The financial markets suffered another blow yesterday. Although they settled down somewhat toward the end of trading, the day ended with a significant devaluation of the shekel, and government bonds settled at levels somewhat below those that reflect stability.

There are several reasons for the shocks in the markets, derived from both the security situation and the economic circumstances. The downgrading of the three major Israeli banks by one of the international credit rating agencies, and the reports of a possible downgrading of the state itself in coming weeks by other rating agencies, reflect damage to confidence in Israel's financial stability, and could raise the price of capital that the state, the banks, and other corporations raise overseas.

The most basic and immediate means of strengthening trust in the Israeli economy is by approving the 2003 budget, and by the government ensuring that the budget deficit does not depart from the stated 3.9%. A rapid, full ratification of the 2003 budget as it was passed at the end of July - including the NIS 8.7 billion cut, the 3% deficit, and a large number of complementary measures in administrative and financial areas - is essential. It is fair to assume that fears these goals will not be met in full are behind nervousness in the financial markets, and they could bring negative decisions from the credit ratings companies.

The budget was approved with a slim majority in the government since the Labor Party and Shas voted against it. That means it is not guaranteed a majority in the Knesset when it reaches its first reading next month. The Labor Party raised a significant number of reservations about the budget and declared that if it doesn't reach agreement with the finance ministry on changes, Labor will vote against it in the Knesset too. Such a vote would in effect mean Labor was leaving the coalition government.

TheStreet Recommends

The Labor Party has many good reasons to quit the government but its former finance minister, Avraham Shochat, MK is right when he says it must make a distinction between quitting the government, which he favors, and approving the budget. Given the conditions economy resulting from the year's - and more particularly recent - developments, approving the budget without changing its framework is now absolutely vital.

The Labor Party demands changes that many would agree need to be made in the budget, especially regarding payments to the settlements and the Haredim. But given the current political circumstances, the chances of achieving any change in those areas, beyond what has already been done (mostly through cutbacks in tax benefits and National Insurance Institute payments) are nil. A substantive change in those areas can only happen if a new government, with a different composition, is elected. It won't happen in the 2003 budget.

That does not mean certain demands being made by Labor and Shas are not worthy of debate, particularly those on social welfare. But the changes must be limited, and any increase in spending must be matched by agreed cutbacks. The state budget for next year is a vital instrument to protect the economy's stability and, the treasury says, for moving the economy back toward growth. For those two reasons, it should be absolutely forbidden to obstruct its ratification.