Eurasia Group's weekly selection of essential reading for the political risk junkie-presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer. 

Must-Reads

1. "Al Qaeda 3.0: Terrorism's Emergent New Power Bases"
Bruce Riedel, The Daily Beast

In a world where international governance is breaking down, leaders are focused more on domestic than on foreign policy challenges. This trend extends to al Qaeda, an organization transitioning from global to local goals.

2. "India's African ‘Safari'"
Sudha Ramachandran, The Diplomat

We hear a lot about the US and China's conflicting investment approaches in Africa, but there's precious little written on Africa's fourth largest trading partner: India. With trade increasing by a factor of 17 over the last decade, India-Africa relations are becoming much more interesting. 

3. "How Crash Cover-Up Altered China's Succession"
Jonathan Ansfield, New York Times

How will Beijing's leadership manage the challenges that come with an era of more open information? What will the rest of us learn about the Chinese leadership's taste in cars, clothes and once-hidden power politics?

4. "Merkel's mastery of politics"
Michael Fry, The Scotsman

Is Angela Merkel the most talented politician in the world?  Her domestic political tactics shed light on her policies with regard to the Eurozone and beyond. 

5. "A free-trade agreement with Europe?"
David Ignatius, The Washington Post

Though still on the drawing board, the Trans-Pacific Partnership has far-reaching security and economic implications for North America and the Asia Pacific region.  Progress on an Atlantic equivalent seems beyond the horizon. But is an ‘economic NATO' already in the planning stages? 

6. "The mother of all worst-case assumptions about Iran"
Stephen M. Walt, Foreign Policy

Would a nuclear Iran carry "shattering geopolitical significance?" This piece overstates its case at times, but it's a question that demands consideration.

The Weekly Bonus:

"Floating Housing (And Golf Courses) For Post-Climate-Change Island Paradises"
Co.EXIST blog, Fast Company

In a G-Zero world, don't expect political leaders to tackle climate change. An ineffectual climate summit meeting in Doha this week makes that all the more obvious.  If climate change continues unabated, the Maldives will end up underwater.  The government knows it, hosting a cabinet meeting on the ocean floor in full scuba gear in 2009, and inquiring about land purchases abroad. But even the most daunting risks come with opportunities, however whimsical they may seem.

By Stephanie Haffner

Since the start of Europe's sovereign debt crisis, tension has risen in the eurozone as a result of the growing economic divide between the group's northern and southern members. The response to the debt crisis was an ugly trade: Northern countries financed southern debts, but in turn imposed harsh austerity and economic reforms. The policies, however, have triggered ongoing protests that could morph into rising resentment from populations in southern EU member states, and extremism.

The belief in Berlin, Helsinki, and other northern European capitals is that austerity will eventually lead to competitiveness, fiscal sustainability, and growth for southern economies as well as the EU as a whole. So far these hopes remain unfulfilled. In fact, continued austerity will spur increasing resentment and a growing divide that could boost the popularity of extremist parties and threaten the European project. This dynamic will be helped along by a looming identity crisis for mainstream political parties in Europe's southern states, where distinctions between the left and right have begun to blur as sovereignty is further undermined and spending cuts drive domestic policies.

Assuming responsibility for southern debt has allowed Europe's northern countries to essentially take control of fiscal policy throughout the EU. This result has eroded the sovereignty of southern European countries, and that process will be further exacerbated by increased policy centralization at the EU level and the move toward fiscal mutualization. As the eurozone's monetary union is strengthened, fiscal instruments (such as Eurobonds/bills) that rely on pooling fiscal risk with greater burden-sharing could end up being exchanged for even more centralized control of economic policy. And new EU legislation, such as the so called two-pack and six-pack, which give national budgetary oversight power to the European Commission, will permanently lock in austerity

Centralized policymaking at the EU level will further exacerbate the political imbalances between the EU's northern and southern members. The northern states' growing role as the policymakers of the EU means that the south will lose the ability to significantly influence EU-level policies. The traditional democratic deficit that exists between the European Parliament and European citizens is thereby transformed into a deficit between southern European citizens and northern European governments, which is arguably a far more critical divide.

