Dominique Netter
2007 was a turbulent year during which we became familiar with abbreviations such as CDO, CLO and SIV. This was because the year was marked by the subprime crisis and a financial crisis the likes of which we had not seen before in terms of risk distribution, its spread to compartments other than subprimes and the effect it had on the banking system and securitisation. In economic terms, 2007 will still go down as a year of very high international growth.
This time last year we were all expecting a slowdown of the US economy. The property crisis was already being felt. Perhaps we did not anticipate it causing such disruption but it had already taken hold. We could see that it would potentially affect the growth of America’s GDP but so far as the rest of the world was concerned, we still had confidence in the economies of the emerging countries. We expected it to drive world growth. We were also relatively confident that the European economy would grow.
This viewpoint was validated with 2007 going down as the 5th consecutive year of stock market rises not only for American investors but also for European investors if we only take into account the fine performance of the emerging countries and perhaps the Dax as well, while disregarding the fact that the Euro performance of the MSCI World index was close to zero due to the depreciation of the Dollar.

Jean-Pierre Petit
The 2007 crisis reminded us of some facts we should not have lost sight of in the first place. Firstly, property bubbles do not generate any value. This is why I have been so critical of them in the past few years. They can only be destructive. Western countries that have been seduced by them will pay the price for years to come. We will therefore see the household debt bubble come to an end as a correction of the property market begins. This correction will affect not just the United States but most Western countries, with the exception of Germany, Japan and Switzerland. It will last for several years.
Secondly, all financial innovations are in crisis but this does not undermine them. The current crisis is not the first one to affect securitisation, a concept that first appeared a quarter of a century ago.
Thirdly, liquidity comes at a price. We need to bear this in mind when it comes to asset allocation. In concrete terms this means that there is a premium on assets with low liquidity.
Fourthly, there is no such thing as a perfect public regulation. The public regulator and the financial engineer have been in conflict for the last 25 years, with the latter still one length ahead of the former. Basel II may have numerous advantages over Basel I and may be an advance we have all been waiting for, but we must recognise there are some undeniable loopholes.
Finally, the financial rating agencies are hitting certain limits. This is not the first time we have criticised them.

Jean-Pierre Petit
That is the second message the crisis is giving us. It is showing us that history is no longer being written in the rich countries. The performance of mid caps, which are indexed to world growth, is higher than that of the small caps, which are indexed to domestic growth. The commoditiessector relies on the emerging countries and the stock markets of the emerging countries have also outperformed, as have their local currency bonds markets. More than two thirds of world growth can be attributed to emerging countries. In current dollars, China’s contribution to world growth is higher than that of the United States. What is more, the growth bases of the emerging countries are broadening. Thus, we have been pleasantly surprised at the situation of African countries and Gulf countries, regardless of the movements in oil prices. At the same time we are seeing the growth rates of rich countries converging at a globally mediocre level. Irrespective of our forecasts for the years 2008 and 2009, the annual growth rates of the wealthy countries will end up between 1% and 2.5%. We can still talk about a breakaway but this breakaway is no longer between the US and Europe but rather between the rich countries and the emerging countries.

Christian de Boissieu
We are experiencing a liquidity crisis in a world characterised by high levels of liquidity. How can this be possible? Let us simply reword the above statement: the banks are experiencing a liquidity crisis in a world that is characterised by an abundant money supply. Unfortunately, these two sectors don’t actually communicate. We are going to once again see a highly segmented inter-bank market within a globalised world.

Dominique Netter
There are three factors that are going to lead to a generalised global slowdown: the credit squeeze being operated by the banks, the depreciation of the property market in the US, of course, but also in Spain, Great Britain and Ireland, and finally the knock-on effect of the high price of raw materials.
American growth is expected to enter a new slowdown, reaching the relatively low rate of 1.5%. This implies that there will be some quarters where growth is virtually zero. We expect households to cut their consumption. They are suffering at the hands of the rise in food and energy prices and the difficulties encountered in the property sector. We do however believe the property crisis has peaked and its impact should systematically lessen next year. We are also expecting investments to slow down and exports to rise significantly. The growth of the US economy will therefore be greatly reduced in 2008, perhaps also in 2009.
Europe will also experience a major economic slowdown. We are suffering at the hands of the Euro/Dollar exchange rate, mediocre household consumption throughout Europe and a slowdown in corporate investment.
Japan looks to us to be virtually in a recession or at the very least its growth will be extremely modest. Whatever happens, this highly export-dependent economy should suffer from a slowdown in the other two areas; for as long as domestic consumption fails to take off again, salaries will remain "under pressure".
The economic situation in the emerging countries is still satisfactory. We do of course expect a slowdown here too because they also rely on their exports, but domestic consumption and investment in infrastructures are still working in favour of sustained growth. Even though growth may fall by one or one and a half points, it should still remain above 6%, a rate far higher than the growth rate of GDP in the G3 countries.
In short, we believe that world growth in 2008 will be a good one point below that of 2007.

