Eurozone leads global increase in political risk


Jeremy Weltman
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In total, 78 of the 186 sovereigns in ECR’s Q2 2012 country risk survey have experienced increased political risk since the start of 2012, while 76 have undergone improvement.

In Euromoney’s survey, a country’s political risk profile is determined by economists’ assessments in six underlying categories of risk (government stability, institutional risk, corruption, government non-payment/non-repatriation, regulatory & policy environment and information access/transparency). Scores in each of these categories are aggregated to give an overall political risk score out of 100 for each country in the survey. The eurozone has seen the worst decline in political sentiment across the globe during the last six months, affecting 16 of the 17 eurozone member states. The crisis has already resulted in the collapse of the Irish, Greek, Italian and Dutch governments, and ECR contributors have become more concerned about government stability and non-payment/repatriation risks in the region in the light of the escalating fiscal crisis. However, economists also consider corruption and transparency to be growing problems in the eurozone, against the backdrop of deep recession.

Political risk across Central and Eastern Europe, notably in Hungary, Georgia, Latvia, Slovenia, Slovakia and Ukraine, has also escalated, according to the survey. The region’s weak economies, growing debts and banking-sector problems have eroded confidence in state apparatus and their effectiveness, with lower scores for institutional risk, transparency and government stability among the sub-factors downgraded by ECR experts during the last six months. The US has also seen its political risk score decline in the run-up to November’s election (affecting regulatory and policy certainty), with Democrat president Barack Obama fighting for a second term in the White House and a question mark hanging over the direction of policy. Yet the US’s political risk outlook remains benign in a global context. In the emerging markets, China, India and South Africa (three of the Brics) have seen large declines in their political risk scores. Increased corruption risk is common to all three. Political risks have eased across large parts of the MENA region, as the destabilizing effect of the Arab Spring uprisings has faded. Political risk scores have improved since January among the Gulf oil producers, as government stability has become less threatened. However, there is a clear distinction between the Gulf region and countries bordering conflict-riven Syria, including Lebanon, Israel and Jordan, where internal security problems have heightened, contributing to political risk. In keeping with the global trend, political risks have increased across the Indian sub-continent, and in other parts of Asia, notably in security-threatened Indonesia, the Philippines, Pakistan, Turkmenistan and Afghanistan, despite an improvement in the region’s average political score. Euromoney Country Risk publishes full results of the political risk component of the Euromoney Country Risk Survey.

This article was originally published by Euromoney Country Risk.