But there is a way to avoid such a mess. Economic integration is clearly necessary to resolve the crisis, but politicians are lagging in their efforts to present a long-term vision for Europe's political and economic future as a union. Policymakers should consider shifting their narrative from one that emphasizes oppressive austerity to one that highlights the importance of solidarity and political integration. This goal may require a new treaty to address the lack of political representation and democratic accountability that has come to characterize much of the current response to the crisis. But the failure to address these important issues will not only diminish the voice of southern Europe and its citizens, but could also heighten the risk of a breakdown in the European experiment.

Stephanie Haffner is a researcher with Eurasia Group's Europe practice.

By Hani Sabra and Willis Sparks

Thousands of Egyptians are now gathering across their country to chant their denunciations of Egypt's new draft constitution, a document completed by the Islamist-dominated constituent assembly just days ago. Pro-democracy revolutionaries, the young people who sparked the movement that toppled Hosni Mubarak in 2011, warn that the new constitution will give the military enormous power, fail to force the president to appoint a vice president, and the vague language on freedoms of religion and the press, and protections for the rights of women could actually be used to discriminate.

But when the constitution is put to a popular vote less than two weeks from now, it will pass. Why? Because its authors (the Muslim Brotherhood) and their sometime political partners (the military), remain the two most powerful groups in the country. Because the Islamists campaigning for it are organized and popular. And because they will argue, as they did in March 2011 during a debate over temporary constitutional amendments, that it is the duty of Muslims to vote for a document that will provide longed-for stability and that reflects the will of a people that elected the Muslim Brothers to power. (Seventy-seven percent of voters approved the 2011 constitutional amendments.)

There is another reason why the draft constitution will pass. The non-Islamist opposition has not made a clear and compelling case to voters that a "no" vote will make Egypt more stable and prosperous. The protesters warn that this constitution does not reflect the aspirations of those who ousted Mubarak to gain "bread, freedom, and social justice." They're right. But they haven't explained to large numbers of voters why a rejection of this document will improve their lives. The Islamists insist that a vote against the constitution is a vote for uncertainty, instability, and continued conflict.

In short, the protesters offer no clear alternative. There is no constitution B. Faced with a choice between yes and no, most Egyptians will choose the path they believe will move things forward toward a restoration of order-even though a new constitution won't really accomplish that. It's not that the Muslim Brotherhood is unbeatable; when Egyptian voters have a choice, Brotherhood candidates sometimes lose. Their man, Mohamed Morsy, is president, but he only drew a quarter of the vote in the first round of a hotly-contested election, and in the runoff, he barely defeated Ahmad Shafik, Mubarak's right hand man. To win that second round, he needed support from millions of non-Islamist voters who chose him because he represented a viable alternative to continuation of the old regime.

And until the young protesters and the broader non-Islamist camp offer an alternative that voters can understand and accept, they will have more defeats ahead. 

Hani Sabra is an analyst in Eurasia Group's Middle East practice. Willis Sparks is an analyst in the firm's Global Macro practice. 

By Anjalika Bardalai

On the face of it, India and the US have more differences than similarities: They diverge markedly in terms of income and a host of other qualitative and quantitative indicators. They seem like political opposites as well-one is a two-party presidential system, the other a parliamentary system comprising no fewer than 70 recognized parties (the newest was launched just this week). But Mitt Romney's defeat in the recent US presidential campaign has highlighted several weaknesses of the Republican Party that are mirrored in India's center-right national party, the Bharatiya Janata Party (BJP), which has been the main national opposition party since its spectacular loss in India's 2004 general election.

