Weekly Risk Outlook

Weekly Risk Outlook

Democrats search for unity as Trump attacks. EU-Greek debt relief talks continue. The G7 meets in Japan. ASEAN defense ministers discuss tensions with China. All in the Weekly Risk Outlook.

Democrats search for unity as Trump attacks

This week, amid rising tensions between the Bernie Sanders and Hillary Clinton camps, both sides will probably receive significant pressure from Democratic Party members to scale down the conflict as the party looks to defeat Republican presumptive nominee Donald Trump in November.

Tensions escalated last week when the Nevada Democratic delegate nominating convention erupted into chaos following significant opposition from Sanders supporters regarding rule changes. This involved shouting down Democratic Senator Barbara Boxer when she tried to deliver a speech, increased security, and violent threats against Roberta Lange, chairwoman of the Nevada State Democratic Party. Matters did not improve when Bernie Sanders’ campaign issued a statement which, although condemning violence, nevertheless struck many Democrats as insufficient and overly defensive. Following his win in the Oregon Democratic primary (and narrow loss in Kentucky), Senator Sanders appears further defiant, noting that “before we will have the opportunity to defeat Donald Trump, we’re going to have to defeat Secretary Clinton.” This language appears to be increasingly missing the mark and is very frustrating for Secretary Clinton’s team, as Senator Sanders’ ability to overtake Secretary Clinton in pledged delegates is very unlikely at this point.

Some Democrats have already begun putting out feelers to reunite the party following the June primaries in California, New Jersey, Washington, DC, and six other minor contests. Friends of Senator Sanders, including Senator Boxer and Senator Jeff Merkley, appear fairly certain that Sanders will come around against Donald Trump, and Senator Elizabeth Warren will play a key role in reuniting the party.


EU-Greek debt relief talks continue

On Tuesday, the Eurogroup will meet with Greek government officials to discuss austerity reforms following the $96 billion bailout package, and may discuss initiating a debt relief program. In remarks at a G7 summit in Japan last week, Eurogroup leader Jeroen Dijsselbloem appeared optimistic that a deal could be struck between the Greek government and its European creditors.

Although the IMF has strongly advised in favor of debt forgiveness, the Eurogroup has remained consistently opposed to direct debt forgiveness. However, Dijsselbloem did note other types of debt relief that could be under discussion, including extending maturity periods, swapping expensive loans for cheaper loans, and the introduction of grace periods for certain loans. This issue could become significantly more important as July approaches, as the Greek government faces a debt payment that it is likely to struggle to repay. Consequently, the IMF and Eurozone could once again be at loggerheads over how exactly to provide Greece with the economic space to service its debts.

An IMF official indicated last week that it would not be able to sign onto a Greek bailout plan without “both credible policies and substantial debt relief,”  meaning that in addition to deeper pension overhauls which the Greek government has strongly pushed back on, the Greek government’s debts would require restructuring which Germany in particular has rejected. Although the Eurogroup and Greece may be able to come to some form of a consensus, the sign off from the IMF is likely to be much trickier, and could draw the negotiations out to the tipping point in July.


G7 conference to unite major leaders in Japan

From Thursday to Friday, the Japanese government will host the governments of Canada, France, Germany, Italy, the UK, United States, and European Union for the 42nd G7 summit on Kashiko Island. The agenda for this year’s G7 summit will focus broadly on global trade and economic issues, climate change policies, foreign policy issues, as well as development and health.

Another major potential issue to be discussed, given the interest of the Abe administration, could be cyber issues. This could include cybersecurity, privacy laws and consumer protection, and digital trade. The absence of Russia from the summit — it was excluded starting in 2014 due to the conflict in eastern Ukraine — suggests that Ukraine and maintaining a united front in sanctions policy with Russia will likely be discussed in detail, as will China’s actions in contested waters in the South China Sea. This is particularly likely if Vietnam’s prime minister, Nguyen Xuan Phuc, attends the summit as a guest.

The German government has already suggested it would like to focus on advancing structural reforms in monetary and fiscal policy during the summit. Other countries are likely to have competing priorities during the summit, particularly when exploring what the major takeaways might be. The UK government is likely to push for a broad G7 statement indicating global concern regarding the threats of Brexit, the Canadian government has indicated it will advocate in favor of government investment, and the United States will likely move to shore up diplomatic concerns that Donald Trump’s candidacy could reflect a shift in U.S. geopolitical concerns and heal old wounds, particularly in Asia.


ASEAN defense ministers meet amid continuing China tensions

From Tuesday to Friday, Laos will host the 10th ASEAN Defense Ministers’ Meeting (ADMM) in Vientiane. Likely a chief concern among ASEAN member states, particularly their defense ministers, is China’s continuing expansionary claims to islands in the South China Sea.

The dynamic of the meeting could change significantly from previous expectations, given the Philippine presidential election, which saw controversial candidate Rodrigo Duterte ascend to the presidency. Although President Benigno Aquino’s administration will be the participant at the summit representing the Philippines — his administration does not officially end until the June 30 — diplomats from across the region are likely already sending out feelers to President-elect Duterte’s staff to determine what direction ASEAN’s 2nd most populous country is likely to turn to. As candidate, Duterte struck a more conciliatory note regarding China and the South China Sea claims.

His rhetoric has also included a somewhat dismissive tone of the United States, as well as Singapore and Australia. This may suggest a shift not only in the level of accommodation a major ASEAN country may be willing to accord to China but also a potential shift away from previous bedrock alliances for the country. This summit represents the first opportunity for diplomats across the region to digest the significance of that potential shift, as well as begin to formulate possible shifts in their own foreign policies, both with China as well as the United States.


The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

This Weekly Risk Outlook was written by GRI analyst Brian Daigle.

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