sort of green standards. It has to do with sort of immigration. It has to do with competitiveness of the industry. China rising on chemicals, China rising on automotive. And where are the export markets? China is exporting more.

[Adam James Levine]

Right.

[Yonatan Adiri]

So those markets locked for Germany and you start seeing the stagnation. Three kind of anecdotes on that that I think are important. One, Volkswagen two years ago, for the first time in decades, fires people massively in Germany. Germany is not a labor market where it's easy to fire people. So it's a big deal.

[Adam James Levine]

Right.

[Yonatan Adiri]

The second piece is that you start seeing, basically, if you look at it from a macro level, where is German competitiveness on AI, on silicone, on software? Is there a notable software company like.

[Adam James Levine]

Right.

[Yonatan Adiri]

And the third Which I really like was the whole debacle when Germany hosted the European Football Championship a couple of years back in the Allianz Arena. The Bayern in Bavaria.

[Adam James Levine]

Right.

[Yonatan Adiri]

BMW, Bavaria Motorworks. The entire ad space was bought by byd, a Chinese car exporter. And this made a big debate in Germany, like, what's going on here?

[Adam James Levine]

Right.

[Michal Avram]

Where's SAP?

[Yonatan Adiri]

Where is SAP? Where is BMW? Where's Mercedes? Where is Audi?

[Adam James Levine]

Right.

[Yonatan Adiri]

And so I think. I wouldn't say, I mean, I'm borrowing from Mr. Munchau, the kaput point. I don't say it's kaput, but it is in a difficult position. It is very hard to bounce back. Chancellor Mertz is pushing really hard. But that is a challenge for eu. It is a challenge for Israel.

[Michal Avram]

It's also important to note that Germany has been one of the most prolific public welfare spenders that has not changed or changed only slightly. Right. Even as the economy has really slowed. And this is an area where, again, they spend a lot. Lot of money represents about a quarter of its gdp, primarily spent on pensions and health care. And speaking of Chancellor Mertz, he recently said that his country's welfare state can no longer be financed. Hugely controversial, really. Saying the, you know, the quiet part out loud, something people don't want to hear. It's very painful. But he is saying that reforms are needed, which again, is just as we know, we've seen other countries go through, including in Europe.

[Adam James Levine]

Yep.

[Michal Avram]

A very, very, very painful process.

[Yonatan Adiri]

I think you hit an important point. It is Chancellor Mertz, you know, Ray Dalio calls it radical honesty.

[Adam James Levine]

Right.

[Yonatan Adiri]

Like not just speaking the silent part out loud. He's very brave in basically saying the following. This is a pivotal moment for Germany. There was 45, there was 91, and there's 20, 25. We refrained from making tough choices from the center, the political center. If we don't make those choices right now, change in the welfare state and so on and so forth. This is going to happen from the radical sides, either the radical right or the radical left. My administration is going to make those big moves to save the German economy and to avoid the radicalization that that will inevitably come in 2030 if we don't make these moves now. Four points here, 20 seconds each. One, he declared that the welfare state is dead. The German welfare model, the original one, is dead, as you alluded. Two, he said, this is last week. October is going to be the October of reforms, or he called it the Autumn of reforms. And he talks about radical structural reforms.

[Michal Avram]

Sounds like a really Fun Oktoberfest, by the way. October.

[Yonatan Adiri]

Exactly. You know, you're kind of leveraging. Everybody's drinking beer, right?

[Michal Avram]

Yeah. They won't notice.

[Yonatan Adiri]

And he said it's going to be painful and some of the coalition might not survive it. So it is very, very brave for a leader to say that. The third piece, he said we're going to have the biggest military in Europe by 2030.

[Adam James Levine]

Right.

[Yonatan Adiri]

And this is, you know, this is, you know, kind of talking to my wife's grandfather who was a German Jew who ran away in the Holocaust.

[Adam James Levine]

Right.

[Yonatan Adiri]

Kind of remembering what a big German army looks like.

[Adam James Levine]

Right.

[Yonatan Adiri]

And this is not well accepted in Europe. It is also not well accepted in Germany itself where polls show 60% of the Germans say, sorry for the language. You, we don't want to die for this country.

[Adam James Levine]

Right.

