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Downturn hits LVMH watchmakers as Frédéric Arnault looks for a new job

How science fiction helped write AI’s first rule book

Like Isaac Asimov before us, we have to work out how to benefit from the new technology while staying safe

Shortly before the international artificial intelligence summit started at Bletchley Park last month, I went to grab a quick bite at a nearby pub. A man sat down opposite me and pulled out a crumpled paperback. On the cover was Isaac Asimov, one of science fiction’s most famous authors. Surely, this was no coincidence. Asimov was ahead of his time when, during the mid-20th century, he anticipated the powerful role that AI would have on our lives. In his books, he envisaged a series of laws that would ensure robots did not hurt or harm humans, but would obey them. 

That man with his book reminded me of the importance of we politicians securing a similar outcome as I headed into the summit to debate the future of safe AI. During my travels to London, Tokyo, Washington, Beijing and of course Brussels this past autumn, I pondered the fact that we were writing the world’s first rule book for regulating computer processes that are much faster and more powerful than humans.

Real business quickly overtook science fiction. With Chinese politicians in Beijing, I discussed their model legislation. It doesn’t differ so much to ours with regards to the technical side of things, but rather in what it might contribute to state control over society. Representatives in the US, which has previously had a rather unregulated approach, pointed to the Biden administration’s executive order on AI in late October. And closer to home, on behalf of the EU, I led negotiations in the G7 group of countries. There we were able to achieve pre-binding legislation at a global level — a voluntary code for AI developers that builds in accountability for security and information sharing.

Europe has also responded swiftly to the demand for safe AI. The proposed framework of 2021 picked up pace as the urgent need to make the technology both safe and beneficial became evident. The so-called trialogue — the grand finale between the Spanish presidency, the parliament and the commission — lasted for 36 hours this month but eventually ended with a historic compromise.

The needs of individuals guided each and every paragraph. The act guarantees security and the protection of basic human rights in the face of superintelligent systems, which could in the long run prove better thinkers than us. We’ve come up with several risk categories for AI — low-risk ones include video games and algorithms to sort out our emails (things I’m sure we’d all benefit from). High-risk ones will have to meet stricter requirements, be it medical devices or influencing voter behaviour at the ballot box. 

The list of the unacceptable includes that which threatens our fundamental human rights. This could include biometric sorting systems based on religion or race, emotion recognition in the workplace, or the untargeted extraction of faces from cameras in public places (exceptions will be made for national security issues).

But we are also aware of the potential rewards of safe AI and indeed want to make the EU a hub for it. That’s why we have decided to make our supercomputers available to European AI start-ups and SMEs. We will also invest more than €1bn a year in AI research from Horizon and Digital Europe.

Our political agreement is yet to be confirmed by the member states and the European parliament. The law will enter into force in phases, the full legislation provisionally set for 2026. In the meantime, AI will keep transforming all our lives. We will entrust it with many activities where it could replace humans, but not those in which it could take over our fundamental rights, such as free speech or the protection of intellectual property.

I have believed from the start that content created by AI must be labelled, so that human thinking and creativity would be left with something akin to “human copyright”. We are already learning how the technology can change our perceptions of reality and truth. Artificial intelligence works with the data it has at its disposal. It does not know what is true. And in a world where deepfakes can come out of nowhere, we are always in danger of losing our grasp on reality.

That’s what I was thinking about when the Englishman across the table reminded me of Asimov’s laws. These have now been transformed, along with other measures, into the first ever European legal norm, which may well become the basis for all similar regulations across the world. We must keep control of robots and artificial intelligence, to ensure truth and human rights can prevail in the future rather than becoming science fiction.

Giovanni Angelo Becciu was responsible for managing the Holy See’s funds

A cardinal who oversaw the management of Vatican funds from 2011 to 2018 has been convicted of multiple counts of embezzlement and fraud in a landmark corruption case.

