We should respect our elders, especially in a week in which quite a few of them have passed away. We will leave reflections about Henry Kissinger to others. We would like to focus instead on Charlie Munger, who we would not hesitate to call the world's most successful investor. Munger was Warren Buffett's partner. People dismissively called him his sidekick. Others saw in him the brain behind the operation. 

In our attempt to understand why anyone could succeed in an activity such an investment over such a long time, one could do worse than listen to a thought experiment by Buffett himself. Imagine a coin toss contest by 300m US inhabitants. The law of large numbers would suggest that approximately half of the contestants would throw a head. After ten rounds, there would be around half a million people left who would have thrown ten consecutive heads. After 25 rounds, one would expect a little under 20. The idea of anyone succeeding 25 times in a coin toss game is mind-boggling. But when you start with enough people, someone will. 

Investing is not a coin-toss game. Some strategies are superior to others. But nobody would reasonably deny the importance of chance. In a world of investors with equally good strategies, some would throw the equivalent of 25 coin tosses, while others would not. We should therefore not overthink the success stories. We recall a joke made by Buffett about his hypothetical coin toss game: some of those 20 who ended with 25 heads in a row would end up writing books, boasting about their strategy. The lesson is that there is no such thing as a successful investment strategy over all periods, though some strategies succeed more than others at certain times. 

Perhaps the most important skill of successful investors is not their strategy but their ability to hold several ideas and models in their heads simultaneously, and abandon those that don't work. What makes them successful is the lack of groupthink, and especially academic group think, and of what statisticians call bias. Bias is also the bane of economic and financial forecasting, a theme we have often written about in the past. Believing in your own stories is absolutely ruinous for investors. 

We don't care much for Munger's views on investment. Or even his very negative views on bitcoin, which he hilariously called a "gambling contract with a nearly 100% edge for the house". What we take from Munger is a mindset that persistently self-reassesses, and that shifts when new facts or insights intrude.

Ursula von der Leyen, like anyone else in power in Brussels in the last eight years, understands nothing about Brexit. When she says we goofed it up, calling on the next generation to fix the mistake, we are not sure what she means. The EU goofed up in several important ways: lending support to a second referendum campaign, pushing the UK into the hardest version of Brexit through Michel Barnier's protectionist negotiating stance, or granting the UK all these opt-outs over the years that increased the alienation. We don't think she means any of those. Von der Leyen deals in a world of appearances. It is the reputational damage of Brexit she is most worried about. And calling Brexit a mistake is a criticism of voters. It is about the most counter-productive way to re-start this debate, as we saw yesterday in the British parliament.

The UK will not rejoin in this decade. Sir Keir Starmer has already said he would seek a closer relationship but would not join the single market or the customs union. This means, not much will change at all. The earliest Sir Keir Starmer can ascend to power will be at the end of next year, or early 2025. Assuming that his next term of office will last five years, the following term won't start at least until late 2029. It is possible that he might promise a referendum on UK membership. If he were to win an election with such a commitment, a multi-annual process would unroll, very similar to what happened in 2015 after David Cameron won the election. It is conceivable that there would be a referendum shortly after the election, but would the UK and the EU have already agreed the terms of the accession by then? Would it include the euro and Schengen? Would the EU be ready to grant the UK all of its old opt-outs, just to repair the reputational damage of Brexit? Von der Leyen may be inclined to do so. The sheer act of Britain rejoining would count as an important symbolic act. If you deal in a world of appearances, this is what you care about. Not everybody in the EU does though. Moreover, membership on that basis would be doomed. 

We also don't think that all member states would agree to having the UK back with the same old opt-out. Nor do we see even the europhiles in the UK embracing the euro and the Schengen system. Remember that it was Gordon Brown in his role as chancellor who killed off the idea of a euro membership, by setting a whole series of unfulfillable tests. Those in the UK who are talking about rejoining the EU, and who have already started a quiet campaign, work on the implicit assumption that the UK would automatically get the same deal. It is not hard to see that even with the best intentions, the whole process would descend into chaos. 

If von der Leyen was really interested in strengthening the EU, she would campaign for a treaty change to create a new membership status. Call it associate membership, or sugar-coat the term the way you like. This would allow a group of countries that have no interest in joining the euro to be part of virtually all the things the EU does right now, with full voting rights, including of course the single market and trade policy. A dual membership structure would require treaty change. The new structure needs to be formally delineated. Voting weights would need to change. Enhanced co-operation procedures need to be further facilitated. Von der Leyen would no longer be in office if the UK were to rejoin, even if she were to gain a second term. But what she could do in the meantime is get the EU ready for UK membership. We see no signs of that happening. 

