Our listeners will know that there's a huge amount of political risk out there around the world. One political risk consultancy, Eurasia Group does a list every year. It's become pretty famous actually, and today we're going to talk to the co author of this list, Ian Brema. But quickly, fran you have your trustee iPad to hand give us the ten.
Yeah, so I think it's really important how he ranked them. Number one he has United States versus itself, so US elections number two, Middle East on the brink. Three Ukraine for Ai, which he calls ungoverned. Five access of rogues, so this is dictators coming together. Six China recovery or no China recovery. Seven the fight for critical minerals. Eight he talks about monetary policy, no room for error. Nine actually weather patterns, Elmino's back and ten risky business.
So this week, as we kick off the new year, a deep dive into those political risks. Welcome to in the City, Bloomberg's podcast, Connecting the conversations and the story is shaping the world of finance. I'm a legostraton I'm front in Lackwell, and.
I'm David Merritt and joining us. This week we have Eurasia Groups president and founder in Brema, walking us through this year's list.
Ian, can you just give us a bit of a history of this very famous list you now, Ron, when did you start?
I started top Risks. I'm going to say it was about sixteen or seventeen years ago, and you know, it was kind of this coming back to school ready for the year, and let's do something that isn't just you know, sort of impressionistic, but rather that we can have a methodology, hold ourselves to account, and then come back at the end of the year and see how we did it. Seems like it's an obvious thing to do, and yet people don't do it. They make headlines and then they
move on. And also, one of the things I like about top ris is, as opposed to responding to headlines, we get to actually set the story. We tell you here are the things we think you need to focus on. And I think that's a very valuable thing to be able to do with audiences that are getting deluged by way too much information and they don't know what matters and what doesn't. And of course the algorithms drive you towards the things that induce anger. That's not a useful service.
So this is meant to be a counterweight to that.
And in that sort of idea of metrics and accountability, how successful have you been?
Well, First of all, it's a wonderful disciplining tool for all of the analysts. We've got about two hundred and fifty people in the firm around the world, and they need to know that this is going to be on the homepage all year, and at the end of the year, we're going to go back and see how they did.
And it's fine to be wrong. You're going to be wrong about things every year, but being wrong and being wrong in an intelligent way so that you understand what it was that made you wrong and what were your
thought processes that you need to rethink. And my view on top risks, and again we're looking forward at the coming year every year and we're looking at impact, likelihood and eminence together is that we don't have a crystal ball, but rather we have a really good sense of where the world is today and also what the constraints are on the political acts and actions of various leaders, whether they are business leaders or government leaders or other leaders
all around the world. Which doesn't necessarily tell you what's going to happen, but it tells you a lot about what can't happen. It tells you a lot about things though. For example, I really don't want Ukraine to get partitioned. I really want them to be able to take their land back. I think it's desperately unfair that that is not going to happen. And yet I have a lot of confidence that Ukraine is essentially going to be partitioned
over the course of this year. That's much less of a prediction than it is about a sense of reality of where Ukraine Russia is right now and the things that just can't happen. So I think a lot of top risks is about that.
In your Top Risk twenty twenty four, the United States versus itself, will we have President Trump and what will that look like.
I have very low confidence about who the next president is going to be. I would say that today, if the election war today, Trump would win, and in November I probably put it at Trump sixty forty. But there's a lot of time to play out before then. But let me tell you the things that I think I have more confidence on, and what goes into this risk.
The first is that I have very high confidence Trump will get the nomination, and when he gets the nomination in the next few months, he will become much much more powerful Immediately, all of the Republican leaders will be loyal to him. He will have far more money to spend for his campaign, for his message, and he also will have the Republican leaning media all in favor of him, covering him all the time in a way that they
are not. Right now, there's a lot more hedging, and that means that Trump's policies, both domestic and international, will become the policies of half of the American policy space. So that by itself is a very big issue. Secondly, and this is of course the big monster that's looming, is the fact that the United States today is the only advanced democracy that cannot count on a free and fair transition that is seen as legitimate by its population.
It's the only country that is experiencing a crisis of democracy. Among the wealthy democracies in the world today, it's also the most powerful. That's a very serious problem. That's why it's called the United States versus itself. Democrats and Republicans exist in different fact spaces, different information spaces, and there's no effort to there's no effort to fix that. There's no diplomacy going on.
