Top Risk for 2016: US-Europe Relations, Eurasia's Bremmer Says

The Hollow Alliance of the United States and Europe
  • Relations are seen at their weakest since World War II
  • Risks include closed Europe, China footprint, Islamic State

Relations between the United States and Europe are at their weakest in decades and are the top risk for global investors in 2016, according to Ian Bremmer, president of the Eurasia Group political-risk research and consulting firm.

“We have never seen the relationship between the United States and Europe, the most important and foundational alliance for the world’s economic system, so weak since the end of World War II,” Bremmer told Bloomberg Television in an interview Monday marking publication of Eurasia’s Top Risks 2016 report.

The group ranked the trans-Atlantic partnership as the most challenging political and geopolitical trend and stress point for global investors and market participants. The report placed a “closed Europe” second, with a combination of inequality, refugees, terrorism and grassroots political pressures posing an “unprecedented challenge” to the principles on which the continent’s new political system was founded.

Bremmer said he sees “the U.S. increasingly unilateral in the way we think about our interests around the world and the way we project them, and the Europeans going their own way, not only as Europe but individually.”

China, Germany

The head of the New York-based group pointed to Britain’s economic relations with China, Germany reaching out to Turkey on Europe’s migration crisis, and France’s overture toward Russia in the wake of the Paris terror attacks because of the latter’s involvement in Syria.

Europe’s economics will hold together this year, but not its broader meaning and social fabric, the report said. Bremmer also addressed Prime Minister David Cameron’s promise to hold a referendum that could lead to the U.K.’s leaving the European Union in what has come to be called “Brexit.”

“Brexit is a larger likelihood than most consider,” Bremmer said in the interview. “In part it’s because you have on the left in Britain now a Labour party that has basically taken itself out of relevance which means the backbenchers in your Conservative party are more likely to express the views, the euro-skeptic views, since they don’t need to be loyal to prime minister Cameron.”

Merkel’s credibility

Bremmer said it will be harder for Cameron to get his own party together, and that he really needed the support of German Chancellor Angela Merkel. He added that Merkel had been strong and “the leader of not just Germany but Europe” for the last eight years since the financial crisis, but this year she was not as credible.

“She has taken an incredibly unpopular position in the notion that we will accept as many refugees as you can handle, we’ll take a million a year,” Bremmer said in the Bloomberg interview with Tom Keene and Francine Lacqua.

Earlier on Monday, Bahrain joined Saudi Arabia in severing ties with Iran in the biggest meltdown in relations between the Middle East powers in almost three decades following the execution of Saudi cleric Nimr al-Nimr, a critic of the kingdom’s treatment of its Shiite minority.

Iran faction

Asked whether the incident could spiral into a fight between hardliners and a more moderate faction close to Iranian President Hassan Rouhani, Bremmer replied: “There is no question that there is a not-so-bad cop, very bad cop dynamic playing out between the Iranian president and the Iranian supreme leader but it is useful for both sides to have an enemy in Saudi Arabia.”

“The theocrats in general are concerned that after the Iranian deal, with all of the money coming in, with the opening of their economy, that there is a potential risk for them, their own stability so both the Saudis and the Iranians have reason to play nationalism here which creates greater possibility for accidents escalating,” Bremmer said in a reference to the Iran nuclear deal.

The report also listed China’s powerful global footprint, Islamic State, and a risk of destabilizing discord in Saudi Arabia as other leading risks.

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