Jean-Pierre Petit
We think the crisis will continue. On a micro-economic level, there is a pile-up of structured loan products which is clouding the picture and depriving us of our capacity to measure and distribute risk. Furthermore, the US and European retails banks are facing three uncertainties that will continue even once Q4 results are known in January. We cannot adequately identify the extent of the banks’ exposure to the "subprimes" and to securitisation products. We are also finding it difficult to put a value on complex products with low liquidity because there is no standard method in place. Finally, we cannot put a definite figure on losses and estimates have been based on diverging hypotheses from the residential property market. All we currently know is that external provisioning stands at 54 billion and is set to rise. If property prices were to fall between 6 % and 8 % on the mortgage market, it will rise as high as 200 billion. If they fall by as much as 20%, a rise to 400 billion cannot be ruled out.
Confusion also reigns at macro-economic level. Although a fall in property prices has been mentioned – and rightly so – we are also hearing talk of inflationary risks. The markets are caught in a strange, if not contradictory, stranglehold. I don’t think we have inflation but simply an increase in relative prices – food prices and energy prices – that remains contained. Furthermore, the idea of a credit crunch is to my mind totally wrong. Credit terms are being tightened but we are not experiencing a credit crunch.
The confusion in these two areas is compromising the progress of the stock markets.
So what is the solution to the current crisis?
The banks will make their shareholders pay by distributing fewer dividends and buying back fewer shares; their employees will be adversely affected by HR procedures and their remuneration policy and their clients will also pay as a result of tighter restrictions on credit facilities and changes to the banking services.
The public authorities, in the broadest sense, will also be involved. The central banks are reducing interest rates, injecting cash and beginning to initiate a loss pooling process. This is borne out by three examples: the "superconduit" of the commercial banks, the freeze on the rates applicable to US households with major debt problems and the coordinated injection of cash by the central banks – better late than never. If these measures are not enough, others will be taken. Remember the last bank crisis caused by the "savings and loans", which goes back to the late 1980s/early 1990s. I often remind my younger trading room colleagues that the banking system of the Scandinavian countries had gone bankrupt at the time. The Norwegian banking system was nationalised and prudential, accounting and fiscal relief measures were adopted. They tried everything. The Japanese banking system was still feeling the impact of the crisis as late as 1998. We are now beginning to take similar action by pooling the risks.