Cardinal Giovanni Angelo Becciu, once one of the most powerful figures in the Holy See, was sentenced by the Vatican’s criminal court to five years and six months in jail on Saturday in what the Italian media had dubbed the Catholic Church’s “trial of the century”.

The charges resulted from an investigation by Vatican police into the alleged misuse of church funds in an ill-fated London property investment.

The Holy See had purchased a minority stake in an office building in Knightsbridge from a fund that was founded by London-based Italian financier Raffaele Mincione, and planned to convert the building into a luxury apartment complex. However, the local council had not granted planning permission for the conversion when the Vatican bought into the project.

After spending more than €350mn to acquire the property between 2014 and 2018, the Holy See realised losses of £100mn when it sold the building to Bain Capital for £186mn last year.

During the trial — which began in July 2021 and held 86 hearings with 69 witnesses — Becciu’s lawyers argued that the cardinal was “totally unaware of the potential problems” with the real estate investment or that it was “possibly illegal”.

“Nobody ever communicated the presence of problems and risks in the investment,” his defence team wrote in a submission to the court last month.

However Mincione argued in court that the Vatican was well aware of the risks and had lost money because of its own irrational decisions.

Mincione, who was also charged in the case, was found guilty of embezzlement and money-laundering and sentenced to five years and six months in jail, though his lawyers have already said they intend to appeal.

Others involved in the complex series of real estate dealings were also convicted, including Gianluigi Torzi, whom the Vatican had later asked to help it acquire full control of the building.

Torzi was convicted of extortion, fraud and money-laundering and sentenced to six years in jail.

Enrico Crasso, a former Credit Suisse banker who had set up an independent consulting company to provide financial advice to the Holy See, was convicted of embezzlement, money-laundering and corruption and sentenced to seven years in prison.

Two members of the Holy See’s financial oversight committee were convicted of dereliction of duty and given small fines.

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In total, seven people were sentenced to jail in the case and ordered to pay about €200mn in damages to the Holy See.

Becciu was also convicted of a further charge of embezzlement for sending €125,000 to a charitable organisation led by his brother which was ostensibly set up to help marginalised groups including addicts, former convicts and the unemployed.

Becciu was also convicted of fraud in connection with €575,000 given to a self-styled security expert, who was meant to use the money to free a nun kidnapped in Mali but instead spent it on holidays and a luxury shopping spree. The security consultant, Cecilia Marogna, was also convicted of fraud and sentenced to three years and nine months in prison.

A lawyer for Becciu, the first cardinal ever to stand trial in the Vatican’s criminal court, said he would appeal against the verdict.

“We will keep crying out loud that the cardinal is innocent,” said Maria Concetta Marzo, a lawyer for the cardinal.

However, the Holy See’s official Vatican News said after the verdict that the trial’s outcome — in which some of the accused were acquitted, or acquitted of some charges — showed that the proceedings had been conducted with “full respect for the rights of the defendants”.

“The magistrates . . . reasoned with complete independence on the basis of documental proof and witnesses heard, not on preconceived theories,” wrote Andrea Tornielli, editor of Vatican News.

The high-profile convictions come amid signs that Pope Francis may be growing uncomfortable with the fallout of his campaign to bring greater professionalism and accountability to the management of church finances.

In a recent meeting with Vatican auditors, he called for “merciful discretion” as they try to root out bad actors and corruption.

“The lure of corruption is so dangerous that we must be extremely vigilant,” the pontiff told the auditors. But he said that scandals “serve more to fill the pages of the newspapers than to correct behaviour”.

Pope Francis, who had vowed to clean up the church’s scandal-tainted finances and bring greater accountability, did not comment on the cardinal’s conviction in his public audience on Sunday, which was also his 87th birthday.

Fed’s dovish message is being interpreted by the bond market as a full-speed ahead signal

This week’s rally in global bond markets has shattered investors’ months-long assumption that interest rates in the US and elsewhere will remain higher for longer.

