Risk Radar & Risk Shifts

ITALIAN THREAT ISSUE 05 2018

& AI ARMS RACE & AFRICAN TERRORISM Photo by Anastasia Zhenina on Pexels.com Photo RISK RADAR & RISK SHIFTS RISK RADAR / MAY 2018 03

1. The Italian threat

The current populist and Eurosceptic wave has already affected newer member states on the periphery of the continent, such as Hungary and Poland. It has now also reached a core member of the . may bring forth the next coalition led by a government consisting of an anti-establishment and right-wing party: the and the League party. For a country that used to be seen as a stronghold of liberal values and center-left politics, this sudden ascent of populist power would have been unpredictable a few years ago. However, the Italian post-election period is messy and has not at all settled in a pop- ulist coalition yet. , Italy’s president, has installed an interim prime minister to lead a new government after a bitter falling out with the country’s populist parties. Mattarella refused to accept the nomination of , a Eurosceptic who was put forward by the Five Star Movement and the League for the role of finance minister. Mattarella then asked , a former IMF official, to become interim prime minister. This has led to the resignation of , the parties’ consen- sus pick for prime minister, and outrage from the two parties’ leaders. Mattarella has contended that Italy would have sent the wrong message by appointing an anti-Euro finance minister, although Salvini countered the claim that he had ever called for an exit from the Euro. Emmanuel Macron, France’s president, has praised Mattarella for showing “great spirit of responsibility” in protecting Italy’s “institutional and democrat- ic stability”, while Germany’s Angela Merkel has said she would be willing to work with any coalition government in Italy, but economic policy had to be dictated by Eurozone rules. Cottarelli will now attempt to form a technocrat government. However, he is ex- pected to lose a vote of confidence in Parliament. This would then lead to new elec- Photo by Elliott Brown on Flickr tions being called. In that case, the MS5 could double down on its message that it is the party that honors the “democratic will of the Italian people”, instead of allowing Italy’s politics to be determined by financial markets and foreign institutions. As a result, the populist government might re-emerge stronger after new elections. The other option is that both parties will succeed in their next attempts to form a government. What would a populist coalition mean for Italy, the eurozone and the EU? the slowest growing economies of the eurozone. Its outlook is grim and the country’s a very likely candi- First, the two parties propose major changes to Italy’s finances, such as the intro- date to plunge into a debt crisis when the next recession hits. Second, the parties reject the EU asylum duction of a flat tax (15 or 20%), a guaranteed income for the poor, and bringing the rules for refugees and want an overhaul of the so-called Dublin rules, which oblige migrants to apply for pension age down again. Furthermore, although the parties have pledged to keep permission to stay in the country where they first arrive. However, making ambitious plans is easier than Italy in the eurozone, they want a revision of the EU economic governance framework, implementing plans – especially in a country like Italy. The Italian political system is designed to inhibit including the rules that establish debt and deficit limits for member states. The plans large changes. The country is characterized by internal contradictions and institutional constraints, such to reverse years of austerity measures especially are expensive plans if implemented. as bureaucracy, vested interests and parallel centers of power. These are risky steps – not only to the Italian economy but to the European economy Although the post-election rollercoaster has taken the parties’ plans further from forming a populist co- as well. As a founding member of the and the Eurozone, Italy accounts alition, Italy is still on course to have a radical government and a populist coalition would have a serious for almost one-sixth of the Eurozone’s GDP and holds almost a quarter of all its pub- impact on the country and on Europe. lic debt. The country remains half reformed after the eurozone’s dual crises, as all of Renzi’s reforms since 2015 will be cut off by the March 2018 elections and Italy is among RISKS MARKED ON THE RISK RADAR AS NUMBER 1: WEAK SOUTH EUROPEAN ECONOMIES RISK RADAR & RISK SHIFTS RISK RADAR / MAY 2018 05

a point where unassisted humans can’t keep up. The term “hyperwar” has been coined for this phenomenon by retired U.S. Marine General John Allen, to urge NATO to step up 2. AI arms race its investments in AI.

