The Growing Geopolitical Threat to Financial Markets

Project Expert

Robert Kahn

Steven A. Tananbaum Senior Fellow for International Economics

About the Project

Financial markets are forward looking. Investors make decisions in light of all available knowledge about risk. Why then, in the midst of political upheavals in Europe and the Middle East, have markets been until recently so quiescent? I have already explored the dynamics underlying this tension and argued that the sea of global liquidity created by extraordinary monetary policy in the industrial world, as well as the seeming remoteness of potential risks, has allowed market participants to continue to price a benign view of future global economic growth. But such a scenario is unlikely to last for long, particularly as the political upheavals we currently face are not easily solved. The weakness of the eurozone economy is one place where political crisis could spill into financial trouble. In a series of monthly reports, op-eds, and articles, I identify where else and how political risk might translate into financial distress, and how if at all the possibility of sharp market corrections should influence the policy debate.