We normally do not cover the day-to-day diplomatic exchanges between two countries, but Rishi Sunak’s last minute cancellation of a meeting with Kyriakos Mitsotakis in London over the question of ownership of the Pantheon marbles is such a peculiar one that we could not resist. With the war in Ukraine and Gaza going on, it is a side show where one wonders whether there had been any adults in the room.

What is it about those marbles? The Parthenon sculptures were removed from Athens by diplomat Lord Elgin in the 19th century, when Greece was under Ottoman rule, and have been housed in London since then. Various Greek governments have called on the UK to return those marbles, a recurring theme in bilateral meetings. Recent negotiations with the British Museum even looked at ways to loan the sculptures back to Athens. But Sunak has ruled out any changes to legislation dating from the 1960s that stops the British Museum from returning the sculptures permanently. So both positions have been clearly stated in public and have been repeatedly part of diplomatic exchanges. Why then creating a diplomatic incident over this?

The story we read in the media this morning is that Mitsotakis discussed the marbles with Sir Keir Starmer the evening before he was due to meet with Sunak. Sunak then uninvited Mitsotakis. The timing suggests a domestic motive, as the Conservatives are eager to point out that Sir Keir is going soft on the marbles. One conservative politician told Politico that it would be a disregard for British taxpayers, who have looked after those marbles for generations.

A spokesperson for Sunak explained that Mitsotakis had given assurances that he would not raise the dispute over the marbles in London. Given that those assurances were not adhered to, Sunak decided it would not be productive to have a meeting with Mitsotakis talking about marbles rather than other, more important, things British and Greek people care about. The Greek government has since denied that any such assurances were made. 

By cancelling the meeting, Sunak has achieved exactly the opposite from what he intended. Newspapers and social media in both countries have played up this incident as a drama of cultural identity and disproportionate response. Greece’s insistence that the British Museum should return the Parthenon Marbles got much more media coverage than if he just had taken the meeting and restated his position. Even the majority of British people think that he should not have cancelled the meeting. The hangover from this episode will be another loss of Sunak’s power to shape narratives.

The knife attacks in Dublin and Crépol last week were two events in two different EU countries that brought up high emotions. Far-right extremists instrumentalised the attacks to unleash more violence and anti-immigration slogans.

In Dublin, far-right extremists unleashed a destructive attack after a five-year-old girl was stabbed in front of her school. The rioters set buses and cars on fire and looted shops. The images were unusual for Ireland, and a shock to the establishment. In the same week in France, the young Thomas was stabbed by a group of outsiders at a village party and died. In response, about 100 extreme-right activists travelled on Saturday to the nearby town of Romans-sur-Isere, where they thought the attackers came from, looking for a fight. Tensions continued on Sunday too in another town.

Both events raise questions about how societies deal with these kind of shocks. In Ireland, communities now talk about forming vigilante groups as they feel insufficiently protected by the police against such violent riots. In France, riots are much more common. On Sunday, Eric Ciotti from Les Républicains refused to condemn the far-right’s actions the day before, while Jordan Bardella from Marine Le Pen's Rassemblement National called for reason, saying violence should not be responded to by violence. A world that is upside down.

At what point does a single event trigger something bigger? Even before the knife attack, France was facing high tensions between communities after Israel’s attacks in Gaza. Social media does its bit to amplify the mood of fear and anger. The reassurances from the French government were shrugged off as meaningless. Instead, a video went viral showing a village man in a yellow vest dismissing the state response as a metropolitan bling-bling while rural people try to raise their children well. This will go on for a while. The best thing to do is not to fall into this fear trap, and stay away from the toxic mood spread by the media.

If experience is any guide, coalition negotiations in the Netherlands could last for months. But the first big move has come days after the Dutch election. Dilan Yesilgoz, the VVD’s leader, has said that the party will not go into a coalition with Geert Wilders and the PVV. She is, however, open to supporting a Wilders-led coalition on confidence-and-supply. 

What this means in practice is a minority government. Wilders will not have enough support in parliament to govern with a majority if the VVD isn’t in the coalition. This prospect means that coalition negotiations could take even longer than before. It will make any future Dutch government much less stable. But predicting that a Dutch government will collapse before elections are due is like confirming the pope’s Catholicism. 

