Syriza's chief and Greece's new prime minister, Alexis Tsipras, is brazenly defying the European nations and institutions that support its stricken economy. Tsipras lost no time declaring that his triumph marks the moment when Greece "leaves behind catastrophic austerity ... and five years of humiliation and suffering."

Tsipras blames Greece's descent on the slate of tough, even brutal, reforms that its EU neighbors demanded in exchange for gigantic bailouts. He's pledging two major shifts in policy that, if enacted, will infuriate his European neighbors. First, Tsipras denies that Greece has any obligation to enact the liberalization measures that its creditors--which include the International Monetary Fund, the European Commission, and the European Central Bank, known as the "Troika"--negotiated with two previous governments. "The Troika is dead!" Tsipras announced in his post-election address.

Second, Tsipras is demanding a substantial reduction in the roughly $270 billion in debt that Greece owes to the EU nations. Those funds are dispensed through the European Stabilization Mechanism, an EU organization that gets its money directly from Eurozone members such as France, Germany, and Spain. It's designed to provide a firewall to protect the Euro. Tsipras contends that his Eurozone partners should suffer big losses, paid for by their taxpayers, for the benefit of Greece.

Watch more coverage on the euro from Fortune’s video team:

The Eurozone is witnessing an unprecedented display of hubris, the undoing of ancient Greek warriors. Rather than demanding debt relief the usual way, by promising deeper reforms, Tsipras has pledged to renege on Greece's debts while scuttling all commitments to unshackle its economy.

"It's a surreal situation," marvels Yannis Ioannides, an economist at Tufts University. "The new government is promising to do things with no money to do them. What does it mean for a government to say we don't recognize the agreements signed by the previous government?"

If the new government sticks to its sloganeering stance, Greece--probably through a stumbling accident--will exit the Euro. Given its policies, a "Grexit" would unleash a wave of hyperinflation unseen in Europe for decades. But it's not at all certain that Tsipras will let ideology lead to disaster. Greece depends on the EU and European Central Bank for the funds it needs to keep running--and hopefully, that reality will temper Tsipras' demands. The crux of Greece's problem isn't that it has embraced the reforms demanded by its creditors. In fact, the nation has skirted those reforms and, in the process, done far too little to modernize its markets.

To be sure, Greece has made progress on the fiscal side. It has substantially reduced government spending and lowered once-yawning budget deficits to the point where it now generates a "primary surplus," meaning that its revenues exceed expenses before covering interest. That's a big improvement, since the government is no longer forced to borrow heavily simply to make interest payments (which, as we'll see, are manageable due to a 2012 restructuring deal with its EU creditors}.

Yet the shrinkage in Greece's super-sized public sector did nothing to lessen the suffering of its citizens. In moving towards a balanced budget, the Greek government has substantially lowered wages and pensions, and companies followed suit. But shrinking pay failed to translate into a like decline in prices, as it would have in a competitive economy. Instead, the prices of groceries and drugs--and the overall cost of living--fell far less than the decline in incomes. That painful combination means that Greeks increasingly buy less and less of anything. To make matters worse, Greece imports an usually high proportion of the goods it consumes, from cars to PCs, and the prices of foreign products remained steady while Greek incomes shriveled.

Why did the cost of local goods stay so high during the downturn? It's the legacy of over-regulation that’s governed Greek products and professions for decades, rules specifically designed to stifle competition. "Every aspect of economic life is highly regulated in Greece," notes Costas Meghir, an economist at Yale University.

Greek law mandates that pharmacies generate minimum profits of 15% and grants them a monopoly on the sale of non-prescription drugs and even baby formula. That regime effectively prevents lower-cost retailers from giving consumers a better deal. Licenses for truck drivers cost over $600,000, and no new ones have been issued since the 1970s. A lawyer practicing in Athens lacks the authority to serve clients in Thessaloniki. Foreign cruise lines are effectively barred from starting and ending journeys in Greece. That's driven the big operators to run their tours from Turkey and Israel instead. Companies are banned from laying off more than 4% of their workforces without receiving government permission that's predictably hard to obtain.