[Yonatan Adiri]

It's nice. You want to build an army.

[Adam James Levine]

Right.

[Yonatan Adiri]

So spending on army doesn't, you know, just cut it. And the fourth he passed. This is like, you know, the British like to say it's not done in German politics. What they did in the first part of the Chancellor's term, like the first few weeks, they changed the law of fiscal discipline, debt to GDP ratio, and they extended it to borrow half a trillion euro, the entire GDP of Israel, just to give you a sense.

[Adam James Levine]

Right.

[Yonatan Adiri]

That's just the extended. In order to spend on the new and updated public preferences, many of which are defense.

[Michal Avram]

Let's get to why Germany's success is critical to Israel. Unpack here the both the, I guess, quantitative and the qualitative. Right. Because there is the money and then there's a kind of the more diplomacy and the soft power kind of relationship that these two countries have.

[Yonatan Adiri]

So Germany is a close trade partner. A lot of machinery, a lot of materials. The dynamics are dynamics of growth in this relationship. The first interesting dynamic from an economic perspective was that Germany was never open. Not in Israel and nowhere else.

[Adam James Levine]

Right.

[Yonatan Adiri]

They have ramstein. It's like 100,000American soldiers in Germany. They weren't doing military buildup.

[Adam James Levine]

Right.

[Yonatan Adiri]

The first thing they did is they went out and said, hey, we don't have air defense. And they ended up buying, I think it was $4 billion, like 3 point something billion euros worth of an aero system, so three batteries and command and control centers. As a commentator in Germany said recently, it is an irony of history that not 100 years from the Holocaust, Germany is buying its air defense from the grandchildren of the Jews, some of which died in German death camps.

[Adam James Levine]

Right.

[Yonatan Adiri]

That's the magnitude of the historical shift that we're witnessing right now. So there's also like, this is very loaded. You know, Ben Gurion said when he needed to justify taking the Shilumim, the sort of payback From Germany in 1951.

[Michal Avram]

Highly controversial reparations, basically.

[Yonatan Adiri]

Reparations, yeah. He told the people of Israel, this is a different Germany. Germania acheret to those who know like that was his framing. This is not the Nazi Germany. I think it's once again a different Germany. So economically it's already robust, but a lot to grow and we can talk about what can and should be done. But I think politically Germany has been a steadfast supporter of Israel time and time again, in a fair way, it has criticized Israel. Most recently the dynamic from Mertz saying he will embargo Israel. And we saw rank in some other defense companies trying to figure out a way to continue to sell to Israel, even though the chancellery kind of took its position against it. But overall, his position, the Chancellor's position during the 12 day war with Iran was steadfast support to Israel. Again, saying the quiet part out loud, saying they're fighting our war.

[Adam James Levine]

Right.

[Yonatan Adiri]

Germany's leadership in the E3 to go back to snap back sanctions on Iran and the overall, I would say support in creating that fence against your, you know, pan European sanctions against Israel. Pan European sanctions cannot move forward without a German support. You know, it doesn't have a veto, but it really, for practical reasons, cannot happen. So this is how critical German growth economically and also German, I would say political structure vis a vis grievances, you know, when it comes to Israel is also very important. If Germany has a left wing, tough left wing, Delinka type, you know, bordering Marxist dynamics as a key part in its coalition 2030, that's very, very, very tough position for Israel macroeconomically.

[Michal Avram]

Yeah. And it seems like there are really, there are two risks here. And one of them is that Germany keeps declining and therefore its clout is in decline. Right. And so that presents a risk to Israel. The other risk here, which I think you're getting to, is if in fact the population which backs its politicians, of course, and elects them, loses support for Israel, then that also presents a different kind of risk. And maybe we're seeing the threat of both kind of happening simultaneously, I don't know. But what would you assess?

[Yonatan Adiri]

I think you're spot on. That's exactly the point. I mean, it's like we're saying about, you know, some of the dynamics with the Trump administration. You have to work with the Trump administration like there's no tomorrow. There's so much, you know, alignment. Make sure you execute and leverage this alignment. But also at the same time, think of tomorrow like there is no Trump.

[Adam James Levine]

Right?