The tactical logic behind Yesilgoz’s move is obvious. Backing Wilders more thoroughly, or forcing early elections, are her other options. They both present clear risks. Being in a coalition with Wilders will make the VVD implicitly responsible for whatever he does. Forcing repeat elections could make him even stronger. Being outside of government but supporting him hedges the VVD’s bets. The VVD can support him for as long as it is convenient. Then, if things go badly, it can withdraw this support.

But as we have seen elsewhere, confidence-and-supply is a poisoned chalice. What looks like a canny bet can come across as shirking responsibility. In fact, avoiding the tough decision is, in this instance, transparent. It is the reason why Yesilgoz did what she did. Her real problem is that she, and the VVD, have been caught by surprise. Wilders has always been around, but never a contender for power. Now, thanks to a savvy campaign on his part and an increasingly volatile Dutch electorate, he is. You can witness the failure of imagination through Yesilgoz’s shifting red lines. 

Nothing in the European political landscape is as diverse as the phenomenon known as the populist right. Marine Le Pen disagrees with the pro-Nato and pro-Ukraine policies of Giorgia Meloni. Both want to remain in the EU and the euro area. But not so Germany's AfD. Geert Wilders seems to be in a category of its own. He claims his brand of Islamophobia claims is libertarian, as Antonio Polito remarked in this morning's Corriere della Sera. 

In the UK, Nigel Farage and Boris Johnson were the main representatives of a populism that resulted in Brexit. Yet neither is far-right. Farage, too, is in a category of his own. So is Javier Milei, the president-elect of Argentina. He is described in the Europe media as a right-wing populist, even though his central policy, the abolition of the currency and the central banks, falls into the extremist libertarian camp. 

The right-wingers are the world's unhappy families. They are all different. But there is one thing they have in common: a disinterest in geopolitics, in globalisation, and in multilateral institutions. In Europe, they are all eurosceptic. Antipathy to the EU is what unites them.

The EU is caught in a trap of its own making. When faced with a giant assault or conspiracy, you have two options. Go after the conspiracy, or solve the problem. The political centre in Europe goes after the conspiracy: through the embarrassingly unsuccessful rule-of-law procedure, or the doomed pushback against Brexit after the 2016 referendum. The European Parliament has erected a cordon sanitaire, or firewall, against the far-right. So have the centrist parties in Germany. 

What the centrists should do is solve the problem: an unsustainable economic and monetary union in its current framework; a failure to embrace technological change, to allow yourself to held captive by vested industrial interests; and, at EU level, a lack of focus. The EU used to be good at the few things it did, like running a single market. This is not true any more. 

During the 2017 German elections, we have made the observation that the Left Party was the only one that thought through EU macroeconomics, by calling for a fiscal union. We are absolutely not supporters of that party, but we found ourselves in a position where an extreme party was the only one that made economic sense. Our most enduring European policy advice over the years has been: never give people a rational reason to leave the EU, or the euro area. That means solving the problem. Don't kick the can down the road. What you will find at the end of the road are the assorted right-wing thugs who are kicking it back in your face.

Solve the problem. The EU should at this point not expand its powers, and pretend it is a geopolitical player when it clearly is not. Why not focus on areas that are vital for the future of the EU and mostly of no interest to the populists: complete the banking union; create a capital markets union; and manage de-industrialisation rather than fight it. Our advice: Do the boring stuff, and leave the toxic political fight to the member states.

Part of the right-wing backlash, in Germany and the Netherlands in particular, is a protest against the climate change agenda. Green politics used to be in the category of things everybody supported for as long as it had no consequences on their own lives. Now it does. Green policies are nowadays one of the main themes of the right. The AfD's current success is based largely on its outspoken anti-green views. We can, of course, see the logical case for a European green policy. But we believe the EU is setting itself up for failure, especially as we get closer to the point where these policies are starting to kick in. 

Over the years, the EU has widened its competences into areas that stand at the heart of national political discourse. We think that is a mistake. If they EU had focused on the single market and the development of a functioning economic and monetary union, it would still be able to achieve its full integrationist force. 

We believe that the future of European integration depends critically on the EU's ability and willingness to stage a tactical retreat from battle it cannot win, and focus on those it can, which also happen to the most important in the long run. 

We have no expectation that the EU will follow this advice. The political instinct of Ursula von der Leyen and most EU politicians is the exact opposite. When Covid came, the EU took it upon itself to buy vaccines, even though it has no experience in this area. Then it imposed sanctions on Russia, without thinking this through in detail. The offer of accession talks to Ukraine and Moldova is dishonest for as long as the EU has not agreed to deep reforms. Do we really need need a common EU immigration policy when there is no national consensus on this matter? 

We should not be surprised that the likes of Wilders are winning elections.

