EU political developments ‘biggest risk to investors’

The success of anti-EU parties and fraying bonds among EU nations are the biggest risks facing investors in 2015, says the Eurasia Group.

The standoff over Ukraine between Russia and the US and its European allies, China’s slowing economy and Islamic State’s designs outside of its Iraqi and Syrian bases are among the New York-based Eurasia Group’s leading threats for this year, according to its annual Top Risks report released yesterday.

The US use of sanctions and access to capital markets to impose its objectives on financial institutions and on states — what Eurasia Group terms the “weaponisation of finance” — round out its five top risks for 2015.

“Europe’s economics are in substantially better shape than at the height of the eurozone crisis, but the politics is now much worse,” Eurasia Group president Ian Bremmer and chairman Cliff Kupchan said in a statement.

“That’s true on three different levels: bottom-up, intra-EU, and outside-in.” Greece is holding snap parliamentary elections on January 25 that threaten a return to turmoil in the euro area, while Britain, Spain, Denmark and Finland are also due to hold general elections this year.

In all cases, anti-EU or populist parties are forecast to make gains, complicating the outcome. While internal politics play a part, friction among the EU’s 28 states is also worsening, according to Bremmer and Kupchan.

The “best case” for Europe would be if Germany, France, and the UK co-operated to provide leadership. “But that’s far less likely in this environment,” they concluded.

Elsewhere, some threats have been exaggerated by media and politicians.

* Bloomberg