[Yonatan Adiri]

So Chancellor Mertz may be maybe the last chancellor that has the clout to deliver broadly in Europe and locally vis a vis Israel. This is a risk not just geopolitically, it is a macroeconomic risk for Israel both in terms of its relationship with the EU broadly as well as in the bilateral relationship. I think you're totally right. And we're seeing that now all over the world. Yesterday with this, with the Coldplay thing, right? When economic strains hit countries that have ties with Israel, somehow the Jews are to blame. Whether or not it's even has to do with us, right? Has so much to do with Russia. It has so much to do with energy subsidy. Somehow the Jews will somehow, you know, feature. And so we should be the best partner out there for Germany to any other country because economic growth is good for Israel, global economic growth is good for Israel. Economic crises bring out the anti Semites. Therefore, the success of Chancellor Mertz is consequential for Israel on so many fronts.

[Michal Avram]

You mentioned earlier a concern that despite all of the boom in the defense tech sector in Israel and the investment that's flowing in there, that's great and everything, but that there is this concern that it's kind of overshadowing, overclouding some of the other sectors that Israel really needs to grow in order to be a diversified ecosystem. So when it comes to Germany, what do we see? I know we've talked about some of the defense deals, but do we see a lot of other types of deals, collaborations on the AI side, on cyber, elsewhere? That kind of gives you hope.

[Yonatan Adiri]

So I think I actually borrow from your some recent contributions on cnbc. I think this also has to do with Silicon Valley and Germany. I mean, we haven't seen software innovation in Germany anywhere near what we're seeing in the Valley, anywhere near what we're seeing in Boston, Austin, by the way.

[Michal Avram]

Not anywhere near what we're seeing in France also.

[Yonatan Adiri]

Yeah, in France, in the uk, Maybe even in Sweden. So if you read the Draghi report on European competitiveness, it's like an indictment of Germany in many ways indictment of the entire eu, but like UN centrality of Germany. So I think actually though, the secret to the new alliance between Israel and Germany sort of if I were in the Prime Minister's seat right now or in the treasury seat in Israel, I would initiate a new Strategic dialogue between Israel and Berlin aimed at actually the enormous complementarity that the two economies have at this point in time beyond the strategic kind of shared values and so on with the German core center. Germany is an industrial powerhouse still, although underutilized or with trouble. Germany has the capacity to export all over the eu. Germany has the ability to enable Israel to kind of create bilateral partnerships and Israeli companies and so on to grow. And the complementarity also has to do with substance, matter, expertise. Germany has no cyber prowess to speak of on the commercial side. Israel is probably number one or two in the world in that. So that's an area where things can work really well together. And Germany will have to revisit its national digital data policies. They're so outdated and when they do that they're going to have to have best in class cyber protection. So I think that's an area. The second piece is Israel is trying to build an industrial base to kind of have a supply chain for its own military equipment manufacturing. Germany has that capacity, so maybe some of that underutilized capacity can be moved. This is very much like what we do with Iron Dome with the us. Some of the production lines are in the us. So is there a similar model given us German ties? Like, I mean this is one of those places where the American interest and alliance is so strong that this actually can work on a three way side. So industrial. I think that overall software is an area where AI and software is an area. Germany can really partner with Israel given the enormity of the market and the transition that it's going to go through. And the last is silicon. Israel is probably one of the three, four countries that knows how to produce chips. Not only that, we have the know how, we also have the know how in design, we have the know how in the, you know, global supply chain. Intel is having a really hard time. You know, we saw American administration, What was it, 10% last week, taking a 10% stake in Intel. So obviously, you know, is there a play whereby for instance Tower Semiconductor, some of the Israeli next silicon, some of the startups coming out partner with German giants in kind of creating a win win situation.

[Michal Avram]

What signs are you looking for in the near future? Jonathan, you mentioned Oktober and this kind of austerity themed Oktoberfest that Germans are apparently in for. By the way, I just read a headline recently that claimed at least that Germans are drinking less beer than before, which you know, is kind of a global trend, of course, but I think they should maybe reconsider that at this point. But what are you looking for, you know, as kind of signs for what's to come in the near future?

