The top risks of 2012
Jan 5, 2012
The top risks of 2012 Posted By Eurasia Group Tuesday, January 3, 2012 – 11:10 AM Today, The Call presents our top risks for 2012. Click HERE for Eurasia Group’s complete report. 1. The End of the 9/11 Era — It was a truism of globalization: economics drives markets, and national security drives geopolitics. No longer. Following the 2008 financial crisis, the killing of Osama bin Laden, the withdrawal of U.S. troops from Iraq, and an end date for the war in Afghanistan, politics and economics will overlap almost entirely in 2012. Political officials around the world will worry mainly over economic risks — the eurozone crisis, the strength of U.S. recovery, and China’s evolving role in the global economy in 2012. Market players, in turn, are anxious mainly about political decisions, especially those that will be made in Europe, America, and China this year, as shortsighted leadership from virtually all the major geopolitical players generates policy stalemate and uncertainty. 2. G-Zero and the Middle East — The inability/unwillingness of major powers to bolster the region’s balance of force will generate greater turbulence across North Africa and the Middle East as unresolved religious, sectarian, and ethnic tensions threaten more unrest. The lack of a viable regional security framework, continuing protests, autocracies at risk, and enormous challenges facing newly democratic regimes will add to the potential turmoil. As this dynamic plays out in Syria, Egypt, Iraq, Libya, Yemen and Bahrain, regional heavyweights — Saudi Arabia, Iran, and Turkey — will generate friction as they vie for proxy influence. 3. Eurozone: the rollercoaster ride rolls on — In Europe, it’s not the breakup of the Eurozone we need to fear in 2012 but the “”reactive incrementalism”” that could spin beyond the control of political officials. The uncertainty and volatility we saw in 2011 has only just begun. 4. United States: right after elections — Once the votes are counted in November, lawmakers will take up the $5 trillion worth of tax and savings decisions that must be taken in the final nine weeks of the year. Investors face uncertainty about their taxes and government contracts as well as about the broader impact of lawmakers’ choices on economic growth. 5. North Korea: implosion or explosion — The world’s most opaque nuclear-armed state enters a year of uncertainty as the battle for power and influence within the regime gathers force. 6 – Pakistan: turmoil, spillover — The end of the 9/11 era threatens neglect of other hotspots, and none is more combustible than Pakistan, a terrorism-plagued, nuclear-armed power burdened with an unpopular civilian government, a meddlesome military, politically motivated judges and an increasingly dangerous security environment. The expected withdrawal of thousands of U.S. troops from Afghanistan this year will fuel regional competition for new influence. 7. China: trouble in the neighborhood — The Obama administration’s recent emphasis on Asia will embolden China’s neighbors to take more assertive positions with Beijing. Rising nationalism in China, its ongoing political transition, and the leadership’s unwillingness — perhaps inability — to resolve internal debates about the country’s role in the world suggest Beijing is especially likely to meet provocation with provocation in months to come with both naval and economic muscle. 8. Egypt: a transition in trouble — Egypt faces the risk of political disintegration this year as anger builds between military and civilian political forces, both Islamist and secular. Egypt’s base-line stability, its economic recovery, and its broader regional influence will suffer. 9. South Africa: populism ascendant — The struggle for leadership of the ruling African National Congress will slow the pace of both policy and economic growth at a time when the eurozone crisis already weighs heavily on South Africa’s trade and currency. 10. Venezuela: a no-win election — The country’s big political story this year is October’s presidential election, which incumbent Hugo Chavez, if healthy enough for a vigorous campaign, is likely to narrowly win. But the outlook for economic and political stability is bad no matter the election result. Should Chavez die or abandon the race, the deep fissures between the Chavista movement and the opposition could stoke violence. In addition, Eurasia Group identifies four red herrings, the big stories we don’t believe will happen in 2012. Fallout from the 2012 political transitions — In 2012, we’ll see political transitions in the U.S., China, Russia, and France, countries that together represent nearly half of global GDP and four-fifths of the UN Security Council. But there’s surprisingly little at stake in the outcomes for geopolitics and the global economy. Eurozone breakup — This is probably the single most overrated risk of 2012. The political will to maintain the eurozone remains strong among all the major political parties in the core Eurozone states, almost across the board in the European periphery and, just as importantly, among eurocrats in the ever-growing European bureaucracy. And there’s no effective political mechanism for a Eurozone breakup. China’s hard landing — There are signs of overheated growth in China, but the state has the tools and resources to manage short-term trouble, and it will pull out every stop to prevent a serious slowdown, especially during a major political transition. Mayan apocalypse — Just isn’t happening. And if it does, well, sorry. Over the next three weeks, we’ll be posting more ideas and information on each of these risks.