For many years, those rules prevented Greece from emerging as a force in technology and manufacturing, despite its hard-working, well-educated workforce. Its output-per-worker is just 75% that of its European neighbors, the same meager level as at the start of the financial crisis. Under an agreement with its EU creditors, Greece is obligated to achieve a long list of market-opening reforms. That deal is known as the "Mnemonio," the Greek word for memorandum. Even the previous center-right government did not do enough to comply with the Mnemonio. It masked the lack of progress with half-measures, laws that were passed but never implemented, and requests for more time.

"The crisis created chances for structural reforms, such as the opening of closed professions, tax reform, and privatizations to increase competition," says Nicholas Economides, a professor of economics at NYU's Stern School of Business. Even the previous government, he says, "tried not to change much." Following a poor showing in the European parliamentary elections last year, it fired reformist ministers and retreated on plans to trim the government's bloated workforce.

So what's next for Greece? Here are two possible scenarios. The first is the "Greek tragedy" path, which could proceed from a number of causes--the many possibilities are in themselves a major cause for concern. The second is the pragmatic, compromise approach, which could allow Greece to remain in the Eurozone.

What could cause the Greek tragedy? If Tsipras continues to demand that Greece renege on its debts, dump the reform agenda, or both, Greece is headed for disaster. In the next several months, Greece will need to confirm past commitments or repay loans and retire bonds to secure continued funding from the EU and ECB, funding it can't do without. Defying its creditors at any of these three junctures could seal its fate. The IMF was scheduled to give Greece $8 billion in fresh funding in September. But because Greece is lagging on its reform agenda, the IMF hasn't agreed to make the payment. Yet the new government is counting on that money, and over $2.5 billion more from the IMF in 2015, to make its budget work. It's also planning to spend an extra $22 billion or so to hire more government workers and raise their pensions and pay. But it's highly unlikely that the IMF will provide that money if Greece ditches the reform agreement.

Greece faces a second, crucial showdown with the European Central Bank. The nation's banks have suffered large withdrawals of cash in recent years, a trend that accelerated just before the recent elections. On January 22, the ECB advanced Greece's central bank around $45 billion in emergency funding to supply liquidity to the banks it regulates--in addition to the more than $60 billion it had previously given to those banks. Greece agreed to repay about $8 billion to the ECB in July. Tsipras now claims Greece won't make the payment. "The ECB operates under extremely strict rules," says Economides. "It's likely the ECB would withdraw all of its support for the banks if Greece refuses to pay."

The third obstacle is Syriza's demand that the EU nations forgive a big chunk of its debt. "That's totally unfeasible, insane," says Economides. "No politician will say to their taxpayers, 'You need to pay for the Greeks!'"

If Greece defies the EU and ECB over any of these commitments, Tsipras will lack the funds to keep the government running, or, in the latter two cases, the EU will remove the essential support of the ECB, causing a credit crisis. In that case, Greece would need to flee the Euro and reinstate the Drachma. It would then be free to print new currency to pay its debts and fund its vision of a still-bigger government. That's a recipe for rampant inflation.

None of this has to happen. The interest rate on Greek debt is just 1.82%, and it isn't obligated to pay any interest for between 13 and 25 years on 80% of its borrowings. If its creditor nations agreed to extend the maturities to 75 years, Greece could easily handle its current debt load. It might be enough for Syriza to withdraw its pledge to roll back previous reforms and to honor its debts in exchange for those longer maturities. "I think they will make a u-turn," says Economides. "The money they need is so gigantic. They will not have a choice."

The EU has long been girding for a Greek departure from the Euro. The new government will not succeed in blackmailing its neighbors into granting more bailouts just to keep Greece in the club. Europe's mainstream governments dread making a special deal with Greece a lot more than a Grexit. If the Troika caves, they'll hand a powerful weapon to radical, anti-bailout parties that rail against the cost and constraints of the Eurozone and EU.

In theory, pragmatism should prevail. Then again, just look at all the ways in which things could go horribly wrong. The sheer number of them is scary indeed.

