In a special report released today, Fat Tails in an Uncertain World, Eurasia Group identifies ten places around the world where the financial crisis has increased the potential for dramatic political changes.
These highly volatile and seemingly improbable developments known as fat tails would have been almost unthinkable six months or a year ago. Yet as the global crisis has increased pressures on political leaders, institutions, and the stability of countries all over the world, they have become much more conceivable. The fat tail risks range from the fall of incumbent regimes and military coups to political gridlock and the breakups of existing states. These scenarios are not Eurasia Group's mainline "calls," but they have become much more likely as a result of the financial crisis and the new global economic environment.
The following is a brief summary of the ten fat tail risks. For the full report, including details on the US, regional, and global implications of each hypothetical scenario, please visit www.eurasiagroup.net.
1 - Pakistan (30%): The military returns to power. As the recession worsens, partisan political conflict and rising extremism lead the military to appoint a caretaker technocratic government.
2 - Ukraine (15%): As its economy and public finances continue to deteriorate, Ukraine backs away from Western institutions and turns to Russia for assistance. Moscow makes tough demands for political and economic concessions in exchange for a loan.
3 - Russia (20%): Growing unemployment and plummeting disposable income cause social unrest. Politics takes an authoritarian turn as the hard-line siloviki camp ousts liberals, economic policy turns significantly more statist and autarchic, and foreign policy becomes increasingly confrontational and unpredictable.
4 - Mexico (10%): A drug-cartel corruption scandal is uncovered within President Felipe Calderon's immediate circle. The president's hard-line stance against organized crime is quickly discredited, and he resigns.
5 - Nigeria (15%): Nigeria's fragile stability collapses as low oil prices and insurgency remove the financial glue that has kept Nigeria together. The federation disintegrates and begins to splinter into regional ethnic blocks of states.
6 - Turkey (15%): Further contraction of the economy provides a window of opportunity for secularists to strike against the ruling Justice and Development Party (AKP). The AKP pushes too far against secularist forces, resulting in a lawsuit and a court ruling that ultimately bans the party.
7 - Argentina (15%): In an increasingly difficult political environment, the government cannot respond to deteriorating economic conditions. The government loses in elections and Cristina Fernandez de Kirchner resigns from the presidency.
8 - UAE (10%): The weak institutionalization of federalism and the increasing personalization of Emirati politics lead to a disintegration of the UAE as the financial crisis ebbs.
9 - Japan (15%): The ruling Liberal Democratic Party (LDP) loses elections, triggering the party's breakdown and policy paralysis. The political gridlock reduces Tokyo's assertiveness in the region and complicates efforts to improve security relations with the US.
10 - Poland (10%): As Poland experiences a severe recession, populism and nationalism return to the political scene. The new populist ruling party's policy agenda becomes economically statist, culturally intolerant, and nationalist.
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Ms. Alex Lloyd
Head of Communications
+ 1 646.291.4036 | [email protected]
Eurasia Group is the world's leading global political risk research and consulting firm. Since 1998, it has helped clients make informed business decisions in countries where understanding the political landscape is critical. The firm's research analysts are trained social scientists with post-graduate degrees, extensive professional experience, and a diverse range of language capabilities. Headquartered in New York, it also has offices in Washington and London, as well as a network of experts around the world. For more information, please visit www.eurasiagroup.net.