Most critically, both parties exhibit a split between a conventionally center-right, business-friendly faction and an overtly religious faction that tries to politicize social issues. In the US, the extremely conservative stance of a few Republicans on issues such as rape and abortion periodically overshadowed the presidential campaign and arguably alienated potential voters who favor the right's economic policies, but who found its social policies abhorrent. The BJP, too, exhibits a fault-line between one faction that is secular, pro-business, pro-economic reform, and (relatively) fiscally conservative, and another wing-the hardline "Hindu-nationalists."

The GOP's hardline stance and rhetoric on immigration reform in the US contributed to an extremely poor showing for the party among Hispanics, the fastest-growing minority group in the US.  Similarly, the consequences for the BJP of the Hindutva influence are grave, and will become ever more so as rising incomes inevitably weaken the bonds of religious, ethnic- and caste-based identity in India. For one thing, the BJP's perceived pro-Hindu stance means that it will be all but impossible to make serious electoral inroads among the roughly 15% of India's population that is Muslim.

In addition, the BJP's position is a serious liability in terms of its ability to form alliances with India's myriad regional parties. In an increasingly fractured political system, this could be an utterly debilitating political handicap. As a debate raged this week about whether or not a symbolic parliamentary confidence vote would be held on a the government's recent move to liberalize FDI in the retail sector, the BJP was unable to persuade key parties that are stridently opposed to the reform that they should side with it in a vote against the government. As much as they may fear the recent liberalization, the other parties may fear what they have termed the "communal forces" represented by the BJP even more.

The broader consequences of the BJP's schizophrenic identity are no better. In the absence of a strong, coherent policy platform, the party has relied on sheer obstinacy and obstructionism, preventing the legislature from attending to important legislation (some would argue echoing the behavior of the Republicans in Congress for much of the recent past). The Indian government certainly cannot be absolved of responsibility for the current disastrous policymaking environment, but the main opposition party is behaving irresponsibly.

Finally, the division between the secular and religious right complicates the choice of party leadership. Some analysts argued that with public approval of Obama relatively low and, crucially, the US economy still relatively weak, the presidency was the Republicans' to lose if only the party had been able to muster a stronger candidate than Romney. In India, the BJP has yet to anoint a prime ministerial candidate for the next general election, which is due by May 2014. The man widely hailed as the front-runner is the chief minister of the state of Gujarat, Narendra Modi. Having presided since 2001 over one of India's fastest-growing and most industrialized states, he has developed a sterling reputation for economic management and as such is well-placed to campaign on the main issue of the day: economic revival.

Unfortunately for him, however, he is also one of the country's most divisive figures, with a shadow still hanging over him from communal riots in the state in 2002 in which around 1,000 people-75% of them Muslims-were killed. Even if he prevails in the BJP's internal leadership struggle, this potentially bodes ill for the party's electability in 2014. The BJP urgently needs to reflect on finding a leader who could bring to the table both economic management and political cohesion. Both the Indian BJP and the US GOP have similar lessons to learn from recent history as they attempt to stake out a brighter political future.

Anjalika Bardalai is an analyst in Eurasia Group's Asia practice.

By Roberto Herrera-Lim

It's easy to disparage Vietnam, whose reputation as the poster child for the economic potential of frontier market countries has taken a beating in recent years. Inflation is a persistent threat, growth is slowing, and the country's banks and state-owned enterprises (SOEs) are struggling with a potentially destabilizing level of bad debts. And to top it all off, Vietnam's political leaders are fighting among themselves when the situation calls for firm action. As a result, foreign investors are left scratching their heads and wondering if Vietnam will be able to build the institutions and capabilities needed to move into the ranks of the emerging market nations.  

Vietnam's institutions were not prepared for strong growth. That much is clear from the crisis that has played out over the past few years during which Vietnam's institutions and leaders mismanaged capital inflows, resulting in inflation, bad investment decisions, and near-rogue banks and SOEs. All this occurred on Prime Minister Nguyen Tan Dung's watch, and while he has survived at least two challenges to his leadership, he is weakened and chastened. As a result, consensus decision-making will play a greater role in coming years, while Dung's competitors (including President Truong Tan Sang) reduce his control over policymaking and tighten oversight. The near-term consequence of this dynamic will be a greater likelihood that factional competition will result in uneven policies and conflicting signals.

