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While populism is on the rise and the support for such parties has increased, we do not think that these movements will threaten the viability of the Eurozone in 2017. In fact, in response to Brexit, we believe that Eurozone policymakers will take a hard line with Britain to make sure other countries do not think it realistic to manage an exit that retains all the benefits while shouldering none of the costs. Geopolitical Hot Spots Get Hotter We rely on the insights of external experts to formulate our geopolitical views. They include members of prominent research groups, think tanks and universities as well as former government officials, both in the US and abroad. So informed, we highlight activity in North Korea, Russia and the Middle East among our group of risks with high probability but uncertain impact. North Korean Belligerence Continues: North Korea’s unpredictable and belligerent military activities have continued unabated. In early 2016, North Korea announced that it had tested its first hydrogen bomb.” By the end of 2016, North Korea had conducted nine other military actions, including the launch of a ballistic missile from a submarine,” launches of long-range ballistic missiles toward Japan“ and additional nuclear tests. We can only expect further tests in 2017, given the estimates by a Council on Foreign Relations task force chaired by retired Admiral Michael Mullen that North Korea may have between 13 and 21 nuclear weapons as of June 2016.% Even more troubling is a pattern highlighted by David Gordon, adjunct senior fellow at the Center for a New American Security. Gordon points out that North Korea makes a habit of testing new presidents, as it did in May 2009, early in President Obama’s first term, and again in February 2013 after South Korean President Park Geun-hye was inaugurated.“ While populism is on the rise and the support for such parties has increased, we do not think that these movements will threaten the viability of the Eurozone in 2017. The Wall Street Journal reports that the “Obama administration considers North Korea to be the top national security priority for the incoming administration.”® Nuclear weapons already in place, long-range ballistic missile capabilities in development, and an unpredictable and provocative leader are a deadly combination. North Korea will remain a serious risk for the foreseeable future. Russian Adventurism Intensifies: While attention has been focused on Russia’s adventurism in Syria, the frozen conflict in Ukraine remains intact, with increasing violations of the Minsk agreements of 2014 and 2015.° Since the first agreement in September 2014, nearly 10,000 people have been killed,®’ and most recently, Russian-backed separatists attempted to break through Ukrainian government lines. In response to such lack of progress and concerns about further Russian aggression in the region, the heads of North Atlantic Treaty Organization (NATO} member countries agreed, at a summit in Warsaw in July 2016, to deploy as many as 4,000 troops to the Baltic States and Poland in early 2017 as a deterrent to further adventurism in Eastern Europe.” The risks of accidents and intentional skirmishes will inevitably rise. Furthermore, the direction of foreign policy in the region under a Trump administration is uncertain given President-elect Trump’s July 2016 statement that the US would not automatically defend the Baltic States.” Russia is likely to stay involved in the Middle East as well. Russia has been a constructive force with respect to the fight against the Islamic State of Iraq and the Levant (ISIL) and a stabilizing force with respect to keeping Syrian President Bashar al-Assad in place in the absence of any attractive alternatives. Syria would not have made as much progress in pushing back ISIL and the rebels without Russian air power support. Russia has also hosted a meeting in Moscow with Iran and Turkey to work toward an accord to end the war in Syria”7\—a six-year war that has resulted in 400,000” to 470,000 fatalities’? and an estimated economic cost of $250 billion to $275 billion.” Given the prospects of continued geopolitical turmoil in the region, Russian involvement in the Middle East will not be reduced anytime soon. Outlook | Investment Strategy Group 29 HOUSE_OVERSIGHT_014562