Eurasia Group names top risks for 2012

@CNNMoney January 3, 2012: 5:21 PM ET
Lack of leadership will spell trouble for the Middle East, U.S. fiscal decisions and North Korea, according to Eurasia Group report.

Lack of leadership will spell trouble for the Middle East, U.S. fiscal decisions and North Korea, according to Eurasia Group report.

NEW YORK (CNNMoney) -- Much has been made of the grave risks the world faces in 2012. The Euro seems bound to collapse. China's overheated real estate market may lead to a massive slowdown in that country. Iran is threatening to close the Strait of Hormuz.

Yet none of these events are listed by Eurasia Group as the top threats in 2012.

Topping this year's list of risks is the overlapping of politics and economics, especially when combined with lack of political leadership.

In fact, the political risk consultancy specifically labels the dreaded Euro and China scenarios as "red herrings."

"The political will to maintain the eurozone remains strong," Eurasia Group President Ian Bremmer and its research head David Gordon wrote in a report Tuesday.

In China, the authors say "there's no chance that the government will fail to pull out every stop to prevent a meltdown, or even a serious bump."

Iran's threats didn't even make the list.

Despite recent headlines, the report's authors downplayed threats from Iran, noting that Iran still needs to sell its oil on world markets. Plus, they said, an Israeli attack on the country without U.S. approval is unlikely -- and the U.S. would not be likely to green-light such a move.

Oil prices spike 4% on Iran supply threats

But other serious global challenges persist and unlike previous years, when politics was guided by national security threats, it is now mainly being driven by economic issues.

"Policymakers are now most concerned with spiraling deficits, the eurozone crisis, and economic relations with China," the report said.

But a lack of leadershp when confronted with these complicated threats raises the possibility of governmental inaction. And that paralisis is one of the most serious risks of the year and spells trouble for investors.

"The underlying sentiment in the investing community will be much more negative," said Bremmer on a conference call discussing the annual list. "People don't know how to play."

Even in the arena of traditional politics where events aren't solely tied to economic issues, there is a serious lack of leadership.

Case in point: the Middle East.

The report said the lack of leadership there from a major international player like the United States, Russia or China will lead to increased instability as sparring factions in the region fight among themselves.

The security situation in Egypt, Iraq and Syria is likely to get worse, including possible "political disintegration" in Egypt.

Other risks include:

Gordon sees Obama narrowly winning the White House but the Republicans maintaining control of the House of Representatives and taking the Senate.

That would be the worst case scenario, he said, because those key fiscal decisions would have to be reached during the lame duck session -- the time between the election and when the current congress ends.

Among the bigger items on the agenda for the lame duck: Whether or not to extend the expiring Bush tax cuts and how to deal with massive mandated budget cuts that were enacted as part of the debt ceiling deal last summer.

"This is going to be very fraught, and there is no signal for investors," said Gordon.

  • The lack of information about events in North Korea and its new leader is a risk that is being severely underplayed.

If 28-year old Kim Jong-un can't run the country effecvtively it could lead to either a provocation with the South or a collapse of the North, said Bremmer.

  • Extremism in Pakistan and that country's deteriorating relations with the United States.
  • Military or economic provocations from China.

And as for the Mayan Apocalypse? It "just isn't happening," wrote the authors. "And if it does, well, sorry."  To top of page

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