By Ian Bremmer and David Gordon

Pakistan is experiencing a near perfect storm of political, economic, and social crises, and the Pakistan People's Party-led government is not equipped to manage the fallout. A full-on military coup like the one that brought Pervez Musharraf to power in 1999 is unlikely in 2011, but the government's ineptitude and a worsening security situation across the country could fuel still more unrest, encouraging the army to play a more direct and active role in the country's politics. President Asif Ali Zardari will fight any bid by the army to remove members of his inner circle from power, and even if the military were to install a technocratic administration, it would struggle to reverse the effects of years of weak governance.

Zardari and Prime Minister Yusuf Raza Gilani face challenges on multiple fronts. Gilani is focused on rebuilding the ruling coalition and fighting a Supreme Court and media set on undermining Zardari and other senior PPP members. This political battle will continue to distract the government from addressing pressing problems, like the need for structural reforms to slow the expansion of a fiscal deficit that leaves the government little room to invest in much-needed development projects. It's hard to get accurate statistics on inflation and unemployment, but both are high enough to arouse widespread public anger. Food prices are a particular source of anxiety. Severe flooding has created emergency conditions. The government will continue to struggle to hold together a fractious parliamentary coalition.

The government has no political control in the unstable Federally Administered Tribal Areas and Khyber Pakhtunkhwa (the new name for the Northwest Frontier Province). Nothing new there, but the bigger worry is that instability is spreading to the heart of the country and the provinces of Punjab and Sindh. Both have been relatively isolated from the turbulence of the tribal areas, but militants have been increasingly encouraged by the Pakistani government's weakness and the success of allies across the border in Afghanistan. The governor of Punjab, Salman Taseer, was assassinated in Islamabad just three weeks ago. Social upheaval is generating a surge in crime (including kidnappings, extortions, and robberies), protests, and other forms of unrest in Pakistan's large cities --especially Karachi. Further social and ethnic turmoil in the heart of the country might push the military to argue that urban unrest and terrorism are undermining national unity -- and that political change has become an urgent necessity.

These risks have clear implications for U.S. troops across the border. Following a sharp spike in the number of U.S. boots on the ground in Afghanistan, U.S. gains, though limited, are real. But they aren't sustainable without a much more stable Pakistan that can limit the militants' room for maneuver. That will require a political sea change in Karachi, and that's not in the cards for 2011.

On Wednesday, we'll examine Top Risk no. 9: Mexico, where the government's battle against drug cartels continues.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.

By Ian Bremmer and David Gordon

The risk is rising that a number of countries -- including those that resisted the urge last year -- will impose capital controls in 2011. This trend is driven by two factors: in general, emerging markets are recovering more quickly than the United States, the European Union, and Japan from the global recession, and it's increasingly unlikely that G-20 members can agree on a coordinated strategy to tackle current account imbalances. This is a byproduct of our Top Risk for 2011: the G-Zero. The opportunity for political and commercial advantage raises the value of using capital controls and a lack of global governance lowers the cost.

Investors looking for high long-term growth rates are moving huge sums of cash into emerging market economies, generating upward pressure on the value of currencies in those countries. This, in turn, undermines domestic firms by making their exports more expensive and by intensifying import competition.

In response, policymakers in some countries have turned to currency management, in the form of direct market intervention, to protect local companies. If these interventions can't take the edge off this upward pressure, some governments will begin to look more seriously at capital controls as a way to counter appreciation. This is more likely given the qualified legitimation of capital controls given by both the International Monetary Fund and the G-20 last year. Already, a handful of countries -- Brazil, South Korea, and Taiwan -- have telegraphed plans to move in this direction.

Governments weighing the possibility of a resort to capital controls must answer three questions: 1) Are they confident that the country's investment climate is strong enough to continue to attract foreign capital despite the controls? For Brazil, Korea, and Taiwan the answer is yes. 2) How strong are the political pressures to contain appreciation? Singapore, overriding exporters' views, decided to accommodate appreciation to strengthen its role as a financial center. 3) Do policymakers believe in an active industrial policy and the viability of capital controls? In Malaysia, for instance, if the government finds itself in political trouble, the answer is probably yes on both counts.

If appreciation pressures continue, the countries most likely to enact capital controls this year are Colombia, Peru, and Thailand. Turkey, Mexico, and the Philippines, on the other hand, are unlikely to move in this direction. But contagion will be an important factor. When state officials see their trade competitors move to stem appreciation, or if policymakers perceive controls as effectively stemming appreciation, they're much more likely to follow suit to avoid a competitive disadvantage.

On Friday, we'll examine the risk of U.S. policy gridlock, which takes its places as Top Risk no. 7 this year.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.

By Ian Bremmer and David Gordon

Amid a sluggish global recovery, China's return to go-go growth will generate plenty of resentment in 2011 -- and not just in Washington. Though China has become the world's second-largest economy, its leadership insists it must continue to manage the country's development at a measured pace. For some of China's biggest trading partners, that argument is beginning to ring hollow.

