Key Political Issue Key Economic Issue North American Review South American Review

1. Key Political Issue Key Economic Issue North American Review South American Review West European Review Central and East European Review Middle East and North African Review Sub-Saharan African Review Central and South Asian Review East Asia and Pacific Review Statistics in Focus Contents: The ISA Global Update Issue #539 2nd of July 2014 Published by ISA (International Strategic Analysis) www.isa-world.com

2. Key Political Issue: Tense Days in the Middle East Summary - With the radical Sunni jihadist group ISIS (the Islamic State in Iraq and the Levant) having taking control of a large chunk of territory in eastern Syria and in western and central Iraq, and with Israel mulling a potential offensive against Hamas targets in the West Bank and Gaza, the situation in the Middle East is once again deteriorating sharply. This holds the potential for there to be a continuous arc of conflict stretching from the Palestinian territories in the west through Lebanon and Syria in the center and down to Iraq in the east, more or less coinciding with the Fertile Crescent from which Western civilization emerged. • Standoff in Iraq • In Iraq, efforts by government forces to retake areas of Iraq seized by ISIS militants and their Sunni allies in recent weeks have thus far been rebuffed by the militants. • This highlights that fact that, despite the numerical and materiel advantages enjoyed by the Iraqi military, ISIS and its allies are a more cohesive bunch in this conflict. • In fact, the Iraqi army has suffered major defections in recent weeks, particularly among its Sunni members. • As a result, the Iraqi armed forces are now little more than another Shiite militia and are being backed by other Shiite militants in their efforts to roll back the ISIS tide. • As a result, it appears that a stalemate is likely, as ISIS and its allies are too small to take a large city such as Baghdad, but are powerful enough to hold onto the territories in Sunni areas of Iraq that they have seized thus far. • Israel Against Hamas • On the other end of the Middle East, the potential for an all-out conflict between Israel and Hamas has risen substantially in the wake of the murder of three Israeli teenagers in the West Bank. • While Hamas has denied any involvement in these murders, Israel has pinned the blame on that group. • As a result, it is now highly likely that the Israeli government will authorize military action against Hamas. • Given the fact that Hamas recently reached a deal with its major Palestinian rival, Fatah, an Israeli offensive against Hamas could provoke a major response from all Palestinians, leading to a major crisis in the eastern Mediterranean. • What to Watch For: • The entire stretch of land from the Mediterranean to Mesopotamia could be engulfed by war in the near future.

3. Key Economic Issue: France’s Economic Peril Summary - While much of Europe is in the midst of a tentative economic recovery, the region’s second-largest economy, France, could be on the brink of another recession. This is due primarily to the fact that France has lost economic competitiveness not only in comparison to the region’s largest economy, Germany, but also to the region’s other larger economies, even those in crisis-hit southern Europe. This loss of competitiveness is due to the fact that, while other European countries were enacting the economic reforms necessary to revive their troubled economies, France failed to make any serious reforms in recent years. • Bad News in France • All signs are pointing to another downturn for the French economy at a time when nearly all of the world’s other developed economies are experiencing an economic upswing. • First, French economic growth came to a standstill in the first quarter of this year, while Europe’s other large economies all performed better than in previous quarters. • Second, most economic indicators point to lower growth in mid-2014 in France as manufacturing output is falling, the service sector is struggling and business confidence levels are at their lowest level in more than a year. • As a result, there is a real possibility that France could fall back into yet another recession before this year is finished. • Competitiveness Must be Boosted • The obvious answer to some of France’s most pressing economic problems is major economic reform aimed at boosting France’s economic competitiveness and allowing the French economy to become more flexible. • This solution is clearly the objective of new French Prime Minister Manuel Vallis, who has vowed to enact major reforms in the near future. • However, he faces major opposition from within his own Socialist Party as well as from much of the French public. • As a result, it is more likely that the French government will pass a series of minor economic reforms, thus avoiding the more controversial reforms that are needed to revive the French economy. • What to Watch For: • France could be on the brink of becoming the latest “sick man of Europe”, much as Germany was before the reforms of the early 2000s.

4. Regional Overview: North America Regional Summary: United States President Barack Obama vowed to take new steps to fix the United States’ immigration system. Share prices are rising sharply in the United States and around the world. • The Immigration Debate in the United States: • The debate over immigration reform in the United States has continued to divide the country as Democrats and Republicans have struggled to find common ground on this issue. • This week, US President Barack Obama announced that he would move to use whatever powers at his disposal to fix the US’ broken immigration system. • Republicans in the House of Representative have made it clear that they will not vote this year on a major immigration bill that was passed by the Senate last year. • The US’ Soaring Stock Markets: • This week, the Dow Jones Industrial Average and the S&P 500 both closed on record highs as investor confidence in the United States continues to rise. • After some missteps in the early part of the year, the US economy is now showing signs of being on the verge of achieving high rates of growth and this is leading to a surge in share prices in the US. • This investor confidence is not just evident in the United States, but around the world as global share prices have been rising at a strong pace in recent months. • A Look Ahead: • Key Issues or Events in the Next Seven Days: • The United States’ Independence Day celebration will take place later this week. • Regional Risk Factors to Watch: • The largest carmaker in the United States, General Motors, continues to struggle with massive recalls over many of its automobiles.