Christophe Donay
I believe that the mechanisms are in place for a recession and if it cannot be prevented by intervention, it will indeed happen. Households have in fact been dealt a triple blow.
With economic growth slowing down, salaries are increasing at a slower rate. This means that consumption will increase at a slower rate. We have just reached the end of an era, that of the 1990s and the early years of 2000 (the Bush plan) which saw household income grow each year by between 5% and 6%, leading to an increase in consumption in the region of 3.4% to 4% per annum over an uninterrupted period of 10 to 15 years. The slowdown of economic growth is leading to a slowdown in salary increases. This first blow could be described as a natural cycle effect.
The rise in the price of commodities comes as a second blow. In the United States, indexation of the price at the pumps to the price of crude oil, combined with the weakening of the Dollar which brought the price of a barrel of oil to 100 Dollars, is directly eating into the purchasing power of households. We estimate that an annual increase of around 10 Dollars a barrel leads to a 0.3 % fall in American consumption.
The third blow to households has been the property crisis. The fact that property prices have stopped rising has dried up the cash out effect. Remember that property more than doubled in price between 1996 and 2006. To a certain extent, in addition to the wealth that has been generated by the economy itself, households will have gathered five billion Dollars of property wealth over the period. Looking at it another way, if we consider the growth of GDP from the post-war years to current time and compare it to the change in property wealth accrued by American households, we can see that it has grown at the same rate as the GDP which, when all is said and done, would appear completely natural. However, 1996 marks a break from the trend. From that date onwards, property wealth grew at a far higher rate than economic wealth itself, giving rise to a surplus of 5,000 billion Dollars. We now run the risk of these 5,000 billion Dollars disappearing. The FED estimates that half of this wealth has gone on consumption. With the growth of property prices coming to a halt, indeed falling back, the cash out pocket disappears. This has an immediate impact of 1% on the consumption of American households. What is more, if the excessive growth in property wealth were to undergo a global correction, property prices would fall by 25% to 30% from current levels. Households would then feel impoverished and this would have an acute affect on morale, not to mention the consequences for consumption.
Unfortunately, the effect of the property crisis on household consumption, which we have described above, is not a thing of the past. It will continue to be acute for at least the full duration of 2008. Activity on the US property market could fall by a further 30% before the low point of the cycle could be considered to have been reached. The situation on the property market will continue to weigh heavily on growth and, with the subprime crisis and its derivatives coming into play, on the banks too.
As a result, we are currently facing the risk of a recession not unlike the one we experienced in the early 2000s. This resulted from companies over-investing in the 1990s and financing this over-investment by excessive borrowing. Investment accounts for 14% of the GDP. If we corrected the over-indebtedness of companies, this would only have a 14% impact on GDP but we would be supporting consumption, which would in turn safeguard growth. Today the roles are reversed. We are facing the risk of a recession brought on by consumption. Such a recession would last longer and be further-reaching than the one we experienced in 2001. We cannot underestimate the problem we are facing.

Christophe Donay
Two conditions must be met.
Firstly, we need a very responsive monetary policy. In my opinion, all it needs is for the FED’s short-term interest rates to have reached 3% or lower by mid-2008. This implies a significant relaxation of monetary policy. In addition, we still need liquidity within the banking system in order to lubricate growth itself. Unfortunately liquidity is not circulating. The inter-bank market has "come to a standstill" due to lack of confidence between the banks. Liquid assets are therefore not being converted into loans, and thus growth, at the desired rate. Confidence needs to be restored in the inter-bank market but we don’t know how to do this at the moment. The central banks don’t have the tools required and so we are failing to resolve the serious crisis that is hitting the inter-bank system. This has led to a climate of uncertainty hanging over the first few months of 2008.
There is also a need for tax incentives. The US government needs drastically to reduce the tax burden on households. Measures have been taken, such as the freeze on variable interest rates for households in debt, who would go bankrupt if it were not for this measure, but they are far from sufficient. Fiscal policy needs to return to households the purchasing power that the macroeconomic mechanisms of the crisis are denying them. Higher commodities prices, the economic slowdown and the contraction of the property market are three factors that are crying out for a compensatory mechanism which, in my opinion, must take the form of a highly stimulating fiscal policy.

Christophe Donay
If these decisions are not taken it will be for political rather than economic reasons. Firstly, President Bush could think "I don’t care what happens once I go" and do nothing. Then, as Congress has a Democrat majority, it is conceivable that, for purely petty political and cynical reasons, the Democrats could reject the measures put forward by the Republicans so that, come the elections, they can blame them for a disastrous economic situation. If you consider the importance of economic issues in the US presidential elections, we cannot disregard this theory.
In addition to introducing favourable economic and monetary policies, it would also be appropriate to develop international mechanisms for economic coordination between the central banks, if not between the governments of the main countries involved. This would go some way to restoring confidence within the banking system.

Christophe Donay
We are playing a waiting game. We won’t be able to move forward until we know whether or not we are going to be able to avoid a recession. It will probably be three or four months before we know for sure. In the meantime, we are opting for a fairly broad transaction zone with a gap of between 7% and 10% between the upper threshold and the lower threshold. The markets will move within this zone without following any real economic logic. There will be strong sector and theme variations. One day players will feel that inflation is on the way, the next day they will be worrying about growth. This will cause problems for investors.