To rebalance the global economy, policymakers in both the developed and developing world have called on China to reduce its enormous trade surpluses by reducing the country's dependence for growth on exports and increasing Chinese consumer demand, both for foreign and domestically made products. Chinese policymakers would like to do exactly that. The Western financial crisis briefly created turmoil in China, not because Chinese banks were exposed to contagion from Western banks, but because reduced demand for Chinese products in Europe, the United States, and Japan hit local manufacturers hard and forced millions of Chinese from their jobs. Beijing scrambled to create new jobs, primarily by targeting massive state stimulus spending at infrastructure projects that required lots of manual labor. For the Chinese leadership, generating much greater domestic demand would make China less vulnerable to hard times elsewhere.

But China's plans for rebalancing will take a generation to accomplish, and a lot of its trade partners would like to see the change come much faster than that. In the near term, Beijing will offer only small adjustments to accommodate them because the leadership must negotiate demands from various interest groups within the leadership and because this transition will put many more workers on the street than the slowdown did, and the Chinese leadership knows it must manage that challenge carefully to avoid a dramatic surge in civil unrest.

Unsatisfied, outsiders will grouse that China's rate of export growth remains twice its rate of economic growth. In 2010, relations between the United States and China became much more contentious. In 2011, China will likely face increased pressure from Europe, Japan, and probably from emerging markets like India and Brazil. Further, China's security-driven assertiveness in East Asia will continue to provoke tensions with many of its Asian neighbors even as trade relations deepen.

In the past, China has taken the edge off international pressure by adjusting the pace of its reform efforts modestly just before major multinational gatherings -- for example, by depegging the renminbi from the U.S. dollar in advance of the June 2010 Toronto G-20 summit. But there aren't many "steam-releasing" events on the calendar in 2011. President Hu Jintao visits Washington later this month, but the North Korea crisis will occupy much of that conversation, decreasing the likelihood that China will see much value in any major moves on rebalancing.

The next G-20 meeting, this one in Cannes, won't be held until November. French President Nicolas Sarkozy has grand ambitions for this event, but frustration with China will build over the next 10 months and so too will the risks of market-moving international reactions to China's incremental, deliberate, consensus-driven policymaking process. At Cannes, tensions may come to a head as more countries than ever prove ready to confront Beijing on issues from industrial policy to intellectual property rights protections to currency valuation.

On Monday, we'll examine the threat from North Korea, which hits our list of this year's top risks at No. 5.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.

By Ian Bremmer and David Gordon

2010 was a difficult year for Europe, and things won't get easier in 2011. The eurozone will remain intact, but there's a serious risk that the debt crisis will become increasingly unmanageable this year. As peripheral countries struggle to implement structural reforms, the politics of austerity will put additional public pressure on supporters of the EU project in core countries like Germany and France.

In recent weeks, the EU has done little to allay investors' fears about the solvency of both sovereigns and banking systems in a number of peripheral eurozone countries. Key questions on the nature and timing of future financial bailouts remain unanswered, and important potential remedies, like increasing the European Financial Stability Facility (EFSF) and introducing new eurozone bonds, have been taken off the table, at least for now.

At the moment, the core countries, led by Germany, are committed to the euro and the European integration project, even as they avoid efforts to find systemic solutions to the crisis. In Spain and Portugal, governments are moving to fast-track fiscal consolidation and structural reform in an effort to preempt market pressures. While markets remain skeptical, the hope in Brussels, Berlin, and Paris is that this is just the beginning of a sustained rebalancing that will help stabilize the eurozone. In this view, the European economic crisis is the catalyst needed to restore policy convergence within the eurozone and to enforce peripheral Europe's compliance with the "Lisbon agenda" of labor and product market reform. Yet the idea that the EU, the ECB, and national governments can rapidly remake fiscal patterns of peripheral Europe -- let alone their labor markets and regulatory regimes -- strains credulity. That's especially true given the weak economic forecast for these countries and their inability to undertake currency devaluations.

Ireland, Greece, Portugal, and Spain have all taken impressive first steps on the fiscal side, but policy sustainability remains an open question. Politicians in each of these governments will have a hard time enforcing cuts to wages and entitlements that erode their nations' standards of living. Structural reforms like privatization and trade union regulation will threaten well-organized groups, which will mobilize in opposition. The result will not be explicit rejection of these programs, let alone an exodus from the eurozone. Peripheral Europe is more likely to take a page from developing countries in how they manage relations with the International Monetary Fund and World Bank -- with a lot of fudging and passive opting out of important parts of their plans.

The political challenges facing reform in the periphery will make it more difficult for defenders of financial bailouts within core countries, and we're likely to see new political fissures on this issue, especially in Germany. This problem will heighten the sense of broader political conflict on the continent, increase policy coordination risk (especially between Berlin and Paris), and undermine market confidence in the EU's ability to sort out the crisis.

All of this leads to the real danger: that the eurozone countries big enough to matter in global finance -- namely, Spain and Italy -- will find it increasingly difficult to borrow at rates that are financially sustainable. If that happens, the chances of a systemic crisis will grow dramatically.

On Wednesday, we'll look at no. 3 on our list of Top Risks for 2011: the geopolitics of cybersecurity.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.