[Yonatan Adiri]

So I think I see very positive signs in Mertz's energy and clarity, moral clarity, I think. Brave comments. There's this point about, you know, a radical center, like being able to push profound reforms from the center and not wait for both radical sides to claim it on the left or the right. I'm bullish. I think the Chancellor is doing the right thing. Does he make it beyond October? I don't know. I mean, in terms of like, if he indeed pushes forward all the reforms, does the coalition withstand? I hope it does. I think that's sign number one. Does the agenda kind of push through in Germany to open the door for this renewed Israeli German relationship? Because if he stumbles in October, then you know, this is going to be hard for Israel again diplomatically, EU wise and in the bilateral relationship. So that's sign number one. Sign number two is once we have clarity on the day after Gaza, do we see the Deutsche Telekoms of the world? Do we see the basf, the bears of the world coming in to kind of taking part of going a day after rebuilding in Israel and rebuilding in Germany and creating this alliance that also requires political leadership in Israel, which I don't see see discussing it all. Like Minister Sar and you know, the Ministry, the Foreign Ministry, I haven't seen anything of consequence coming out of there. Also the Ministry of Finance. Next week I'll be in New Delhi, the Min, you know, working with the Ministry of Finance and kind of accompanying that visit, the bilateral relationship. Israel sees India, there's a strategy, it's outspoken, not for Germany. I don't see that. So that's, I think is a big kind of sign to look for. The third, we actually see us doing a good job. Israel decided and persisted with sending its top diplomat, career diplomat, into Berlin, our ambassador in Berlin, Ron Prossor. There are two runs that are consequential to Israeli foreign policy. One's Ron Dermer and the other is Ron Prassor. And that for me is a very good sign. The fact that his position gets prolonged and he gets the trust of the Prime Minister, even though he's a professional diplomat, he's not a party official and so on. Germany was usually a political appointee is a sign that Jerusalem understand what's at stake in this bilateral relationship. And so that gets me very hopeful. The middle path. I'll be looking for signs with a magnifier glass. I'm not seeing them right now.

[Michal Avram]

Okay, last question for you. What if things don't go well? What if we're in for and Germany is in for a really, really tough long period of turmoil and of continued stagnation? Where else is Israel or where should it look for a partner, whether it's in the EU or elsewhere? What are you thinking?

[Yonatan Adiri]

So my thought process is overall there is no substitute for the core of the relationship between Israel and the US that's always a given. That's always like 70% of the focus should be thrive, prosper in an era of possible headwinds in US Israeli relationship. That needs to be the main focus. If you don't have that, nothing kind of nothing works. The overall European position is dangerous for Israel, both politically. Ex Prime Minister Bennett posted recently a controversial post about the Islamic dominance in first grade in many European cities. So you don't see it in the sort of share of population, but you do see it in first grade. There's concern about Israeli European relations from a variety of reasons. So therefore India and so on is a critical piece. You've been an advocate also for Israel. Saudi, which I totally agree with. The new architecture in the Middle east needs to be resolved. That's why I'm hopeful that September delivers this type of at least line of sight into who's on board and in what condition. Absent of that, I'm a big proponent of what's called the S8, the small eight, like the G8.

[Adam James Levine]

Right.

[Yonatan Adiri]

Israel's not there, that is Holland, Switzerland, Sweden, South Korea.

[Adam James Levine]

Right.

[Yonatan Adiri]

Taiwan. It's kind of like one notch below the G8, but very consequential.

[Adam James Levine]

Right.

[Yonatan Adiri]

There's no semiconductor industry without ASML of Holland. Some of the things that Sweden knows how to produce are critical to the world. Similarly in Israel, similarly in my beloved Switzerland.

[Adam James Levine]

Right.

[Yonatan Adiri]

Similarly Taiwan and South Korea. And so is there an alliance to be made among the S8 that kind of crosses through the classic blocks? That's what I would try to explore in parallel to these processes.