Christian de Boissieu
Currently we have pockets of illiquidity and pockets of surplus liquidity. This may not continue for the whole year but will certainly mark the beginning of 2008. The central banks will have a role to play in this. I don’t go along with the theory that they are playing the role of pyromaniac fire-fighters. I know that the current trend is to make out we are living in 1929 and the central banks are nothing but fire-raisers but I find this all rather tiresome. Economists painting a bleak picture to make themselves heard is just a little bit simplistic. This does not of course mean that I am underestimating the difficulties we might come up against.
My next point is that the crisis is bringing with it challenges that require us to seek relatively complex solutions. In a similar way to the Enron scandal, with the subprime crisis we are faced with a demand for more transparency of information and fewer conflicts of interest. It is in fact these two issues that the debate surrounding the rating agencies is raising. We are making progress when it comes to transparency of information but we are coming up against some structural obstacles. How do you ensure risk traceability? This raises more issues in the financial domain than a health crisis like mad cow disease. Nothing will change on this front in 2008.
Finally, the Dollar will remain a key issue. The problem was already there prior to the financial crisis but the financial crisis has accentuated it. The exchange rate debate will intensify. One of the main issues will be the margins for manoeuvre in Europe. It is certainly a wise move to ask China to revalue the Yuan but the Dollar zone has expanded considerably. Even the Sterling and Swiss Franc are falling. This means that the Euro is bearing the brunt of 99% of the consequences of the weak Dollar. This debate does not concern the ECB alone, but also the Eurogroupe. Besides, we need to ask ourselves what concessions we will need to grant the Chinese authorities for them to agree to take action on exchange rates.
Whilst being careful not to confuse predictions with preferences, let me now give you a few reasons for remaining optimistic. In my opinion, the growth of the emerging countries will ride out the storm. Would anyone dare predict that Chinese growth will not exceed 5% or 6%? The growth rate may fall to 11%, 10% or even 9%, but no further.

Christophe Donay
I fully subscribe to the possibility of Chinese growth falling to a mere 5% or 6% if there is a recession.

Christian de Boissieu
I was just going to come to you. You did not include the continued fall in the Dollar when you talked about the conditions that would need to be met for us to dismiss the possibility of a recession in the United States.

Christophe Donay
I do not share this point of view. The lower Dollar does indeed favour US exports but these account for a mere 11% of America’s GDP.

Jean-Pierre Petit
Whilst America was in recession in 2001, China’s growth rate was 8.5%.

Christian de Boissieu
I can see that the lower Dollar is beginning to make American prices more competitive. I am convinced that the advantages of the Dollar continuing to fall will outweigh the disadvantages, in the same way as I don’t believe that inflation will really take hold again. To my mind, the inflationary jolt is merely transitional. I don’t see the price of the barrel of oil reaching the 150-dollars mark and I don’t believe food prices, which have recently taken a hike, will increase to such a great extent in 2008, so I don’t see any inflationary factors on the horizon. We are not facing the risk of prices and salaries spiralling as they did in the 1970s.
With both key rates and the Dollar falling, I think the US economy faces a slowdown but not a true recession. Fiscal measures could perhaps also play a role – I am with you on that.
This being the case, and bearing in mind the growth rates of the major emerging markets, world growth in 2008 will nevertheless be in the region of 4% to 4.2%.
Another reason for my optimism is the response of the central banks. Perhaps those who are criticising the central banks would like to tell us how they should have reacted on 9 August last. Should they have let money market rates reach astronomical levels? Should we have been exposed to systemic risks? Let me remind you that when the central banks intervene, it is essentially to grant loans. When we take stock of the situation surrounding the money that has been created to help manage the crisis since 9 August, we will see that the abundance of liquidity worldwide did in fact come about more as a result of factors prior to the financial crisis.
The FED will continue to lower its rates until they are in the region of 3%. I believe the ECB will opt for a status quo in the early months of 2008. Besides, I think the ECB prefers to focus on liquidities rather than rates, whilst the FED prefers to play with rates rather than liquidities.
The abundance of money in the banks gives me a third reason to be optimistic. This money needs to be invested: investors won’t hold onto 60% in cash. Sovereign funds are a further illustration of the abundance of liquidity.

Christian de Boissieu
So far as the property market is concerned, caution is called for. Property, as an asset class, will attract less new money. As for fixed rate bonds with long maturities, I would go for a cautious neutral stance: for three or four years now I have been predicting an increase in long rates which has never materialised. I don’t really believe a return of inflation is likely. For this reason I don’t think the price of gold will increase either. I think the outlook is good for three asset classes. The first is commodities. Then come equities, for several good reasons: contrary to what we may have said, merger acquisition activity is not set to slow down; profits are going to stay at comfortable levels; returns from equity investments may fall but will remain at 16% or 17% and there is an abundance of liquidity. Finally, I have faith in the emerging financial markets, although a certain degree of selectivity and a pooling of risks are called for.