Yeah, and I know you basically say that he would, you know, Trump president would take steps to consolidate executive power, undermine the rule of law. Then you many questions about checks and balances. Would you worry more about domestically what it does to the US or foreign policy? So what that means for Ukraine, what means for israeland likes.
I worry more about the domestic side and the implications the domestic side have for the rest of the world. So that's the causal process, that's the driver. But for example, I don't think if Trump would have win, I don't think the United States will withdraw from NATO. But I
think NATO will start to fall apart. It'll fragment. Let me so to explain how Trump is a political adversary of President Zelenski in Ukraine, he demanded that Ukraine open an investigation under Biden and Hunter, it was enormously important, Zelenski refused. Trump absolutely will do everything in his power to respond to that if he becomes president. That means demanding that Zelenski accepts unacceptable terms to the end of
the war. It means ending military support for Ukraine that allows Putin to get on the offensive, to take more land, to threaten Kiev. The response of the polls of the Baltic states of the Nordics will be incredibly alarmed and urgent. But there are other countries in Europe with leaders that support Trump, like Orbon in Hungary, as well as let's say the Italians and Maloney, that will say, well, yeah, I mean, why are we paying for this, why are taxpayers on it? Let's just find a way to normalize
relations with Russia. That is an unprecedented existential challenge for NATO. That's the way that's likely to play out. And I can give you other examples for how that might play out in the Middle East, how it might play out on the border, how may play out with tariffs and decoupling with China, all of those things that are starting with the dysfunction domestically in the United States, but are having massive implications well beyond American shores.
What about domestically within the United States, the impact of possibly another fractious handover of power. Would we see worse scenes than we saw at the January sixth riots at the Capitol. Are there more attacks on American institutions? And what does that mean for the American economy and business as a whole.
So I don't believe we'd have a January sixth reprize in Washington because it would be expected and planned for in the city will be locked down. But the stakes here are very high. If Trump loses, He's probably going to jail. He knows that. And therefore, if it looks like he's going to lose, or if it looks really close, he is highly incentive to do everything possible to prevent that outcome, and that includes actively sending his supporters to
try to disrupt this election. There are also actors that would outside the US that benefit from chaos in the US that are much more incentive to engage and intervene against a soft and complex homeland security target that is the US electoral process. So there's that on top of that. If Biden loses, then certainly Biden's many of his advisors, many Democratic senators have spoken to them about this. They really believe that they will face legal jeopardy in a
Trump administration. That Trump would focus on of course, ending the investigations and the judicial cases against him, but also would focus on politicizing the IRS, the FBI, the Department of Justice, and would use those institutions to go after his enemies, some of whom would be arrested, some of whom would face investigations, but many more of whom would have a chilling impact of this new McCarthyism that would stop them from saying what they would otherwise want to say,
acting in ways they would otherwise want to act. And of course the implications of that of red versus Blue state are significant. Now does that affect credit worthiness of
the United States over time? I think it does. I think if you are a foreign investor looking at the US and you have exposure in red states exposure blue states, and they are both creating environments that are mutually exclusive in terms of the cost you'll have to pay in the policy alignments you have, that'll change the way you
think about investing in the United States. Absolutely. So, there will be a market positive response to Trump if he wins, because he will still focus on lower taxes and regulatory rollback and large amounts of deficit spending, all of which near term is market positive, but then you will have this inner circle of large number of Trump advisors whose top priorities are vindication and retribution, and that will be a negative.
So it sounds like sort of lose lose, right, like either outcome. You're saying the American democracy suffers in the long run regardless of who wins, because of the reaction of the other side.
We've had President Biden now for almost four years, and if you look in our report at the level of trust in the United States for all of the critical political institutions, the executive and the judiciary, and Congress, and the church and public schools and the newspapers and television news, they've all gone down. And they've gone down not just
over the past couple decades, but also under Biden. So I mean, if you're telling me that somehow a second Biden term, when he's eighty two to eighty six, he's going to manage to somehow turn that around. With Trump facing far more legal jeopardy, and with Trump's supporters believing that there are a series of politicized judicial cases against him to take him out. And by the way, I don't believe that, but I do think that some of
the cases against Trump are politicized. I think that raising the financial charges to felony charges in the state of New York that would not happen against someone else. That's a politicized case. And if you're a Trump supporter and you see that in one of the cases, well your
presumption is that must be what they're doing everywhere. So it's the fact that Americans do not remotely agree on shared facts or narrative, which is very similar to Israel and Hamas, and it's very similar to Russia and Ukraine. And it's very dangerous in this environment.
