Geopolitical risks as the fundamental factors of the market. Anton Hanzenko.

After the referendum in the UK and the US elections that gave Brexit and US President Trump to the world, the notion of geopolitical risks, its data and consequences are increasingly appearing on the world arena.

Geopolitical Risks – Causes and Effects

The concept of geopolitical risks includes such risks as: external conquest, the risks of reducing sovereignty and the risks of disintegration of the state under the influence of internal forces (separatism). And any possibility of redistribution of the state is a geopolitical risk, even if this redistribution is carried out in a legal manner, not to mention the annexation or separation of individual regions of the country.

Of course, the issues of land ownership and areas of political influence always remain as acute problems on the political map of the world. And, probably, there is no single state that did not conduct proceedings in relation to geographic boundaries or did not face the problem of separating some of its regions.

Geopolitical risks in the Middle East or the Asian region seem to be a common thing that from time to time caused the rise of oil prices. If it concerned the Middle East or provoked a flight from risks, regarding the Korean peninsula. But, lately, geopolitical risks remain a key factor in trading both in European and American markets.

Brexit, Frexit and so on …

The actual reason for the growth of geopolitical risks in Europe was Brexit, which according to the domino principle, launched the process of the collapse of the EU. Immediately after the referendum in Britain, the issue of the withdrawal of France or Frexit from the EU was acute. And it did not take place only because Marine Le Pen did not come to power. Now Catalonia wants to withdraw from Spain, despite the fact that Catalonia has a wide autonomy.

The EU government and the eurozone members themselves understand perfectly well that even the most insignificant separatist sentiments against the background of Brexit can completely destroy the EU. That in fact will have a catastrophic effect both for the European economy and the world one.

In addition to Catalonia, there are many regions in the euro area that do not agree with the existing order. Let’s try to distinguish them.

Scotland

In case Scotland is when a small region wants to return to the EU after Brexit. Scotland is the main anchor of the UK exit from the EU. And given the trade relations within the eurozone, it is more profitable for Scotland to stay in the EU than in the UK. But, everything will depend on the conditions of the UK exit from the EU. If Scotland shows a separatist spirit, this will have a more negative effect for the British pound.

Flanders

Flanders is a Belgian analogue of Catalonia, which also has significant financial and political resources to withdraw from the control of Belgium. But, unlike Catalonia and Spain, Flanders has a larger half of the population of Belgium and, in the case of secession, will call into question the existence of Belgium as a country.

South Tyrol

South Tyrol is part of Italy, which is dissatisfied with Italy’s rising debt, the second largest in size after Greece. The growth of indebtedness in Italy and the fact that all the problems of all Italy are shifted on South Tyrol are the main reasons for South Tyrol to request autonomy.

Any separatist sentiment in the eurozone will have a negative impact on the entire union and the euro in particular. Therefore, any geopolitical risks are a negative fundamental factor from which one should expect a weakening of the national currency.

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Hanzenko Anton