On the same morning that the Conference Board announced that consumer confidence reached its highest level since August 2007, the stock market took a nose dive, driven by disappointing earnings announcements by big-name companies like Caterpillar CAT and Dupont DD , and downbeat outlooks from the likes of Pfizer PFE and Bristol-Myers Squibb BMY .

The missed earnings and revised expectations are due in part to a rapidly appreciating dollar, which is being driven up by the relative strength of the U.S. economy as well as the announcement of central bank bond buying in Europe. A more expensive dollar means that U.S. companies are less competitive abroad.

But Caterpillar in particular has been negatively affected by the sharp drop in the price of oil and other commodities. The drops have led energy and mining companies to reduce their investment in the kind of accounts for the bulk of Caterpillar’s sales.

The disappointing news can also be hung on the fact that the rest of the world’s economic outlook isn’t nearly as rosy as it is in the U.S. Both China and Europe have recently reduced their growth forecasts. Meanwhile, emerging markets like Brazil, Turkey, and Russia are reeling amid falling oil prices and whipsawing foreign investment.

In a press release this morning, Caterpillar Chairman and CEO Doug Oberhelman said that the sharp decline in the price of oil is the single biggest factor contributing to its prediction that sales will fall roughly 9% in 2015.

But the company did not discount the impact of falling prices in other commodities, in addition to slow growth in Europe, and relatively slow growth in China.

“We’re not seeing any decent growth out of Europe,” said Mike DeWalt, a Caterpillar vice president said in a conference call this morning with analysts. “The developing countries like Brazil and China, are, shall we say, challenged.”

It’s important to remember that the decline in the price of oil is partly due to slower growth abroad and in China in particular.

Caterpillar’s performance is often seen as a gauge of the health of the global economy because it sells the sort of equipment--construction and mining--that functions as an engine of global economic growth. Caterpillar’s diminished outlook suggests the potential for trouble ahead.

The U.S. economy, by contrast, is not highly dependent on sales abroad--U.S. GDP is composed of just 10% exports, while consumer spending makes up north of 70%. So, while weakness abroad certainly isn’t good for the American economy and it is a bad sign for export-heavy companies like Caterpillar, it’s not something that should worry most workers or business owners stateside.

In the U.S., strong job and GDP growth, low inflation, and the jolt of cheap energy prices should all conspire to make 2015 the strongest year yet in the economic recovery. As long as Europe is able to muddle along and China’s growth doesn’t drop off the table too sharply, the struggles abroad will likely steer clear of America’s shores.

U.S. stocks fell dramatically immediately following the opening bell Tuesday morning after a series of big U.S. companies issued dour earnings reports, and a drop in durable goods orders shook investors’ confidence in the economic outlook for 2015.

The Dow Jones industrial average plummeted at the open, and was down 291 points at the close having tumbled 390 points earlier in the session. One week after a market surge nearly wiped out all of market’s losses for the year, the blue-chip index is now some 400 points below where it started 2015.

The Nasdaq composite was down 2% at the close, while the S&P 500 was off just over 1%. All three major U.S. indices were basically flat on Monday.

Orders for durable goods -- including anything from home appliances to commercial aircraft -- in the U.S. dropped 3.4% in December after the fell more than 2% the previous month, according to new data from the Commerce Department.

Meanwhile, a diverse set of companies that includes Microsoft MSFT , Procter & Gamble PG and Caterpillar CAT saw their share prices drop Tuesday morning as a result of weak quarterly earnings reports.

Microsoft took an especially hard hit, falling nearly 10% in early trading after analysts downgraded the company’s stock due to a decline in earnings in its most recent quarter. Caterpillar’s stock fell more than 7% after the company posted a disappointing forecast for 2015 due to the ongoing decline in prices of commodities such as oil and copper.

Tuesday’s U.S. sell-off came on the heels of a decline for European stocks, which had improved recently on the European Central Bank’s new stimulus measures before falling again Tuesday due to concerns over political upheaval in Greece. London’s FTSE 100 dropped 0.6% during the day while Germany’s DAX fell 1.6%.