Dominique Netter
Taking a long-term view, we favour equities and alternative management but are however starting the year on a cautious note with a rather limited exposure to equities, given that the risk of bad news on the financial or economic front seems to be concentrated on the first few months of the year.
There will be investment opportunities that will allow us to increase our equities exposure on the emerging markets even though we cannot expect the same level of out-performance we saw in 2007 as the prices on these markets are catching up, as on the European stock markets. They have effectively proven their resistance and maturity over the last six months. And the low prices are allowing us to face up to pressure on profits.
Commodities also remain an attractive proposition.
Paradoxically, we will need to run a few risks in 2008. The financial sector has already undergone a major correction. This will perhaps continue but prices are going to fall to attractive levels, as will the prices of some American stock. We will therefore need to take the plunge and invest.
Shares are also benefiting from high liquidity. Unlike the situation with the other asset classes, liquidity has never left the stock markets. This should justify on the other hand a fall in the risk premium for equities given that this liquidity is fundamental in nature.
Finally, let us not forget alternative management. This was the subject of much criticism this summer but I don’t believe it was the source of the crisis. The hedge funds will have ended the year on a relatively satisfactory note, marked by performances significantly higher than that of cash and equities. With the markets proving to be risky and highly volatile, there are some asset classes that will fall into favour again and, in my mind, alternative management is a perfect proposition. It allows us to envisage a number of strategies which would be clearly out of the question in terms of a long-term management strategy.

Christophe Donay
For the last few years equities have been low risk and very high return: 20% profit growth in Europe, 15% to 20% in the States and 30% to 40% in the emerging countries. This is no longer the case. We need therefore to try to rebuild a satisfactory profitability/risk ratio by selecting the lowest risk countries or sectors. This leads us to overweigh the more stable areas, Europe first, then the United States and finally the emerging countries, singling out the countries whose domestic demand renders them less sensitive to US growth. We thus favour Turkey and Brazil over China and India sits in the middle ground.
In Europe we have attempted to select the safest sectors. This has led us to favour what I refer to as visible growth, opting for the sectors where 10% growth is a 90% certainty rather than those where there is a 50% chance of 20% growth Consequently we are tending to invest in the utilities sector, even though prices are still slightly high, and also the sectors which have underperformed over the last few months, such as energy, telecoms and pharmaceuticals.