Meanwhile, although the focus is mostly on the duopoly of the U.S. and China, other countries have ramped up their AI investments, most recently India, the UK, Russia – also showing many military AI demonstrations – and the EU. Last month, the European AI is central in determining economic leadership in the era of Big Data, as the eco- Commission announced it will be investing an extra €1.5 billion in AI research. Moreover, nomic value of AI is enormous. For some industries, deep learning potentially creates Canada is seen as an example to the EU, due to its success in attracting AI talent. value to as much as 9% of a company’s revenues. The economic momentum behind The AI arms race has just begun and it has been argued that this race will increase the AI is fueling the idea that the AI competition is mostly commercial and largely be- risk of a nuclear war. Tensions between AI leaders will at least increase, disadvantaging tween companies. Some argue that development of AI shows an unprecedented glob- those who are lagging behind in deploying AI, both economically and al collaboration, looking at the open-source resources, the willingness of scientists to on a security-level. upload their findings immediately, rather than publish in journals, and the cross-li- cense patents of, for example, Tencent and Google. RISKS MARKED ON THE RISK RADAR AS NUMBER 2: AI ARMS RACE One reason the competition over AI is so charged is that it is not only a source of new products and services, harnessing the autonomous vehicles era, but this very same technology can equally be deployed in “swarm intelligence,” guiding dozens of armed Photo by Pascal on Flickr drones into an automated attack force. AI supremacy thus does not only affect busi- nesses and industries, but also the geopolitical balance, since it could mean a change in warfare. AI leadership of one superpower over another could mean a reordering of global power relations. In 2017, Russian President Putin stated in a speech that “Who- ever leads in AI will rule the world”. Today, the U.S. and China are the clear leaders. President Xi Jinping has made of the Made in China 2025 plan to transform the country’s economy, meaning U.S. technology exceptionalism can no longer be taken for granted.

It takes three domains to gain AI supremacy: advanced algorithms, specialized com- puting hardware, and the supply of data. Although the U.S. is still a clear leader, China is trying to catch up in the former two, while having a clear advantage in the latter. China has the necessary scale and data density partially due to its governmental surveillance programs and the online footprint of Chinese customers, who pay and order online a lot. Another advantage China has is the collaboration between state and private companies on a large scale, i.e. big tech companies joining government research labs.

In July 2016, only a few months after Google’s DeepMind used AI to defeat a world champion in the ancient Chinese game of Go, China revealed plans to become world’s AI superpower by 2030. The speed and decisiveness with which China has worked on catching up with the U.S. since then, has sparked new willingness in the U.S. to secure its position. The U.S. and Chinese military are both putting vast amounts of capital and energy in deploying AI. If AI is the new space race, this is the Sputnik moment. Looking at the U.S.’ long history of driving innovation through its Defense Advanced Research Projects Agency (DARPA), for instance, China has been quick to copy the model by rapidly reorganizing the PLA science and technology branch. AI computing could add information about incoming threats and targets, AI could facilitate pilotless flights and improve the effectiveness of airstrikes, AI could even speed up warfare to RISK RADAR & RISK SHIFTS RISK RADAR / MAY 2018 07

3. African Terrorism

African terrorism has been on the rise for a while and has recently spiked in Libya, Mali, Nigeria, the Democratic Republic of Congo (DRC), Somalia, Tanzania, and Mozam- bique. The most important and known terrorist groups currently carrying out attacks in Africa include; Allied Democratic Forces, Al Qaeda, Al Shabaab and the Islamic State in West Africa (ISWA), formerly known as Boko Haram. The latter specifically has recently shown an increase of activity, and expansion among multiple countries. The group pledged allegiance to the Islamic State in 2015.

Earlier, we wrote that although the ISIS stronghold in Syria and Iraq seems defeated, the Islamist group is operating globally. Considering the transnational and strategic nature of ISIS, Western media and policymakers touting the victory of ISIS in Syria and Iraq should be wary of the group’s resurgence in Africa. Only recently, the Afri- can Union stated that the threat of ISIS in Africa is real. Due to its defeat in Syria and expulsion from the Gulf, the Sahel region is especially becoming more unstable, as the Indian Ocean coastline offers ISIS a way to infiltrate African regions. Somalia’s Puntland has specifically provided an important opportunity to continue the group’s expansion. Simultaneously, the extremist group is gaining influence and expanding its network in North and West Africa by taking advantage of the security vacuum caused by weak or almost absent governance in Libya, Niger, Mali, Nigeria and Chad.