[Michal Avram]

Well, we are living through some very interesting times. We didn't even get to the whole Xi Putin Modi situation holding hands. But just to let our listeners know, as you alluded to, you're going to be in India in a couple of weeks, Yonatan. And so this is, I guess September for us is like a little tour around the globe for our listeners. And we will definitely be focusing on India for a bit in the next couple of episodes. So more on that soon. Well, we began our show with numbers of the week. And we are going to end as usual with the words of the week. And this week we've got a couple of lines here from Microsoft President Brad Smith, whose office was taken over by protesters claiming that Microsoft's cloud platform Azure is being used by the IDF for operations in Gaza. And this is what Brad Smith said in a little virtual town hall he held shortly after. When seven folks do as they did today, storm a building, occupy an office, lock other people out of the office plant, listening devices even in crude form, in the form of telephones, cell phones hidden under couches and behind books, that's not okay. When they're asked to leave and they refused, that's not okay. And just to add a little more context here, these protesters were removed by the Red and pd. While Brad Smith has said that Microsoft is investigating how its technology is being used in Gaza and that they're very mindful of human rights violations or potential for that. And so, you know, in some ways did appease the protesters. The reality is that it's not okay. He said it's not okay. This is not the way to protest. This is not the way to show your objections. And just a note here, you know, in the past, what we saw from some tech companies at least is going back quite a few years ago when there were protests, forget Israel, but just protests against their technology being used for defense purposes. We saw companies like Google step back from those applications and from those deals. That's not the case anymore. Palantir is unapologetically selling to both DoD in the US and to other allies, including Israel, and has been unequivocal about its support there. And we've seen other companies do the same. And this is not a case of Brad Smith saying, you got us, we're not going to sell for defense purposes anymore. So I do think that there is a major shift there.

[Yonatan Adiri]

Yeah, look, this actually is a direct kind of coherent passage from what we were discussing about Germany. In Germany saying we're going to invest a trillion euros in defense in a decade and we're going to have the biggest army in Europe. Who would have thought two years ago? I think the average reasonable person, which is not those people protesting there, realizes that it's not the world. We're not in Kansas anymore. This is not the world we knew 15, 20 years ago. And defense is not some make believe stuff that creates wars. This is the kind of stuff you have to be really serious about. I was just looking at it as you were saying Palantir's share in the last two years since October 7th. Not that it's related, I'm just saying is up 859% even though Mr. Karp said things about defense administrations and their commitment and so on and so forth and was unabashedly open about it. So I think the markets are very clear. I think every reasonable person is very clear sort of about the necessity of defense spending. We heard from Josh Wolf. I usually take a cue from him on those sort of macroeconomic and geopolitical dynamics. I think defense spending partnering with defense administrations in democracies, satisfying all the regulatory dynamics is not just in vogue. I think it's also a necessity. And I would expect that to be kind of plain vanilla in many ways.

[Michal Avram]

I think what you said encapsulates it well that we're not in Kansas anymore. There are a lot of threats out there in the world right now. And Silicon Valley I think in a lot of ways has shifted its attitude towards working with the government and other governments of again allied countries. But obviously not everybody is on board with that.

[Yonatan Adiri]

And by the way, on that, Peter Thiel and Joe Lonsdale were in Israel this week for a wedding that is, but still kind of made it public that they're here, went to meet Prime Minister Netanyahu according to the reports. So you know, on one hand we have Josh Wolf, we have Palantir, we have people understanding, I think the reasonable person understanding that we're not in Kansas anymore. On the other end we have Rashida Tlaib this week in a conference, you know, saying really crazy things about where the world is and with such degrees of detachment that the next speaker, a young lady was talking, was calling upon the people at the conference to go out, find the critical supply chain factories to the F35 production within their district and meddle with it and basically try to destroy it. So I mean, you know, I hope that Josh Wolfs and other reasonable folks win on this one.

[Michal Avram]

All right, that is it for today's show. Thank you for tuning in to Ark Media's what's your number? We hope you found it interesting. And if you did, please be sure to like subscribe rate review. You know the drill. Most importantly, please share it with others who you think will find it interesting. And if you want to make suggestions or share your feedback, please reach out to us at what's your number? @arc media.org.

[Yonatan Adiri]

What'S yous Numbers? Produced by Adam James Levine. Rad sound and video editing is by Martin Fuergo. Our theme music is by Midnight Generation. That's it for today. I'm Yonatanadiri.

[Michal Avram]

And I'm Michal Avram. See you back here next week.

[Yonatan Adiri]

See you next week.

[Michal Avram]

This podcast offers general business and economic information and is not a comprehensive summary for investment decisions. It does not recommend or solicit any investment strategy or security.