2008 will be marked by elections in both the United States and Russia, France taking over the presidency of the EU, the Beijing Olympic Games (a symbolic event), the risk of military intervention against Iran, the hope of an independent Palestinian state and, of course, the risk of unforeseeable setbacks. At a time when we are going to see Beijing celebrate Asia’s entry into the history books, are we not paradoxically also going to see a come back from America and Europe?
The two elections in Russia and America could not be at further ends of the spectrum. There is no uncertainty surrounding the Russian election or its result. The new president, Medvedev, who was selected by President Putin, will be elected triumphantly to power, unless he should suffer a heart attack, which seems unlikely. Vladimir Putin is beginning to infer that he will be Medvedev’s Prime Minister. Will this happen? If so, he is likely to undermine the logic of the institutions. It would be like France receding from the Fifth Republic to the Fourth Republic just to satisfy the whim of its prince. Yet in Russia, there has never been a distinction between the symbol of power and power itself. For the first time in the country’s history, the President would become a Vincent Auriol or a René Coty, while the actual power would remain in the hands of the Prime Minister. Putin is taking a dangerous risk.
The American election is much more interesting and the result completely open. Not only can we not predict the result, but we don’t know how many candidates will run in November and who these candidates will be. Michael Bloomberg seems to want to take on the role which was not so long ago handed over to Ross Perrot. Who will be the Democrat candidate? 2008 could turn out to be an extraordinary year that has a far-reaching impact on America’s relationship with itself and the rest of the world. For the first time ever, the United States may elect a black candidate who, belonging to the post Vietnam war generation, would be modernity incarnate and would mark the end of the American civil war that started during the 1960s. The image America projects to the rest of the world could, in the space of a few seconds, be turned on its head if the smiling face of the winning candidate thanking his electorate on the first Tuesday of November 2008 is that of a young, black man with a white mother and an African father, raised in Muslim schools in Asia. The first global personality of a global America. I think the likelihood of this will become clear as early as 8 January. As you will sense, this is an outcome I am very much in favour of. After the Bush years, America needs to rediscover its "soft power" and its "hard power". This man, who isn’t liked by the black community because he is not Afro-American, is winning over the white Liberals and is deemed acceptable by some of the central Republicans. He is running a central campaign and this is of concern to the Democrats. If he wins the Iowa and New Hampshire primaries in January, everything will become possible and he will become an irresistible prospect. Instead of the culture of fear that surrounds the two constituents of President Bush we will see a culture of hope. If Obama, the rank outsider, were to be elected, America could begin to dream again. I think an extraordinary candidate could be right for some extraordinary circumstances. Yet an American President has very little room for manoeuvre. In terms of foreign policy, he will have to maintain America’s presence in Iraq, remain the ally of Israel and stand up to countries such as China and Russia. On the domestic front, he will not be able to resolve the colossal trade and budget deficits. Yet his spirit will mark him out from the rest.
As for France, it is returning to the international and European scene, both literally and in terms of media coverage. It will take over the European Presidency in July 2008. Will France’s European comeback signify the return of Europe to the world scene ? The answer will depend very much on the new President of the Republic. Among his qualities we can list exceptional willingness and energy, a strong sense of reality and an opportunism which can indeed be classed a political quality. But is there any coherence in all this? The French President is dealing France all the cards it needs to play the role he wants it to play in Europe and, now that it is moving closer to the United States, France will no doubt return to NATO in 2009. However, the French President does not appear to be up to the task. To my mind, his European policy is not fully coherent. This means that his relationship with Germany is needlessly tinged with aggression. Furthermore, if you attack the ECB, you are also attacking Germany. Nicolas Sarkozy may boast the signature of the Lisbon Treaty as a string to his bow but this does not mean an end to all of Europe’s problems in 2008. I am thinking particularly of two fundamental outstanding issues. What is the nature of our project? Where do our boundaries lie? The major identity crisis Belgium is currently undergoing – will there be one or two Belgiums by the end of 2008? – appears to me to be symbolic of Europe’s identity crisis. Will the capital of Europe be the capital of a Member nation that no longer exists? If there is a breakup in Belgium, will this lead to further declarations of independence from Catalonia and Scotland and, as such, the end of Spain and the United Kingdom? This is not as absurd as it might appear. I am struck by the return of a strong nationalist movement in Europe, which does not help to strengthen structure of Europe.
The Beijing Olympic games will be the event of the year. I really do not share the concerns about China. I think China will triumph. There will of course be some environmental issues but I am confident that China will turn the event into a crowning glory. In Beijing we will be celebrating history moving from the West to the East, from the shores of the Atlantic to the Asiatic shores of the Pacific Ocean. This is the message that is set to dominate 2008 and it is already perceptible in China’s architecture and cultural productions, which are radically different from Russia’s cultural productions. The Russians are making products for the nouveaux riches, whilst China, largely because it is using French architects, is creating a new modernity. The West has lost its monopoly on modernity.
Besides, there is still a risk of intervention against Iran. The reports of the US information services have rendered such intervention much more difficult from a political perspective but much easier from a military standpoint. The Americans and/or the Israelis know that the targets to be hit are far fewer in number than those they had previously set. We should not consider that these reports dismiss the possibility of military intervention in Iran. It may be low but it is still a reality. Of course, such an offensive would have considerable consequences for the whole of the region and for relations between the Islamic world and the Western world.. Bush could thus in some way "give us the finger" : showing us that he couldn’t care less about our lack of affection towards him and proving this by doing what he feels is in the interests of the United States and of world history. This scenario cannot be ruled out.
I don’t really think 2008 will see the creation of a Palestinian state. The political conference in Annapolis and the Paris conference of donors shared the same point of view. We must give the Palestinian Authority the means to assert itself among the Palestinian people in the face of Hamas. The fact that the whole region is dominated by fear was the only factor which made these two conferences possible. In the 1990s, the Oslo process was driven by a desire for peace. It failed. The Annapolis and Paris process was driven by a fear of Iran, fundamentalism and localised revolt. The result was a willingness to quickly conclude a peace agreement in an attempt to try to control the situation. The Palestinians are exhausted and the Israelis very weary. The political leaders of each of the two parties are weak and there is a sort of civil war taking place in the Palestinian territories. Hence, the chances of a peace agreement are practically non-existent in the short term.