Greek stocks fell on the news that the anti-austerity Syriza party will take power. But European stocks and the Euro seemed to be largely unaffected by the news, despite the fact that Syriza vows to fight the Troika of the European Commission, the IMF, and the European Central bank and force them to forgive some Greek debt and allow the country to enact a program of stimulus spending, among other reforms.

Markets are shrugging off the news because they still view the chances of Greece leaving the Euro as remote. “The new government will find that the Troika plans to play hardball,” says Tom Elliott, International Investment Strategist at deVere Group. Elliott argues that Greece has little leverage in its negotiations with its debt holders. It has a EUR4.5 billion bond maturing in March and two similarly large payments due in July and August, which it won’t be able to pay without aid from Europe. While its debt holders might be willing to extend the maturity on these debts or lower interest rates, the Troika won’t budge on debt forgiveness out of fear that it would encourage other debtor nations to ask for similar concessions.

The only leverage Greece has is to threaten to exit the euro, an act that would surely cause a banking crisis and a severe recession--at least in the short term--in Greece without doing much broader damage to the eurozone economy. The newly elected representatives in Greece will surely be blamed for such a fiasco. Polls indicate that despite Greece’s economic troubles, a majority of citizens want to remain in the euro.

But are investors here missing the forest for the trees? Sure, Sunday’s election might not be the cause of the immediate dissolution of the eurozone. But it certainly isn’t a good sign for the currency union and its leaders’ plan for reviving the European economy, or for European political cohesion.

“This was a huge landslide, a larger win than pretty much anybody expected,” says Ian Bremmer, president of the Eurasia Group. “And this party has taken one of the most directly anti-German, anti-European positions you could take, not just economically but politically.”

The anti-EU sentiment isn’t just a product of the depression-like conditions that Greek citizens have been enduring. In Spain, where elections at the end of 2015 will have huge implications for the future of the Eurozone, another anti-bailout party, Podemos, has been gaining support. Meanwhile, in France, polls indicate that the far-right eurosceptic Marie La Pen would win the first round of the 2017 French Presidential elections if they were held today. Even Germany, the stalwart of the status-quo, has an ascendent anti-euro party, called Alternatives for Germany, which recently won big gains in state elections.

So, while Greece’s election results will not likely to be a catalyst for a sudden break up of the Euro, they can be viewed as yet another in a series of events that suggest that the union is failing. Sunday’s elections offered another example of the “disintegration and fragmentation of Europe as an effective source of government,” Bremmer says.

The one thing that could jolt the EU back toward greater unity and a renewed sense of common purpose is economic growth. But even in the wake of the announcement of stimulus measures from the ECB, there isn’t a great deal of good economic news to report in Europe. The European Union estimates that the eurozone economy expanded at a measly 0.8% last year and will only grow by just 1.1% this year. With widespread unemployment in countries like Spain, Greece, and Portugal, and a banking system that remains undercapitalized, there’s little reason to believe that the European economy is going to improve enough in the coming months such that mainstream parties can stem their losses at the polls.

Markets might be taking it easy for now, soothed by the massive bond-buying program the ECB announced last week. But the long-term picture for the European project looks a little worse today than it did a week ago.

Greek leftist leader Alexis Tsipras promised on Sunday that five years of austerity, “humiliation and suffering” imposed by international creditors were over after his Syriza party swept to victory in a snap election on Sunday.

With about 92 percent of votes counted, Syriza was set to win 149 seats in the 300-seat parliament, taking 36.3 percent of the vote, 8.5 points ahead of the conservative New Democracy party of Prime Minister Antonis Samaras.

Samaras conceded victory but only the final result, expected in the early hours of Monday will show whether Syriza has won the 151 seats that would allow it to rule alone.

Nevertheless, the 40-year-old Tsipras is on course to become prime minister of the first euro zone government openly opposed to the kind of severe austerity policies which the European Union and International Monetary Fund imposed on Greece as a condition of its bailout.

