The ancient Mayans attached special significance to 2012, possibly the end of time. But you don't have to believe the world is about to end to realize that next year contains perhaps the widest range of political risks to the global economy in recent history. Economic stresses – from rising food prices to worsening economic hardship in the developed world – were at the heart of many of 2011's political stories. As they intensify, political volatility, gridlock, confrontation and conflict - whether domestic or international - look set to worsen. “It's going to get worse before it gets better,” said Jonathan Wood, global issues analyst at London-based risk consultancy Control Risks. “If you look at what's been driving events this year, none of the factors has gone away and many of the economic drivers are still growing.” With elections and leadership changes in the most powerful countries, Europe in crisis, ferment in the Middle East and worsening economic hardship driving unrest and discontent everywhere, 2012 could be just as volatile as 2011 if not worse. The current year may yet carry a sting in its tail, with worries over the euro and jitters over a possible strike on Iran likely to keep financial markets and policymakers on tenterhooks all the way to the New Year. More than three years after the collapse of Lehman Brothers prompted the worst financial crash since the Great Depression, economic turmoil looks to be driving political upheaval in what could become a particularly disruptive feedback loop. A fragile global consensus forged at a 2009 summit of leaders of the Group of 20 major economies may be gone for good, replaced by what Ian Bremmer, president of political risk consultancy Eurasia Group, calls a rudderless “G-zero” world. Top of the list of 2012 risks for many analysts is the unresolved sovereign debt crisis in the eurozone. If the 17-nation European single currency is to survive in its current form, its members will have to confront harsh economic adjustments and seismic political reform. Last week's Brussels summit, the 16th since the start of the two-year-old crisis, was billed by some as the last chance to save the euro. While euro zone leaders and some non-euro states agreed to forge a closer fiscal union with stricter budget discipline, the outcome fell short of guaranteeing the euro's ultimate survival. At worst, 2012 could still see a disorderly breakup bringing with it a chain of defaults, bank runs and civil unrest, not to mention a savage global economic shock worse than that of 2008. Ultimately, however, many believe the euro will endure - although not without colossal strains as it tries to reconcile very different economies such as Germany and Greece. “The greatest single risk is obviously the euro zone but it might also be the risk that is sorted out the quickest,” says Alastair Newton, a former British government official who is chief political analyst at Japanese bank Nomura. “But even if that happens then you're still going to have very low growth.”