The benchmark 10-year US Treasury yield, seen as a proxy for borrowing costs around the world, fell below 4 per cent for the first time since August. The policy-sensitive two-year yield, which closely tracks rate expectations, slipped to its lowest point since May.

Other government bond markets have also undergone a dramatic about-turn in recent days, with Germany’s 10-year Bund yield sliding to its lowest level in nine months as its price shot higher.

The sharp moves came after the Federal Reserve gave its clearest indication yet that it would not raise borrowing costs again, and signalled that it expected three quarter-point cuts in 2024. Fed chair Jay Powell noted that the benchmark rate was “likely at or near its peak for this tightening cycle”.

“Higher for longer is dead,” said Kristina Hooper, chief global markets strategist at Invesco. “Powell wrote the epitaph [this week].”

As recently as early November, markets had been bracing for an extended period of elevated borrowing costs as central banks continued their battle to tame inflation.

In recent weeks, signs of a cooling economy and softer price growth data had helped to ease those concerns — lifting bond and stock markets. But the Fed’s closely watched “dot plot” projections on Wednesday were seen by many as the most official sign yet that “higher for longer” was over.

By Friday, markets were reflecting investors’ expectations of six US interest rate cuts in 2024 — beginning as soon as March. Those predictions would take borrowing costs in the world’s biggest economy from a current range of 5.25 to 5.5 per cent down to roughly 3.9 per cent.

“A dovish pivot from the Fed is a full-speed ahead signal for the bond market,” said Bob Michele, chief investment officer and head of the global fixed income, currency and commodities group at JPMorgan Asset Management.

While New York Fed president John Williams said on Friday that talk of rate cuts as soon as March was “premature”, his note of caution was not enough to halt the rally.

The upbeat narrative also persisted in Europe and the UK — where inflation has been far more stubborn than in the US — even as European Central Bank president Christine Lagarde and Bank of England governor Andrew Bailey pushed back against the prospect of imminent rate cuts.

Buoyant investor sentiment also lifted stock markets this week, with Wall Street’s S&P 500 closing out its seventh straight week of gains and edging closer to a fresh record high.

Some strategists noted that US inflation was still far from the Fed’s long-term target of 2 per cent — meaning that rates are unlikely to come down rapidly. The US headline consumer price index reading for November came in at 3.1 per cent — down from October’s figure of 3.2 per cent, and in line with consensus forecasts.

But for Michael Kushma, chief investment officer of broad markets fixed income at Morgan Stanley, “the Fed has switched its focus from inflation to growth”.

If the Fed is satisfied with waiting for price growth to return to 2 per cent, he added, “there’s no reason to have too weak an economy in 2024. The Fed has decided that inflation is behaving, so off to the races we go”.

The sharp drop in government bond yields this week has also translated into much lower debt funding costs for corporate borrowers. The average bond yield for junk-rated US companies has fallen to less than 8 per cent, according to an Ice BofA index, around levels last seen in February — with Thursday marking its biggest daily drop in 13 months.

The spread or premium paid by risky borrowers over the US government also narrowed by a sizeable 0.33 percentage points on Thursday to 3.47 percentage points.

Concerns have intensified this year that some of the lowest-rated companies on both sides of the Atlantic will struggle to refinance their debt in an environment of much higher funding costs, potentially sparking an uptick in defaults. Junk-rated US companies alone are staring down a $1.87tn maturity wall over the next five years, according to Moody’s.

But “even though we haven’t seen one rate cut yet . . . There has been a significant easing in financial conditions that is giving companies breathing room,” said Invesco’s Hooper.

The prospect of cuts has more pronounced implications for floating-rate loan issuers than for fixed-coupon bond issuers, said Andrzej Skiba, head of Bluebay US fixed income at RBC Gam.

“Unlike in US high-yield bonds where it’s a marginal positive, in the leveraged loan space and private credit [space], it could make the difference between a company getting into trouble and not.”

Still, he noted that a further slowing of the US economy could start to weigh on corporate profits.