“Greece leaves behinds catastrophic austerity, it leaves behind fear and authoritarianism, it leaves behind five years of humiliation and anguish,” Tsipras told thousands of cheering supporters gathered in Athens.

Financial markets reacted nervously to the victory of Tspiras, who has promised to renegotiate Greece’s debt agreements, fearing potential conflict with other euro zone governments that could put more strain on the currency bloc.

The euro slid to near an 11-year low and U.S. stock futures fell as Asian markets opened on Monday.

Germany, Europe’s biggest economy, has insisted Greece must respect the terms of its 240 billion euro bailout deal, which saved the country from bankruptcy but at the cost of bitter sacrifices by the Greek people.

As thousands of flag-waving supporters hit the streets of Athens, some shedding tears of joy, Germany’s Bundesbank warned Greece it needed reform to tackle its economic problems.

Syriza’s campaign slogan “Hope is coming!” resonated with voters worn down by huge budget cuts and heavy tax rises during six years of crisis that has sent unemployment over 25 percent and pushed millions into poverty.

“We hope our expectations will be fulfilled,” said 47-year-old teacher Efi Avgoustakoushe. “On Monday in class, we’re not allowed to comment and take sides but we will be smiling.”

'Lost dignity'
Tsipras said he would cooperate with fellow euro zone leaders for “a fair and mutually beneficial solution” but said the Greek people came first. “Our priority from the very first day will be to deal with the big wounds left by the crisis,” he said. “Our foremost priority is that our country and our people regain their lost dignity.”

He has promised to keep Greece in the euro and has toned down some of his rhetoric but his arrival in power would mark the biggest challenge yet to the approach adopted to the crisis by euro zone governments.

Syriza’s victory is likely to encourage other anti-austerity parties which are winning support across Europe, such as the Podemos movement in Spain.

But it might also strengthen the hand of mainstream leaders including French President Francois Hollande and Italian Prime Minister Minister Matteo Renzi who argue that orthodox austerity policies have failed to produce the economic growth which Europe needs to recover fully from the global financial crisis.

Hollande expressed in a statement his “desire to pursue the close cooperation between our two countries in service of growth and the stability of the euro zone”.

Finnish Foreign Minister Erkki Tuomioja was more forthright, saying he believed the result would change the debate in Europe and put more emphasis on growth and employment. “This is a slap at what I see as a very right-wing economic policy in Europe,” Tuomioja, a Social Democrat, told the website of the Helsingin Sanomat newspaper.

However with Greece’s economy unlikely to recover for years, Tsipras faces enormous problems and his victory raises the prospect of tough negotiations with European partners including German Chancellor Angela Merkel.

Greece’s bailout deal with the euro zone is due to end on Feb. 28 and Tsipras’ immediate challenge will be to settle doubts over the next installment of more than 7 billion euros in international aid. EU finance ministers are due to discuss the issue in Brussels on Monday.

If Syriza falls short of a majority, Tsipras will have to try to build a coalition with smaller parties or form a minority government with ad-hoc support from others in parliament.

“It’s a historic win,” said Athens-based political analyst John Loulis, adding that Tsipras would have to form a coalition to prevent renewed instability. “He has no other option, the last thing the country needs would be another round of elections

Negotiations are likely to begin immediately, and both the small Independent Greeks party and centrist To Potami party, said they would be willing to support an anti-bailout government. If Syriza requires support to govern, it may find itself hostage to its partners’ demands, raising questions over how durable a Tsipras government would prove.

Standoff with Berlin
Tsipras has promised to renegotiate agreements with the European Commission, European Central Bank and International Monetary Fund “troika” and write off much of Greece’s 320 billion-euro debt, which at more than 175 percent of gross domestic product, is the world’s second highest after Japan.

Coming after the ECB’s move to pump billions into the bloc’s flagging economy, Sunday’s result will stir consternation in Berlin. A senior lawmaker in Merkel’s conservative party said the result showed Greek voters had turned away from austerity but he said Europe could not accept rejection of the bailout.