Why is African terrorism gaining strength? Although the majority of Africans are religious moderates, there are multiple factors that drive people to embrace radical Islam. Pull factors include the ideology, the purpose and mission the extremist groups provide, the humanitarian networks, and media propaganda. The complex cocktail of push factors consists, among others, of massive population growth and high youth unemployment, local backlash against forces of globalization, corruption and author- itarian regimes, violations of human rights and a lack of access to basic needs. The negative consequences of climate change, reduced access to food and water due to droughts, further increase tensions. In Embedding Technopolis, Haroon Sheikh argues that, due to urbanization and rapid population growth, many people become uproot- ed, and since tribal cultures cannot embed people in modernity sufficiently, Christi- anity and Islam will grow on the continent and radicalism and African terrorism will further rise. In our Hegemonic Framework, we write that terrorist groups will seek to combat modernity. And that in 5 to 15 years, many African countries will be too weak to control massive population growth, and combined with weak national cohesion and institutions, this will lead to chaos, conflict and migration. Leading to an emer- gence of radical modernization leaders and the growth of African global terrorism.

RISKS MARKED ON THE RISK RADAR AS NUMBER 3: AFRICAN TERRORISM, LARGE-SCALE MIGRATION

Al Shabaab hostages rescued in Kismayu - Photo by AMISOM Public Information on Wikimedia Commons RISK RADAR & RISK SHIFTS RISK RADAR / MAY 2018 09

RISK RADAR EUROPE

MAY 2018 HEGEMONIC KEY RISK SHIFTS The potential political, sociological, economic and technological threats.

PRIORITY OF RISK

Is a determination of the PROTECTIONISM likelihood of occurrence and the estimated impact. OTHER TOP EUROPE RISKS 1 WEAK2 SOUTH EUROPEAN ECONOMIES • Eastern European slow NEW RISK implosion • Cyber-attacks or document DETERIORATING RELATIONSHIP RUSSIA AND THE WEST leaks • Chinese / other EM’s economic slowdown ESTIMATED IMPACT UNREST AND REGIME CHANGE IN PERIPHERY OF EU • Policy uncertainty CYBER-ATTACKS OR DOCUMENT LEAKS • Friction over Arctic Sea • Declining internet freedom LARGE-SCALE MIGRATION 3 • Anti-establishment parties LIKELYHOOD OCCURENCE JOB DESTRUCTION DUE TO AUTOMATION come to power • Terrorism AI ARMS RACE 2 • Secular stagnation TIME HORIZON (IN YEARS) • Global debt glut • Digital Infrastructure INFOCALYPSE 5-10 Failures • Ageing population 3-5 • Exits from the EU 1-3 SOCIO-CULTURAL TECHNOLOGICAL RISK RADAR & RISK SHIFTS RISK RADAR / MAY 2018 011

RISK RADAR WORLD

MAY 2018 HEGEMONIC ECONOMICS KEY RISK SHIFTS The potential political, sociological, economic and technological threats.

PRIORITY OF RISK IS A DETERMINATION OF THE LIKELIHOOD OTHER TOP WORLD RISKS OF OCCURRENCE AFRICAN TERRORISM 3 AND THE ESTIMATED TRADE WAR • Unrest in South Asia IMPACT. • Financial Risk Emerging DETERIORATING RELATIONSHIP RUSSIA AND THE WEST markets NEW RISK • Implosion North Korean State TENSIONS THROUGHOUT THE MIDDLE EAST • Chinese / other EM’s economic slowdown • Water crises ESTIMATED IMPACT • Territorial disputes South LARGE-SCALE MIGRATION 3 CYBER-ATTACKS OR DOCUMENT LEAKS China Sea • Friction over Arctic Sea • LIKELYHOOD OCCURENCE Protectionism • Declining internet freedom • INFOCALYPSE 2 AI ARMS RACE Terrorism TIME HORIZON (IN YEARS) • Global debt glut • Continuing slow growth OECD-countries 5-10 • Digital infrastructure 3-5 failures

1-3 • Spread of infectious SOCIO-CULTURAL TECHNOLOGICAL disease • Climate change / natural disasters INTERNAL SOURCES Embedding Technopolis Filtering Hegemonic Shifts Hegemonic Framework 2018 The Macroscope

EXTERNAL SOURCES All Africa Bloomberg Financial Times McKinsey Global Institute New York Times Quartz Russia Today Stratfor The Arab Weekly Wall Street Journal