But don't count Vietnam out of the game yet. Historically, crises have been effective at forcing effective policy choices from the government (such as the 2001 ouster of the party's then general secretary Le Kha Phiu). The current situation is unlikely to result in Dung's exit, but it will spur a serious reexamination of economic policy, especially when it comes to better allocating investment. There is, after all, still a broad consensus among Vietnam's elites that previous reforms should remain in place and that long-term growth and sustained, equitable improvements in the quality of life are needed to ensure the survival of the communist party. The country's economy could also benefit from structural factors that are encouraging investors to consider manufacturing locations other than China.

It may be tempting for manufacturers to look to other countries in Asia, but they should not discount Vietnam's reemergence as a viable investment destination. The country's leaders may be squabbling, but they understand that failure to reform is a larger threat to their primacy than the uncertainty that comes with change.

Roberto Herrera Lim is a Director in Eurasia Group's Asia practice.

By Naz Masraff

With civil war in Syria, turmoil in Gaza, Arab Spring aftershocks, and the still simmering conflict over Iran's nuclear program competing for headlines, it's easy for outsiders to overlook another of the region's most intractable ethnic conflicts-Turkey's internal battle with Kurdish separatists. This story deserves attention, because it remains the primary security threat inside the region's most politically modern and economically dynamic country.

First, some background. In 2010, Turkey began secret talks with the Kurdistan Workers' Party, a militant group better known by its acronym PKK. But in the run-up to June 2011 elections, Prime Minister Recep Tayyip Erdogan brought them to a halt. Erdogan's Justice and Development Party (AKP) won those elections, securing nearly half the popular vote and a third successive term in power, and the newly emboldened prime minister has since adopted a relentlessly hardline attitude on Kurdish questions with a pledge to use Turkey's military to crush the PKK.

Since the beginning of 2011, several thousand Kurdish nationalists have been arrested on charges of PKK membership. In October, public prosecutors in Ankara launched a judicial investigation into the pro-Kurdish Peace and Democracy Party (BDP).

In July, the PKK launched a new phase in its 28-year insurgency, intensifying attacks on Turkey's security forces and working to create "no go" zones in designated areas in the mountains near Turkey's border with Iraq. The stated goal is to intensify pressure on Turkey's government to introduce greater Kurdish language rights and to cede many of the powers of the central government to local Kurdish authorities in southeast Turkey in a process Kurdish nationalists call ‘democratic autonomy.'

The PKK scored territorial gains in August and early September and have held on to some of them, and it's clear that the PKK is now stronger than at any time since the 1990s.

Military activity has slowed since mid-October when the mountain passes along its main infiltration and supply routes became blocked with snow. But the PKK then continued its progress by launching a series of hunger strikes inside Turkish prisons, beginning in September with 63 Kurdish inmates. The number of hunger strikers quickly grew to nearly 700 people, including seven members of parliament. Strikers demanded an end to the ban on the use of Kurdish language in courts and as the primary language used by teachers in schools in the predominantly Kurdish southeast. They also called for respect for Kurds' democratic rights and an end to the isolation of PKK founder Abdullah Ocalan, who has been incarcerated on the prison island of Imrali since 1999. In late October, Kurdish nationalist organizations began staging protest rallies across the country, triggering clashes between demonstrators and police, and fights between ethnic Kurds and Turkish ultranationalists in western Turkey. Turkish media, wary of antagonizing the government, downplayed the growing violence-though a few incidents injured too many people to ignore. 

Turkey's government was slow to react, at least publicly, and downplayed the strikes. Speaking in October during a visit to Germany, Erdogan insisted that only one of the hunger strikes was authentic and that others were mainly "for show."