“We must not reward the breaching of agreements,” Wolfgang Bosbach told the daily Osnabruecker Zeitung newspaper. “That would send completely the wrong signal to other crisis-stricken countries that would then expect the same treatment.”

Tsipras wants to roll back many of the measures demanded by the “troika”, raising the minimum wage, lowering power prices for poor families, cutting property taxes and reversing pension and public sector pay cuts.

U.S. investment bank J.P. Morgan said the result could weigh on markets but that it considered speculation over a possible Greek exit from the euro was “a stretch” and a negotiated deal appeared the most likely outcome. “Our base case remains that a Syriza government or Syriza-dominated coalition would alter its platform to retain troika financing,” it said.

Greece, unable to tap the markets because of sky-high borrowing costs, has enough cash to meet its immediate funding needs for the next couple of months but it faces around 10 billion euros of debt repayments over the summer. ($1 = 0.8923 euros)

While some economic commentators have been calling for such a program for years, as my colleague Geoffrey Smith points out, there’s plenty of reason to believe the effort won’t work as intended. Opponents of a European QE program argue that it won’t stimulate investment because the continent’s badly damaged banks and slack demand are the primary cause of the problems in Europe, rather than tight credit conditions.

Meanwhile, governments like Germany, which are running balanced budgets, are loathe to spend more to stimulate deeply depressed and indebted countries elsewhere in the Eurozone, an aggressive strategy that many economists deem necessary to jolt the continent back into growth mode.

Economist Martin Feldstein of Harvard University published a paper with the National Bureau of Economics this week that argues for an alternative approach European governments can adopt to stimulate investment. He advocates for a tax credit to businesses that invest in new projects, which can be paid for by an overall increase in the corporate tax rate. Writes Feldstein:

There are many ways that changing tax rules can increase aggregate spending without raising the fiscal deficit. Investment in plant and equipment can be stimulated by a temporary increase in the tax deductible depreciation rate on new investments in plant and equipment or by an enlarged investment tax credit. It would also be possible to reduce the net cost of funds by converting the deduction for business interest to a refundable credit at a higher effective rate. The cost of equity capital could be reduced by allowing deductions for dividends on common stock or preferred equity.

The resulting revenue loss could be balanced by a temporary rise in the corporate tax rate, effectively taxing the return on old capital while stimulating new investment. The necessary rise in the corporate tax rate could be adjusted after seeing the favorable effect of the policy on economic activity and tax revenue.

Feldstein argues that these benefits could be extended to consumers by giving tax breaks to home builders and homebuyers in the form of mortgage interest deductions. Such deductions could be rendered revenue neutral by raising rates on income elsewhere.

Another appealing part of this program is that while it would work better in a coordinated effort between countries, individual countries could enact these programs without approval from the EU government, as these measures would be revenue neutral and not run afoul of EU restrictions on increasing budget deficits.

By Ian Bremmer, TIME

International stories rise and fall so quickly in today's media. On Monday, it's civil conflict in Ukraine. On Tuesday, it's the rise of the Islamic State of Iraq and Greater Syria (ISIS). By Wednesday, the headlines are on to something else. Amid the global whiplash, it's easy to lose sight of the larger picture. So as the new year begins, it's useful to take a broader look at where these stories are headed--and to track the next wave of market-moving surprises in international politics.

Every January Eurasia Group, the political risk consultancy I founded and oversee today, publishes Top Risks, a roundup of the geopolitical trends we consider most likely to change our world in the coming year. This ranking reflects our forecast of which global storylines are most likely to play out over the next 12 months, which will have biggest impact on the markets and politics--and where we can expect surprises.

In 2015, political conflict among the world's great powers is in play more than at any time since the end of the Cold War. U.S. relations with Russia are now fully broken. China's powerful President Xi Jinping is creating a new economy, and the effects will be felt across East Asia and the rest of the world. Geopolitical uncertainty has Turkey, the Gulf Arab states, Brazil and India hedging their bets.

But the year's top risk is found in once placid Europe, where an increasingly fractured political environment is generating new sources of conflict.