The Brics held a virtual meeting over Gaza yesterday in an attempt to mark their difference to the Western response. Vladimir Putin called for a ceasefire, as did Xi Jinping, who also warned against forced displacement and spreading the war into the Middle East. Cyril Ramaphosa, president of South Africa and host of the meeting, went the furthest, condemning Israel’s collective punishment of Palestinians as a war crime under international law. His government had filed a complaint against Israel at the International Criminal Court last week and shut down the Israeli embassy this week. Narendra Modi of India did not address the meeting at all, a silence which may reflect a shift in the country’s position on Gaza, suggests the NY Times. Luiz Inácio Lula da Silva tempered his words, describing the war as a humanitarian catastrophe, but avoiding the word genocide.

Their joint statement papered over the differences amongst members, calling for an immediate, durable and sustained humanitarian truce leading to a cessation of hostilities. They urged both sides to show maximum restraint, prevent destabilisation in the region, and release all civilian hostages. The statement also advocated the two state solution. Differently from Europe and US, the Brics countries do not designate Hamas as a terrorist organisation.

China suggested an international peace conference that is more authoritative, with the aim to produce a comprehensive, just and sustainable solution to the question of Palestine. Russia also saw a bigger role for the Brics in the conflict resolution phase, blaming the conflict on the failure of the West.

The Brics countries, Brazil, Russia, India, China and South Africa, were joined by the leaders of future Brics members Iran, Saudi Arabia, the United Arab Emirates (UAE), Egypt, Ethiopia, and Argentina. Another noteworthy intervention came from Saudi Crown Prince, and de facto ruler, Mohammed bin Salman, who called on the international community to cease weapons exports to Israel. Al-Monitor writes that its immediate effect is unclear. Some of the current and prospective Brics members have military relations with Israel. For example, Israel’s annual defence exports to India amount to an estimated $1.5 to $2bn, according to a December 2022 report in Haaretz. What is also not clear is whether Saudi Arabia is leading the response for Arab states with this statement. Saudi Arabia had called for a ceasefire early on and hosted an emergency summit in Gaza for the Organization of Islamic Cooperation. Before the war the Saudis had started to normalise their relations with Israel.

Psychologist Albert Bandura coined the term moral disengagement to describe people selectively engaging and disengaging their morality depending on who they are facing. Group identity is the defining factor for selective moral standards. Political parties constitute such groups.

We see signs that parties are using the context of Israel’s war in Gaza to magnify their case on immigration, using war-like language to describe very different events at home. Linking Israel’s war in Gaza to the immigration debate may serve their group identity, but leads to more political polarisation, and risks exacerbating tensions on the ground.

Two assaults in France last week were used by political parties for morality-signalling purposes. A village party in Crepol ended with the death of a 16 year old boy, named as Thomas, after a group of people entered the scene. While the identity of these people has yet to be confirmed, parties of the far-right were quick to blame the attack on youths with immigrant backgrounds from public housing estates. They described the killing as an act of anti-white racism. On X, formerly Twitter, there is now a hashtag #francocide. Marine Le Pen even claimed that armed militia were organising raids. Eric Zemmour talked about a war of civilisations, and called Thomas an innocent victim and martyr. Even conservatives jumped on the bandwagon and made an immediate link to immigration.

In the south-west of Paris, meanwhile, a young gardener, named as Mourad, was attacked Friday with a craft knife by a 75-year-old man, who shouted racist insults. The left immediately seized upon this event to decry the Islamophobic atmosphere in France.

Two events, two reactions. None of the parties commented or even acknowledged the other event, observed Cecile Cornudet. It was as if it did not happen in their world. And the media propelled these stories as if they were the truth. The problem with such stories is that even if investigations find out later that these allegations were wrong, the story will continue to live and thrive to serve the group identity. Only those events are registered that confirm what parties have been preaching all those long years.

Islamisation versus Islamophobia has been a dividing line in France for decades. Israel’s war in Gaza now gives politicians and commentators a new moral context that amplify a single event into a bigger theme. Using phrases and narratives from the war to describe what has been going on amplifies an emotional response, stretching sympathy for Israel or Gaza to a local event near you. The French hard-left MP Francois Ruffin spoke out against a heavy atmosphere in media and social networks, as if one had to take a side. In this hour, we lack politicians with the capacity to refrain from using the war to suit their own purposes, which risks inciting violence between various groups at home.