Behind the scenes, however, Turkish officials knew they had a growing problem to contain. The PKK now appears to have won concessions on the right of Kurds to defend themselves in court in their native language-that's expected to be adopted in parliament soon-and a step has been taken to eliminate  Ocalan's isolation, in part by granting his family a visit. This brought an appeal from Ocalan to halt the hunger strikes, and on Sunday, they came to an end.

Yet, the risk of violence continues, and the turmoil in Syria has complicated matters further. Syrian forces have withdrawn from Kurdish areas in northern Syria, creating a de facto autonomous Kurdish regime over the past few months, and PKK leaders can exploit this power vacuum. For the moment, Turkish authorities want to avoid direct military involvement in Syria's troubles, but a sustained wave of PKK attacks on Turkey's security forces from inside Syria might still change their minds.

If the longer-term underlying issues fueling Kurdish separatism can be resolved, it is only with a comprehensive political process. Yet, Turkey's government -- like governments around the world -- is unwilling to negotiate with militants while they continue to launch attacks. This is particularly the case as Turks may go to the polls as many as four times in the next three years, including for a referendum on the constitution, as well as for local, presidential, and parliamentary elections. On the eve of these polls, the government is likely to adopt increasingly nationalistic rhetoric, shying away from taking steps to resolve the Kurdish issue through democratic means.

In short, the hunger strikes have ended, and the protests may die down. But there will be no peace in Turkey's southeast until the two sides can compromise their way toward a lasting political settlement.

Naz Masraff is an analyst in Eurasia Group's Europe practice.

By Carroll Colley

Washington is on the verge of completing an improbable trifecta in U.S.-Russian relations. In August, the Obama administration helped guide Russia across the finish line for World Trade Organization membership. Congress is now fast tracking an end to the Jackson-Vanik amendment, a piece of Cold War-era legislation that ties trade policy to human rights, and one that has remained a bone of contention between Moscow and Washington for more than twenty years. Finally, Congress is also about to establish "permanent normalized trade relations" with Russia.

So why are relations on the verge of a potentially serious turn for the worse-and perhaps a reassessment of the "reset" in U.S.-Russian relations? Because this legislation will also include the so-called Magnitsky Act, which publicly rebukes the Kremlin for its poor human rights record.

Sergei Magnitsky, an attorney investigating a corruption case involving tax fraud charges against a UK-based investment firm, announced he had uncovered evidence of collusion among police, organized crime figures, bankers, and the Russian judiciary to push the company out of business. In November 2008, Magnitsky was arrested on corruption charges and held for 11 months without trial. He then died in prison under disputed circumstances. An independent human rights organization, Moscow Helsinki Group, has accused Russian security of torturing him. Magnitsky's death provoked international criticism, but a defiant Russian government continues with a posthumous criminal case against him.

The Magnitsky Act will publicly name and shame Russian officials involved in the case, bar them from receiving US visas, and freeze any assets they hold in the United States. Moscow, as you might imagine, is incensed. The Kremlin sees the bill as evidence of continued anti-Russian sentiment in the United States - -Mitt Romney's campaign comments about Russia were grist for this mill -- and as an intrusion by the U.S. into Russia's domestic affairs. The House looks set to vote on the legislation tomorrow, the third anniversary of Magnitsky's death. The Kremlin promises to respond to the bill's passage by retaliating in kind.

The Magnitsky Act won't damage President Vladimir Putin inside Russia. He remains Russia's dominant political figure, his approval numbers are strong, and few Russians closely followed details of this case. Yet, Moscow remains extremely sensitive to international charges of human rights abuses and corruption of government officials. That leaders of Russia's nascent opposition movement have endorsed the Magnitsky Act aggravates the Kremlin even more.

Moscow has already floated suggestions for a 'black list' of US officials, including those connected with the extradition and trial of convicted arms dealer Viktor Bout or with the prison at Guantanamo Bay. Of more concern is the likelihood of increased pressure on U.S. industry operating in Russia, including, for example, unannounced tax inspections of U.S. companies, delayed or denied licensing or registration procedures, and other bureaucratic complications.

