Each year, the Eurasia Group, a global political risk research and consulting company, releases its list of the top risks for the upcoming year. Generally, atop the rankings are a lot of unstable nations ripe for collapse or regional disruption. (Think places like Iran, Iraq, North Korea, Afghanistan and Venezuela in recent years.)
This year, however, only one rogue nation cracks the top five (North Korea). Instead, global macro-shifts and emerging, nontraditional global conflicts are viewed as the largest threats.
Below is a rundown of their top five.
Head over to their website for a more detailed description of their top ten global political risks.
1. The G-Zero
The concept of the “G-Zero” presents a world devoid of global leadership. Ever since American primacy has dwindled on the international scale, most thinkers have looked at a few likely realities for the coming decades: (1) the United States re-establishing itself as the dominating global power, (2) the start of a “Chinese Century,” (3) the “Rise of the Rest” in which multiple emerging economies (China, India, Russia, Brazil, etc.) become the most important political force or (4) the coordinated rise of international cooperation via bodies like the G-20.
Another scenario, the G-Zero, seems increasingly likely to the Eurasia Group and its head Ian Bremmer. And with no apparent global leadership, conflict rooted in nations increasingly operating for their own self interest will emerge.
the default policy response to a breakdown in global economic governance is every man/nation for himself. As demonstrated even in a politically integrated Europe, without common rules, there’s no such thing as collective economic security. In the G-Zero, domestic constituencies will become increasingly effective in pushing populist agendas on trade, currency, and fiscal policy. However much economic dispositions become ideologically statist, in the absence of agreed global norms, economic agendas are overwhelmingly resolved at the national level
On a conference call about this list today, Bremmer mentioned that this new reality was probably coming anyway due to various factors but has been delayed by the cooperative sentiments and two years of panic following the meltdown of the global financial system. Obviously, the fallout of that is far from over, but the panic has at least subsided.
Thus, enter the G-Zero — probably this year, they say.
2. Eurozone Economics
With the debt and fiscal concerns still mounting throughout the Eurozone, the next year may see increasing tension between the struggling economies (specifically, Ireland, Greece, Portugal and Spain) and those tasked with bailing them out (namely, Germany and France). Obviously, populist sentiments in Germany and France are making it harder and harder for Berlin and Paris to continue helping out other countries. Given this, the Eurasia Group sees a future of “bailouts with conditionality” that aren’t altogether appealing for either party, much like those adopted by the IMF and World Bank while loaning “strings attached” money to South American and African nations throughout the 1980s and 1990s.
In the meantime, real Eurozone reform remains difficult and far away. And the resulting uncertainty will make the market and investors increasingly leery of the region in the coming year.
3. Cybersecurity and Geopolitics
Despite Time magazine’s assertion that Facebook’s Mark Zuckerberg was the man of the year, WikiLeaks founder Julian Assange kicked a much bigger hornet’s nest last year. Now, information anarchists of his ilk will make more disruptions for nations that have their secret information exposed. (Companies, too … tread lightly.)
More importantly, cyberwarfare in which states attack states has become a reality. We have seen it in Iran, from China and (probably) from Russia. We will likely see it more in 2011.
4. An Unresponsive China
With China’s economy and exports still booming even amid sluggish global consumption, Eurasia Group believes that Western nations will implore Beijing to adjust its growth model to one that better dovetails with the policies of the world’s other leading economies. This is what is referred to as “global rebalancing.” China, in theory, agrees with the need to do this — not just to integrate with the rest of the G-20, but for its own self-interest. Long-term, its export-driven economy just isn’t sustainable, and it knows this.
But it is very unlikely that Beijing’s rebalancing schedule will come as quickly as other nations want it to. And this may cause great contention.
China will talk of participating in global coordination, but they will not follow through.
China’s pattern of export growth that is twice the rate of economic growth, with resulting large current account surpluses, will be the object of intensified international outcry as the world’s second largest exporter in a demand-constrained world economy. In 2010, the gloves started to come off between the United States and China. The trend broadens this year with Europe, japan, and much of the emerging markets and the developing economies also looking to China to adjust its growth model …
frustration with and pressure on China will build. So too will the risks of market-moving international reactions to China’s incremental, deliberate, consensus-driven approach.
Much has been made about how China will disrupt the “old world order” in the next few decades. For the next 12 months, however, Bremmer and company see this as the largest factor that may cause market disruption.
5. North Korea
Kim Jong Il was — and is — utterly nuts. So him beginning to transfer power to his son is, in a way, a good thing. How can anyone possibly be as certifiably insane as that guy?
But the transition also might prove to be a major destabilizing force on the Korean peninsula. And that could be disastrous for South Korea, the region and the international community.
North Korea’s decision to keep pushing the South Koreans’ buttons is almost certainly the result of a faster-than-expected leadership transition in Pyongyang. That’s the only variable that could explain the sudden dramatic change in behavior. The belligerence could be coming from external concerns—that Kim Jong Un will be vulnerable to international “testing” if Pyongyang doesn’t first prove his mettle. Or it could be internal if Kim Jong Il doesn’t believe he can win agreement within the North Korean leadership for his son’s safe accession, especially in the event that the father dies suddenly. The latter scenario is much more troubling in terms of North Korea’s willingness to provoke military conflict on the peninsula. There’s no way of knowing which of the two is the more likely.
On today’s conference call, Bremmer added that war on the peninsula is indeed a possibility and that, in fact, it is “probably the only place in the world that large-scale conventional warfare is possible.”
Troubling indeed.