And do you see anybody anything coming forward to try and address that kind of parallel universes that the two different Americas live in.
Oh, Elon Musk absolutely is trying to address it with success, with success for one side. No, I mean, I know that that wasn't the question you were asking on being cute about it, because of course, No. What I see is exactly the opposite. What I see is that we
are increasingly driving people algorithmically. But this is the big We can talk about the inequality in the US, and we can talk about the identity politics and the race politics, but the big thing that has happened in the last thirty years is that the institutions that Americans have been a part of raising them into becoming civic minded creatures. Civic minded citizens have eroded. Church membership is way down, public schools are eroding, the family is atomizing, and you know,
even Little League attendants and all the rest. And what has replaced that has been algorithmic learning. What has replaced that has been people being intermediated in their personal connections and in their information sources through their smartphone devices by business models that have no interest in creating citizenship or promoting democracy.
But just confirming what they think already.
Well and creating you know, I'm not even sure that that's what the models are trying to do. I think they're trying to addict people that are on them to gather their data and to make more money out of them. But it so happens that the best way to do that is through confirming what they already believe, even driving very strong emotional reactions. And so yes, that is exactly what's happening right now in the United States, much more than in Japan or South Korea, or Canada or Europe.
And we are reaping the consequences of the United States. In nineteen eighty nine, when I wrote my dissertation the Wall came down, the US was the principal exporter of democracy in the world. The United States today is the principal exporter of tools that destroy democracy in the world. And that is a radical transformation over the course of thirty years.
And extending that thought, we've written this over seventeen years. You just talked about nineteen eighty nine when you write these lists, to what extent is this year's list your most gloomy yet?
I think that maybe the one that was the most gloomy was about twelve years ago when I wrote about the G zero world for the first time, and the star of that was, Look, we've had all of these political institutions globally, and they reflected an old balance of power. The balance of power has shifted dramatically. It's not coming back.
The institutions no longer reflect that new balance of power, and therefore they're starting to fall apart, and we're going to enter into an age of geopolitical recession that will get you more conflict, which means.
This is what twenty twelve, twenty twelve.
I think it was twenty twelve and I said, what that means is that the United States, which historically has been the global policeman, the architect of global tay trade, and the promoter of global values, will no longer do so, will no longer act in that way, and that no other country or group of countries will replace it now at time, the people said, well that that feels very gloomy, and I said, well, not yet, but structurally will over time.
And I think that if you take that as the backdrop as a long cycle, what we see in twenty twenty four is the result of the g zero playing out for over a decade of Now we're in the teeth of it. So in that regard, it might not be the most gloomy, but it probably feels like the most gloomy because people now accept what we're saying in a way that they weren't prepared to in twenty twelve.
In what will happen in the Middle East.
I think the war will expand I think that it's very hard to imagine that you can keep the war contained to the territory of Gaza. There are too many ways for it to metastasize. There is the Northern Front with Hezbollah, where the skirmishes are growing, and where the Israeli war cabinet sees an opportunity to degrade Hesbelah's military capacity and also push them back from the border in accordance with you and Security Council resolutions that have never
actually been implemented. Then you've got the Huthies that the Americans and allies are trying to deter unsuccessfully, more likely to lead to the US to attack those bases inside Yemen that'll escalate the war. You've got the Iranian proxies in Syria in Iraq that are more likely to have success in causing casualties among American servicemen and women, and
that the Americans will respond to. And then of course, you have the radicalization of millions upon millions of Muslims all over the world, some of whom will turn to violence, some of whom will turn to terrorism, lone will for organized activities. So I put all this together, it's very hard to imagine that we will be smart enough and lucky enough to avoid all of that escalation over the coming months. I'm not talking about the US is at war with Iran two hundred dollar oil in a global recession.
And then Trump wins that is possible. Maybe it's ten percent, twenty percent. It is not the baseline, but the baseline is that this war will escalate over the coming months.
Absolutely, there's so many fundamentals that are so worrying about the world right now. What's the rays of sunshine? And it might sound panglossian, and if the rays of sunshine don't exist, it's not particularly helpful to try and find them, But what are the things that could surprise on the upside?