While the Magnitsky Act will punish those involved in the case, it won't do much to improve Russia's human rights regime in the near term. Several incidents since Putin's inauguration in May demonstrate that the state continues to use force to weaken the political opposition. Russian officials recently announced the arrest of political activist Leonid Razvozzhayev on charges of orchestrating a series of riots. Razvozzhayev insists that Russian security officials kidnapped him in Ukraine where he was applying for political asylum, transported him back to Russia, and gained a confession from him by torturing him and threatening his children. Politically connected murders of journalists and human rights activists are no closer to being resolved.

U.S.-Russian relations are now likely to enter a period of strain and recrimination, though pragmatism on both sides will prevent a total collapse. The U.S.-Russian "reset" was a good idea at the time and produced significant results, but there is only so much it can accomplish with so much continuing mistrust on both sides.

Carroll Colley is an analyst in Eurasia Group's Eurasia practice.

By Shaun Levine

It is befitting that Indonesia has become the latest darling of the investment community, drawing private equity firms, retail and consumer giants, and the world's largest automakers to its shores. Even in a depressed global economy, the world's fourth most populated country continues to grow strongly, perhaps by as much as 6.2 percent in 2012. Indonesia is also blessed with natural resources, shipping its coal, nickel, copper, and gold to supply many of Asia's giants, including China and Japan, with the precious materials they need for their own economic engines.

Indonesia's stubborn affinity for subsidies, however, remains a major impediment to its longer-term growth.  President Susilo Bambang Yudhoyono's government remains committed to unsustainable funding for subsidies, which will potentially consume up to 20 percent, or $30 billion, of the 2013 budget-nearly the amount spent on education. The largest portion of this spending, nearly $20 billion, will be allocated to fuel subsidies, which the government acknowledges largely benefit the country's more affluent households.

Indonesia's current high growth rates mask the problems that, if left untouched, will likely make the country an example of a booming emerging market economy that never quite reaches its potential.  Without a realignment of spending priorities away from subsidies and toward vital infrastructure and education, investors are likely to take their dollars elsewhere.

Unfortunately, the political context is not conducive to a reduction in subsidies in the near term, despite external pressure from ratings agencies, the World Bank, and the IMF. Subsidies remain highly popular with a large portion of the voting population, and given this reality, Yudhoyono appears reluctant to press for reforms any time soon. Such a move would certainly dampen his party's electoral prospects: Recent polling suggests that if the 2014 parliamentary election were held today, Yudhoyono's PD would lose its top ranking, ceding substantial ground to rivals Golkar and PDI-P. Parliament also appears to reject subsidy reform, and political parties want to make sure it would be Yudhoyono's prerogative to reduce popular subsidies ahead of the 2014 elections.

But subsidy spending will shrink Indonesia's growth potential. Improving the country's decrepit infrastructure remains paramount: Even though parliament boosted Yudhoyono's planned infrastructure spending by $3 billion to $20 billion in 2013, that number is dwarfed by spending on subsidies, which offer no return on investment. Indonesia's backlogged and rickety ports, crumbling road and rail networks, and antiquated system of airports remain a large handicap for this country of 17,000 islands. Despite the size of its economy, Indonesia's level of spending on infrastructure, at nearly 2 percent of GDP, remains far below that of another favorite of investors-neighboring Vietnam (9 percent-10 percent).

At the moment, though, investors appear to be placated by government pledges to improve Indonesia's infrastructure. The country has reported record foreign direct investment thus far into 2012, perhaps a yearly total of more than $22 billion; investment officials proudly boast of having $75 billion more in the pipeline. New laws have been passed helping to ease the process of land acquisition, and spending continues to increase. But how long can Indonesia squeeze growth out of a flawed model before the darling of investors becomes the disappointment?

Shaun Levine is an analyst with Eurasia Group's Asia practice.