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Eurasia Group publishes Top Risks 2015


05 January 2015

Eurasia Group publishes Top Risks 2015


#1 is "The Politics of Europe" - The ties that bind Europe are fraying on multiple fronts


NEW YORK, 5 January -- Eurasia Group President Ian Bremmer and Chairman Cliff Kupchan are pleased to announce this year's Top Risks report, which identifies the most challenging political and geopolitical trends and stress points for global investors and market participants in 2015, as well as a few red herrings-issues that, despite media attention, are unlikely to pose a significant threat or instability in the coming year.

"A global risk is one where the outcome on politics and economics is unexpected," said Bremmer. "It is not a question only of downside because each story creates problems for some and opportunities for others. This ranking reflects our forecast on which stories are most likely to play out over the next 12 months, which will have the biggest impact, and where we can expect surprises."

At the top of the list in 2015 is the politics of Europe. "Europe's economics are in substantially better shape than at the height of the Eurozone crisis, but the politics is now much worse," according to Bremmer and Kupchan. "That's true on three different levels: bottom-up, intra-EU, and outside-in."

Following is a summary of all ten Top Risks for 2015. The full report is available here: http://www.eurasiagroup.net/pages/top-risks-2015.

1 - The politics of Europe: Anxiety is again on the rise over Europe's economics, but there is no sense of crisis to force political leaders to work together. Anti-EU political parties will continue to gain popularity, undermining the drive for much-needed reform. Friction is growing among European states, as peripheral governments increasingly resent the influence of a strong Germany unchecked by a weak France or absent Britain. Russia and ISIS will add to Europe's security worries.

2 - Russia: Sanctions and lower oil prices have weakened Russia, but they will not force President Vladimir Putin to reverse course in Ukraine. US and European sanctions could well tighten. As Russia's economy sags, Putin's approval ratings will depend increasingly on his willingness to confront the West. Western companies and investors are likely targets-on the ground and in cyber-space.

3 - The effects of China slowdown: President Xi Jinping's ambitious economic reform efforts demand a transition toward a consumer-driven economic model that requires a shift toward lower levels of growth. The continuing slowdown will likely have little impact inside the country, but that's cold comfort for the expanding list of economies that depend on booming trade with a commodity-hungry China.

4 - The weaponization of finance: To achieve foreign policy goals without military might, Washington is weaponizing finance on a new scale. It is using carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy. But this strategy will damage relations with allies, particularly in Europe, and US companies will find themselves caught in the crossfire between Washington and sanctioned states.

5 - ISIS, beyond Iraq and Syria: ISIS faces military setbacks in Iraq and Syria, but its ideological reach will spread throughout the Middle East and North Africa in 2015. It will grow organically by setting up new units in Yemen, Jordan, and Saudi Arabia, and it will inspire other jihadist organizations to join its ranks. The risk to neighboring states will worsen.

6 - Weak incumbents: Voter fatigue with Brazil's Dilma Rousseff, Colombia's Juan Manuel Santos, South Africa's Jacob Zuma, Nigeria's Goodluck Jonathan, and Turkey's Recep Tayyip Erdogan will ensure that each faces determined opposition and formidable obstacles as they try to push their respective political agendas.

7 - The rise of strategic sectors: Success and failure for business in 2015 will depend increasingly on governments that are focused more on political stability than on economic growth, benefiting companies that operate in harmony with their political goals and punishing those that don't. In emerging markets, the state already plays a more substantial role in the economy. We'll also see this trend in rogue states that want to fight back against more powerful governments. And we'll see it in the US, where national security priorities have expanded the military industrial complex to include technology, telecommunications, and financial companies.

8- Saudi Arabia vs Iran: The rivalry between Iran and Saudi Arabia will drive more conflict in the Middle East this year. Washington and other outside powers will remain reluctant to intervene, and mounting anxiety over the outcome of the Iran nuclear negotiations will ensure that these two countries use proxies to fuel trouble in more Middle Eastern countries than ever in 2015.

9 - Taiwan/China: Domestic political turmoil in Taiwan will ensure that relations with the mainland will deteriorate sharply this year. In particular, if Beijing determines that engagement with Taipei has failed to bring progress toward reunification, Beijing will probably back away from trade and investment deals that have already been signed and significantly toughen its rhetoric, provoking considerable public hostility in Taiwan. Any US comment on this controversy will quickly harm US-Chinese relations.

10 - Turkey: President Erdogan will continue to attack political opponents and tighten his hold on power to try to remake Turkey's political system. But he's unlikely to win the new powers he wants this year, forcing more political infighting, less policy coherence, and more political unpredictability. Refugees from Syria and Iraq will inject more radicalism into the country's politics and add to its economic troubles.

As for the Red Herrings, Bremmer and Kupchan expect that the pre-occupation of political leaders with domestic reform will help China, Japan, and India avoid market-moving conflict in 2015. While ISIS will continue to cause problems and inspire new followers this year, the Islamic state it hopes to create is highly unlikely to remain viable. Risks of instability for oil-exporting states are overblown, and Bremmer and Kupchan remain bullish on Mexico's reform process.
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