Israel, Palestine: End of the beginning.
Also: Ukraine, the US, the EU, Australia and Brazil.
ISRAEL. PALESTINE. End of the beginning.
Early signs a post-Hamas phase is emerging.
Benjamin Netanyahu said on Sunday there “could” be a hostage deal as Joe Biden and Qatar's emir agreed hostages must be released. Saudi Arabia’s crown prince met Iran's president on Saturday; their first meeting since restoring ties.
INTELLIGENCE. The weekend’s rush of diplomacy was headlined by increased condemnation of Israel’s assault on Gaza (including from the US), but there were also signals a ceasefire may be in reach. Israel is nearing a phase where Hamas’s “defeat” could be declared, even if key leaders remain at large and a lengthy period of “security control” (or occupation) looms. An end to fighting cannot come soon enough for civilians, but they face a bleak winter either way.
FOR BUSINESS. Israel cannot wage the war indefinitely. Beyond the human and diplomatic toll, it is costing around $600 million per week and Israel's budget deficit has almost doubled to 2.6%. A fifth of Israel's workforce has been mobilised. A third of businesses are either closed or at minimal operations. Israelis are largely united – even 70% of Israeli Arabs say they feel part of the country (from 48% polled in June) – but Netanyahu is increasingly unpopular.
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UKRAINE. UNITED STATES. Shut down, let down.
Support for Kyiv looks increasingly imperilled.
The White House panned a House proposal on Saturday for a stopgap spending bill, which would leave out funding for Israel and Ukraine. Volodymyr Zelensky warned Ukrainians on Sunday to expect a new Russian onslaught over winter.
INTELLIGENCE. As the US nears a fiscal cliff this Friday, further aid for Ukraine looks shaky. Even if a new spending package is agreed, meaningful support for Kyiv could be lost in the compromise. The EU suggested on Saturday it could plug any gaps the US leaves open, but many of Brussels' previous commitments are yet to be honoured and Hungary has vowed to block a proposed €50 billion package (not to mention EU membership for Ukraine).
FOR BUSINESS. Budgetary brinkmanship has caused Moody’s to lower its US outlook, but the bigger impact will be in Ukraine. On Saturday, attacks resumed on Kyiv and imagery suggests Russia’s assault on Avdiivka is gaining traction. An EU rescue seems improbable. Brussels looks unlikely to fulfil an existing pledge for 1 million artillery shells and latent European distrust has risen in the wake of allegations Kyiv was behind the sabotage of Nord Stream.
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EUROPE. Patriot games.
Identity politics is fast replacing cosmopolitanism.
Germany on Saturday signalled openness to following Italy in a deal to send irregular migrants to Albania for processing. Mass protests were held on the weekend throughout Europe on Gaza, antisemitism, and national identity.
INTELLIGENCE. The EU was created partly to dilute nationalism and make war history. War and nationalism of course never left. And with the impacts of deglobalisation and great power rivalry intensifying, identity politics are back at levels not seen in decades. Politics is cyclical, and for every flag-waver there’s an internationalist, but the present moment may outlast the EU’s resilience, particularly if expansion to Moldova and Ukraine further fray the social fabric.
FOR BUSINESS. It was once unthinkable for Germany's centre-left to propose sending refugees for offshore processing – whether in Albania, or Africa, as the Wall Street Journal has reported. But amid the rise of the far right and a deepening economic rut, parties must shift with the median voter. Culture wars over Gaza and climate change are further exacerbating disagreements and have already affected how the EU is engaging with COP28 and Israel.
AUSTRALIA. Storms in a port.
Technology incidents highlight a range of economic vulnerabilities.
DP World's Australian subsidiary resumed stevedoring on Monday after a cybersecurity breach halted operations for three days. Singtel's local arm Optus said on Monday a software upgrade had caused a 14-hour outage on Wednesday.
INTELLIGENCE. DP World manages 40% of Australia’s container shipping. Optus has a 31% mobile market share. Many would once have blamed China for the DP World hack, but a recent entente makes this less likely. Regardless, the two incidents in almost as many days not only show a modern economy’s vulnerability to technological risks –outages are common and 76,000 cyberattacks were reported in Australia over 2022 – but to market concentration.
FOR BUSINESS. Australia is one of the OECD's most concentrated economies, according to the World Bank's Herfindahl-Hirschman Index, with its ranking going up since the early 2000s, in contrast to most of its peers. Yet on this measure, it is only as half as concentrated as Mexico or Canada, where monopoly power has worsened inflation, harmed innovation, and entrenched supply chain risk. It won’t be just cyber regulators looking at these events.
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BRAZIL. Hero de Janeiro.
Next year’s G20 host is making overdue reforms.
Brazilian stocks rose Friday after October’s lower inflation print suggested its policies were working. Brazil's senate approved major tax changes on Wednesday. On Thursday, it flagged a global minimum tax as a G20 host year focus..
INTELLIGENCE. After contested polls, fears of fiscal ineptitude, and an ugly divergence with the West on Ukraine, Lula da Silva’s left-wing government has shown a rare pragmatism, unlike many of its Latin American peers. Brazil’s tax reforms, which will return to the lower house, could represent a decadal shift in competitiveness. A focus on multinational tax evasion, and bridging developed and emerging market divides, could meanwhile revitalise the G20.
FOR BUSINESS. Brazil has been in the Western media chiefly for its rainforest drought, urban crime, and political polarisation, but da Silva has worked to slow deforestation (down 22.3% in the year to July), disrupt the gangs (the army will now secure key ports), and co-opt the opposition (several ex-Bolsonaristas joined his cabinet in September). He may yet prove to next-door Argentina, which votes again on Sunday, that it’s not just radicals who can do reforms.