Political analysts or journalists in the west have been underestimating the rise of populist figures for years. The reason is that the political framework in which they have trained has no frame of reference for this type of politics. When they misjudge the situation, they keep on doubling down. It happened with Donald Trump, with Brexit in the UK. And it is now happening with Javier Milei, the president-elected of Argentina.

There is one aspect of the politics in Argentina with ramifications for our own reservation. What interests us is his election promise to abolish the central bank and to dollarise the economy. For a country with over 140% inflation, this is not as crazy as it sounds. The public's trust in the central bank has broken down. We are not ourselves fans of the idea that a country adopts the currency of another country. This will not be a sustainable exchange-rate regime, but the central-banking governed peso wasn't either. Remember, the unsustainable always ends. That goes for unsustainable monetary regimes too.

Fiat money is the most vulnerable part of our economic system. We in the west have been using it to bail out banks after the global financial crisis, to bail out governments in the sovereign debt crisis, to stabilise economies during a pandemic, and to impose sanctions on our opponents. The economic consequences of our abuse of the fiat money system are not nearly as extreme as they are in Argentina. Not yet at least. Nor is the backlash. But we should not be surprised to see the German AfD at over 20%, or the UK's Conservative Party being taken over by right-wing extremists. If we continue with the same macroeconomic policies, we could end up in a scenario where political outsiders are no longer focused on immigration as they are now, but on the abolition of money.

The real danger for fiat money systems is not a scenario where Argentina falls into an economic hole, but one in which Milei appears to succeed, and where his ideas catch on. It will come as a total shock. 

Germany's historic guilt over the Holocaust and its declared responsibility towards the security of the Israeli state prompted a strong show of solidarity after Hamas's attack on 7 Oct. But what does this responsibility for the security of Israel mean moving forward? Where does Germany stand when the protection of the state of Israel comes into conflict with international law? If Germany really cares about the long term security of Israel, would its role not be to question how successful the strategy of the current government is towards this goal? We-stand-by-Israel declarations won’t make Israel feel any safer. What they do, however, is open the gap between how people feel and what is collectively permissible to express.

The war in Gaza puts Germany into a bind. It means that it cannot take a balanced approach towards its Jewish and Muslim communities in its own territory, without risking being seen as disloyal to Israel. President Frank-Walter Steinmeier called for Muslims in Germany to officially distance themselves from Hamas. Muslims living in Germany now, all of a sudden, have to declare themselves at work or in school, while not being able to mourn the loss of life in Gaza. People get fired for being openly against the war, as it happened to Anwar Al-Ghazi, a player in Mainz 05 football team, who had expressed his solidarity - not for Hamas but for the people in Gaza. 

And yet, there is a thriving Muslim community in Germany as witnessed in the football game last weekend, where Turkey won against Germany in a friendly game. Most notably were the fans in the Berlin stadium, the majority of which supported the Turkish team, and booed the Germans. This has never happened to a German team on German grounds, and it triggered an anguished debate about integration. Berlin has a large community of people with Turkish roots who came to Germany to help rebuild the economy after World War II. Now they are cheering the team of their roots, not the country they have been living in since. A visit from Recep Tayyip Erdogan shortly before the game did its bit to remind fans of their roots. In a joint press conference with Olaf Scholz, he said that Turkey, unlike Germany, can speak its mind freely. ZDF described Erdogan’s visit and the football game as two away games that Turkey won.

If this war in Gaza continues at this pace, Germany will eventually be at odds with the rest of the European community too. So far, Europeans have covered their disagreements and collectively called for humanitarian pauses. Only Ireland and Spain have openly called for ceasefires, and reminded the EU of its moral double standards. Whether this position will shift and how depends on the US, which just brokered one of those pauses for five days in exchange for hostages. A first step.

It is not a far-fetched scenario that the war continues for months or even years in Israel's pursuit to eliminate Hamas. Will the US and the Europeans be ready to embark on another long-term war commitment with an unconditional supply of weapons that is financially costly and morally difficult to justify? Emmanuel Macron seems to have gotten the message from his ambassadors in Arab states to calibrate his politics, which has prompted his offer of humanitarian aid to Palestinians in Gaza. It is first of all a question of language. Then one of action. Germany has not even began to recalibrate its language, still morally justifying Israel’s right for self-defence on a land that is not theirs. The two-state solution is sliding back from Germany’s public discourse.

Germany is about to become morally one-sided due to its historic debt towards Israel. Moral debt without a set price can never be paid back. There is simply no redemption possible if its form and shape is not fixed. That is why debt contracts always specify end dates and payment terms. So that the debtor can eventually be free of its debt. If the terms are not clearly defined, the debt relation is prone to take over other relations too.