If you want to look at some of the things that I'm much more positive and we do at the end of this report. We have red herrings every year, and so I'll give you a couple of those, and I'll talk about some others that aren't here. One, this is a year where billions of people are going to the polls deeply concerned about the United States and it's crisis of democracy. But for the rest of the world, you're not seeing that. In India, the world's most populous democracy,
Modi's at seventy five percent. He's going to win easily have another five years. Not only will he have strong growth and will he be able to conclude legacy economic reform packages, but he also acts as a bridge between the West and the global South. Imagine if a country as powerful as India instead had the politics of the ANC in South Africa and was much more aligned towards China, you'd have a geopolitical environment that feels much more like
blocks pro West and pro China. That's not happening at all. And India is a big piece of this. Mexico going to have a very strong trans towards a new leader supported by AMLO, but who is more technocratic, who has a climate science background, who's more pro business, who understands the economy. That's a really big win. Indonesia post Djoco likely to be pro Boa, who he wants also one
of the most populous democracies in the world. The EU likely to have likely to return the same constellation of parties to create a vonderline or related led largest common market in the planet for another five years. Then you have the US and China, which are the most powerful countries in the world and the most important geopolitical relationship in the world, and it's likely to be better managed this year than it was in twenty twenty three, and
two reasons for that. One is because the Americans have this very challenging domestic year with the elections, and Biden does not want yet another crisis to have to respond to like he has in the Middle East and Russia. Ukraine and China is facing significant economic under performance and this is not the time for them to have a
fight with the US and or its allies. So yeah, there'll be problems over Taiwan, problems over the South China Sea, but they will be better managed and responded to than we would have had over the past Year's next final point artificial intelligence, which is a risk, but also does represent transformative economic opportunity, productivity and unlocked human capital much faster than people think. And I'm very excited. I'm an
enthusiast for that. That could be a second wave of globalization, So that's pretty exciting too.
But Ian we're facing two wars. So there's war in Ukraine, there's a Middle East, and frankly, it's you know, the possibility of escalation in the Middle East is huge, So what do you expect in the Middle East? And it seems that when there's a power vacuum or when the US is divided, that's when foreign policy or foreign leaders trying to take advantage and frankly do what they want across the world.
So I was too positive for you in the last Okay, we made it go back to horrible things. So yeah, the United States, of course, has not been divided for the last year and a half. On Ukraine, it's mostly been united. And that's also true with NATO, and it's also true with American allies in Asia. Eleven rounds of sanctions against the Russians and a half of Russia's reserves being frozen by the US and Europe and Japan. That's all to the good, but that is now becoming much
more divided. In twenty twenty four. I think we've already seen peak NATO, We've seen peak Atlanticism. It's going to get a lot harder, and the Ukrainians are not going to get enough money to take more territory back. So Ukraine is going to be divided. Ukraine is going to be partitioned. And I say that as someone who desperately does not want that to happen, but I think it will.
It's kind of like North Korea has nuclear weapons. I don't want it to happen when we try to ignore it, but they have it.
But resolves the conflict that end.
It resolves the conflict at all. No, No, because first of all, it's not clear that the Ukrainians can even hold on to the territory. They still have. The average age of a new Ukrainian recruit today is in the forties. It was twenty six two years ago. They're having a harder time fighting. The Russians are very aware of this. The Ukrainians are likely to become increasingly desperate and take more risks on board themselves to try to find a
way to keep their country. And also the fact is that no one's going to accept in the West that there has been a partition of Ukraine, which means that Russia will still be treated as a rogue state. And they're friends that are helping them militarily. Are countries that we do not like who are chaos actors. North Korea and Iran all led by men that are five foot seven. By the way, so there may be a small man. There may be a small man issue here. I don't know.
That's not in the report, but I just mentioned it to you.
Is putin secure then, because you know he.
Was as someone so short. No, look at the heaths hewares he's clearly very insecure.
Yeah right, I will.
Say, so what this is the Napoleon complex?
Yeah, yeah, No, I mean, look, nobody, you remember when Progosion did his ill fated effort to IU was Putin, and I referred to Progosian at that point as dead man walking. It was very clear that this was not a serious threat to Putin, that there were no generals that defected, no oligarchs that defected, no ministers that defected. It was just that Progosion was in an absolutely impossible situation and you know, essentially any out, any option was suicide,
and that's what he got. Assisted suicide. Let's say euthanasia is legal for some people in Russia.
He's making no comment on anybody's height. What's your prediction for the UK election?
Russia's about five foot He's really short. You might be told it's.