5. Regional Overview: South America Regional Summary: Brazil is hosting a memorable FIFA World Cup. Argentina’s vice president faces trial for corruption. • A Successful World Cup: • Contrary to the expectations of many pundits, this year’s FIFA World Cup in Brazil is proving to be an overwhelming success. • This is due in large part to the fact that the quality of play has been far higher than that of previous World Cups, with the rate of goal scoring much higher than in recent World Cups. • The host team, Brazil, nearly was eliminated in the Round of 16 and there were concerns that, if Brazil would have lost, the Brazilian public would have turned against the tournament. • Argentina’s Vice President Charged With Corruption: • Last weekend, Argentina’s Vice President Amado Boudou was officially charged with attempting to use his influence to ensure that a contract to print Argentine pesos was awarded to a company that he controlled. • This stems from the time when he served as the minister of economy under President Cristina Fernandez de Kirchner. • Vice President Boudou will remain free while he awaits trial. • He had been seen as a possible successor to President Kirchner before this corruption case surfaced. • A Look Ahead: • Key Issues or Events in the Next Seven Days: • By this time next week, the World Cup will be down to its final few matches. • Regional Risk Factors to Watch: • Severe flooding has hit many areas of Paraguay in recent days.

6. Regional Overview: West Europe Regional Summary: BNP Paribas was forced to pay a massive fine in the United States for violating sanctions on three countries. The British government’s efforts to block Jean-Claude Juncker’s bid to become the next head of the European Commission were thwarted last week. • BNP Paribas Takes a Major Hit: • This week, the French bank BNP Paribas agreed to a record $9 billion settlement with prosecutors in the United States due to the bank’s involvement in violating sanctions on Iran, Sudan and Cuba. • According to the terms of the deal, BNP Paribas agreed to plead guilty to breaking trade sanctions put in place on these three countries. • The French government had attempted to convince the United States to reduce the size of the fine, but there was clear evidence that BNP Paribas had been very proactive in violating these economic sanctions. • Cameron Thwarted: • British Prime Minister David Cameron suffered a stinging defeat last week when his bid to prevent former Luxembourgish Prime Minister Jean-Claude Juncker from becoming the next head of the European Commission was blocked by nearly all other European Union member states. • In the end, 26 of the 28 governments of EU member states voted in favor of giving Mr. Juncker the first bid to become the new European Commission president, with only Hungary joining the UK in opposing him. • This has led to Prime Minister Cameron’s critics calling this a humiliating defeat for Britain. • A Look Ahead: • Key Issues or Events in the Next Seven Days: • Italy assumed the rotating six-month presidency of the European Union this week. • Regional Risk Factors to Watch: • Former French President Nicolas Sarkozy was placed under formal investigation on allegations of influence peddling, placing his hopes of returning to the French presidency in jeopardy.

7. Regional Overview: Central and East Europe Regional Summary: Three former Soviet states signed partnership agreements with the European Union last week. A banking crisis brought down Bulgaria’s government. • EU Signs Deal With Three Ex-Soviet States: • Last week, Ukraine, Georgia and Moldova each signed a partnership agreement with the European Union, despite strong objections from Russia. • These agreements are designed to strengthen the economic and political ties of the European Union and these three East European countries. • Russian President Putin had warned each of these countries not to sign these deals and is likely to seek some retaliatory measures as a result of last week’s decisions. • Bulgarian Government Collapses: • This week, Bulgarian President Rosen Plevneliev announced that he would dissolve his country’s parliament in August 2014 and appoint an interim government to run the country until new parliamentary elections can take place in October 2014. • This followed revelations of a plot to bring down some of the country’s largest banks and destabilize the entire Bulgarian banking system. • Bulgaria’s Socialist-led minority government has been in power for just over a year. • A Look Ahead: • Key Issues or Events in the Next Seven Days: • European countries are continuing their efforts to convince the Ukrainian government to push for a negotiated settlement with pro-Russian militants in eastern Ukraine. • Regional Risk Factors to Watch: • Ukraine’s President Petro Poroshenko ended a unilateral ceasefire with pro-Russian militants that control some areas of eastern Ukraine and has vowed to launch new attacks on these militant strongholds.

8. Regional Overview: Middle East and North Africa Regional Summary: Libya held a snap national election last week as that country slipped further into anarchy. Iraqi government forces fought back against Sunni rebels in recent days. • Elections in Libya: • In an effort to bring stability to their country, the Libyan government held early national elections last week amid rising levels of unrest in that country. • However, less than half of the country’s eligible voters bothered to vote in the election, as few voters have any confidence in Libya’s political system. • In the meantime, fighting between forces loyal to the renegade General Khalifa Hafter and Islamic militants continued to rage in Benghazi and other areas of the country. • The Iraqi Government Fights Back: • In recent days, Iraqi government forces, backed at times by Shiite militants, launched a counter-offensive against ISIS militants and other Sunni forces that have taken control of much of northern and western Iraq. • Much of the fighting centered around the town of Tikrit (Saddam Hussein’s hometown), which had been captured by ISIS militants last month. • In addition, Iraq received the first fighter jets from Russia that it had ordered in a bid to push back the rebels. • Meanwhile, ISIS declared the establishment of a caliphate on the territories it controls in Syria and Iraq. • A Look Ahead: • Key Elections in the Next Seven Days: • Lebanon’s parliament will once again attempt to elect a new president for that country this week. • Regional Risk Factors to Watch: • Israel has vowed to launch a major crackdown on Hamas following the deaths of three Israeli teenagers in the West Bank, even as Hamas has denied any involvement in their murder.