Not I don't think it's hard to say that that Labor is going to get a majority this time around. But that's I don't think that's Sunnac's fault. I think that this is well over determined at this point. But the key point is that the UK election, we don't have large numbers of people in the UK that are saying we do not trust the electoral process, that we no longer believe in our political parties or our leaders.
There is not an existential threat to democracy representive democracy in the UK and the way that there absolutely is in the United States. In fact, there is not such a threat in any of the advanced democracies, not in Canada, not in Japan, not in Germany. It is only in the United States, and that is a very serious problem.
I mean, a couple of years ago, of course, we were saying there were some threats to British democracy with the kind of legal challenges proroguing part of it. All that has faded now, right, and the UK is looking a bit more boring, but maybe a bit more stable as a result.
Yeah, you know, Brexit was not fun. It was a huge own goal, but ultimately it didn't have that much
to do with the precepts of British democracy itself. I mean, it turns out, if you give the people a vote on something, they'll vote, and if you create political incentives to be on the other side of something, even if that side may be stupid, a whole bunch of people will take it for different reasons and As a consequence, it came closer and closer to fifty to fifty and then who knew, you know, sort of the the Brexitiers won,
and most of them now regret it. But you know, there's no Backxies when it comes to the EU, and that's too bad for everyone the EU. Of course, the Brits did help the EU because I think that the EU now SERTs all of these other exit movements inside the EU see what happened with the UK, and recognize in this global environment you need a stronger EU. And the EU is you know, set to expand and is set to have voting reform, and is set to reduce the ability of challenges inside the EU to have as
much impact as they have had historically. I think all of those things are important. Crisis, whether it's Brexit or the pandemic or the Russian invasion of Ukraine, all has led to a stronger European Union and that is frankly quite necessary as the world's most successful supernational experiment of governance that we've ever had.
Ian, Thank you so much. Just like that, Thank.
You so Who else is depressed.
In New York? Not much to be sunny about, right I mean, I liked your question about you know, is this the risk? I was thinking they should come up with some sort of cumulative score, like how bome risk deadly? Is this you know that the cumulative fact? But it feels pretty it feels pretty bad. But particularly concerning what
the number one is. You know that his point about the pivot in the United States to being the biggest export of democracy to being the biggest export of tools to on the mind democracy, I.
Think it was striking for me. Normally in this business you have people hedging, and he wasn't hedging, and he was so certain of the American election outcome, but also you know what he.
Thinks happen in the Middle eages. Well, the sort of certainty that was striking.
There wasn't very much room for There was no ambiguity in that he wasn't trying to cover, which is admirable and interesting. And his prediction of the fact that Ukraine is going to get partitioned and so on.
Yeah, And the problem with that is, of course then you don't know, I mean, this will probably if this happens, it emboldens well Raputin, and then you don't really know what happens next, right, you put in motion chain of events and you don't really know where the endpoint is.
And part of the problem with his big one, his big number one is America, and part of the problem is that that is a risk that will not be resolved either way until November, and so it dominates, it sort of sits squatting over the entirety of this calendar year.
But also not even not even November, right, right.
Yes, indeed the beginning of the resolution is November, but it drags on into Yeah.
They're either way.
The UK doesn't look too bad.
I know, we're pretty right when you asked about.
The UK, it's kind of like two parties will have an election. Two parties, it is going to be five fairly close in some of their policies, and so whatever happens, you're not going to have a huge shock, like potentially another guns with the safe favor.
It was both what he had to say about Britain was both, you know, uplifting and troubling. It was uplifting in the you know, to to an American who is looking ahead to a really really fraught election, you know, it was a sort of calm backwater. We sounded like
a calm backwater to him. But on the other hand, you know, his part of the dynamics that led to Brexit are part of the dynamics that they are grappling with in America, which is, how do you make sure that the vast majority of people feel they are benefiting from the economy? And that was what partly Brexit was about. And partly some of that alienation and alienation from Biden and love of Trump is driven by that similar kind
of who is going to make America great again? And who is going to do right by me and my community. So I don't think that sort of trends in the two different countries are so far apart as he seems to. Thanks for listening to this week's in the City. We'll be back next week, but in the meantime, if you like our show, please head on over to wherever you listen to podcasts and rate, review and subscribe. It helps
people find the show. This episode was hosted by me Allegra Stratton, David Merritt in New York and Francine Laqua to My Left. It was produced by Samasadi and additional editing by Blake Maples.