9. Regional Overview: Sub-Saharan Africa Regional Summary: Boko Haram militants continued to carry out attacks across northeastern Nigeria. At least 470 people have died in West Africa’s Ebola outbreak. • New Boko Haram Attacks: • The radical Boko Haram militant group carried out a series of new attacks on villages in northeastern Nigeria in recent days, killing at least 40 people. • Some of the attacks took place around the village where 270 schoolgirls were abducted by Boko Haram militants in April 2014. • Meanwhile, Boko Haram militants have been crossing into neighboring Cameroon around the area of the fast-shrinking Lake Chad, forcing Cameroon’s government to send thousands of troops to that region. • Ebola Emergency: • This week, the health ministers of 11 Sub-Saharan African countries met in Ghana in a bid to coordinate regional efforts to prevent West Africa’s Ebola outbreak from spreading further. • So far, at least 470 people have died from the virus, making this the deadliest-known outbreak of Ebola since the virus was discovered nearly 40 years ago. • Most of the deaths have occurred in Guinea, where the outbreak started earlier this year. • Since then, the outbreak has spread to Liberia and Sierra Leone. • A Look Ahead: • Key Issues or Events in the Next Seven Days: • Cameroon is launching an investigation into allegations of match-fixing against that country’s national football (soccer) team that lost all three of its matches at this year’s FIFA World Cup in Brazil. • Regional Risk Factors to Watch: • Foreign investment in East Africa is being put at risk by the recent terrorist attacks in Kenya.

10. Regional Overview: Central and South Asia Regional Summary: Afghanistan’s presidential election has been marred by allegations of widespread electoral fraud. Pakistan’s armed forces launched a new offensive against the Taliban this week. • Afghanistan’s Election Controversy: • Controversy is surrounding the second round of voting in Afghanistan’s presidential election that took place last month amid a massive security operation. • Foreign Foreign Minister Abdullah Abdullah appeared likely to win a clear victory, having nearly won the election outright in the first round of voting. • However, he has alleged widespread voting irregularities in the second round of voting, with his opponent, former World Bank economist Ashraf Ghani, claiming that he won the second-round vote by a wide margin. • Pakistani Offensive Against the Taliban: • This week, Pakistan’s armed forces launched a major ground offensive against Taliban militant strongholds in the remote region of North Waziristan. • Prior to the ground offensive, Pakistan’s air force carry out major bombing raids on a number of Taliban positions in that region and claimed to have killed at least 370 militants. • This followed an attack on the main airport of Pakistan’s largest city, Karachi, last month that was claimed by the Taliban. • A Look Ahead: • Key Issues or Events in the Next Seven Days: • The preliminary results from the second round of Afghanistan’s presidential election are expected to be released this week. • Regional Risk Factors to Watch: • The level of violence in Pakistan is likely to rise in the wake of the latest offensive against Taliban militants in northwestern Pakistan.

11. Regional Overview: East Asia and Pacific Regional Summary: The rate of deforestation in Indonesia is now higher than that of Brazil. Japan’s inflation rate reached its highest level in 32 years. • Deforestation in Indonesia: • A new study revealed that, for the first time, the level of deforestation in Indonesia has surpassed that of Brazil, despite efforts by the Indonesian government in recent years to curb deforestation. • Between the years 2000 and 2012, a total of 60,000 square kilometers (23,000 square miles) of virgin forests were cleared in Indonesia, roughly an area as big as Ireland. • Land in Indonesia is being cleared to make way for the palm oil industry as well as for livestock, two of Indonesia’s fastest-growing sectors. • Japan’s Fast Rising Inflation: • Japan’s inflation rate reached a 32-year-high in May 2014, rising to 3.4% year-on-year that month. • This was the result of last year’s shift in monetary policy that led to a sharp decline in the value of the Japanese yen as well as April 2014’s increase in the country’s sales tax from 5% to 8%. • The Japanese government enacted these measures in a bid to significantly boost domestic consumer spending in order to drive prices upwards. • Japan spent more than two decades battling deflationary pressures in the wake of 1992’s economic crisis. • A Look Ahead: • Key Elections in the Next Seven Days: • Indonesia’s eagerly anticipated presidential election will take place next week. • Regional Risk Factors to Watch: • Thailand’s military government announced that national elections in that country would only take place sometime after October 2015.

12. Statistics in Focus: The Threat of Deflation in Europe Inflation rates remain extremely low across much of Europe, with nearly all countries in the region having inflation rates below 1.0%. Meanwhile, some southern European countries are already in the grips of severe deflation.