1. The politics of Europe

European economics aren't as bad as they were at the height of the eurozone crisis in 2012, but the politics of the continent are now much worse. Within key countries like Britain and Germany, anti-EU political parties continue to gain popularity, undermining the ability of governments to deliver on painful but needed reforms. Friction is growing among European states, as peripheral governments come to increasingly resent the influence of a strong Germany unchecked by weak France or absent Britain. Finally, a resentful Russia and an aggressive ISIS will add to Europe's security worries.

2. Russia

Sanctions and lower oil prices have weakened Russia enough to infuriate President Vladimir Putin, but not enough to restrain his actions. Moscow will continue to put pressure on Ukraine, and as a result, U.S. and European sanctions will tighten. As Russia's economy sags, Putin's approval ratings will depend increasingly on his willingness to confront the West. Western companies and investors are likely targets--on the ground and in cyberspace.

3. The effects of China slowdown

China's economic growth will slow in 2015, but it's all part of Xi's plan. His historically ambitious economic reform efforts depend on transitioning his country to a consumer-driven economic model that will demand levels of growth that are lower, but more sustainable. The continuing slowdown should have little impact inside China. But countries like Brazil, Australia, Indonesia and Thailand, whose economies have come to depend on booming trade with a commodity-hungry China, will feel the pain.

4. The weaponization of finance

For the moment, the American public has had enough of wars and occupations, but the Obama administration still wants to exert significant influence around the globe. That's why Washington is weaponizing finance on a new scale. The U.S. is using carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy. The advantages are considerable, but there is a risk that this strategy will damage U.S. companies caught in the crossfire between Washington and targeted states. Transatlantic relations could suffer for the same reason.

5. ISIS, beyond Iraq and Syria

ISIS faces military setbacks in Iraq and Syria, but its ideological reach will spread throughout the Middle East and North Africa in 2015. It will grow organically by setting up new units in Yemen, Jordan, and Saudi Arabia, and it will inspire other jihadist organizations to join its ranks--Ansar Bayt al Maqdas in Egypt and Islamists in Libya have already pledged allegiance to ISIS. As the militant group's influence grows, the risk to Sunni states like Saudi Arabia, the United Arab Emirates and Egypt will rise.

6. Weak incumbents

Feeble political leaders, many of whom barely won reelection last year, will become a major theme in 2015. Brazil's Dilma Rousseff, Colombia's Juan Manuel Santos, South Africa's Jacob Zuma, Nigeria's Goodluck Jonathan and Turkey's Recep Tayyip Erdogan will each face determined opposition and formidable obstacles as they try to enact their political agendas.

7. The rise of strategic sectors

Global businesses in 2015 will increasingly depend on risk-averse governments that are more focused on political stability than on economic growth, supporting companies that operate in harmony with their political goals and punishing those that don't. We'll see this trend in emerging markets, where the state already plays a more significant role in the economy, as well as in rogue states searching for weapons to fight more powerful governments. But we'll also see it in the U.S., where national security priorities have inflated the military industrial complex, which now includes technology, telecommunications and financial companies.

8. Saudi Arabia vs Iran

The rivalry between Shiite Iran and Sunni Saudi Arabia is the engine of conflict in the Middle East. Given the growing reluctance of Washington and other outside powers to intervene in the region, increasingly complex domestic politics within these two countries and rising anxiety about the ongoing negotiations over Iran's nuclear program, we can expect Tehran and Riyadh to use proxies to fuel trouble in more Middle Eastern countries than ever in 2015.

9. Taiwan/China

Relations between China and Taiwan will deteriorate sharply in 2015 following the opposition Democratic Progressive Party's landslide victory over the ruling Nationalist Party in local elections this past November. If China decides that its strategy of economic engagement with Taiwan has failed to advance its ultimate goal of reunification, Beijing might well backtrack on existing trade and investment deals and significantly harden its rhetoric. The move would surely provoke public hostility in Taiwan and inject even more anti-mainland sentiment into the island's politics. Any U.S. comment on relations between China and Taiwan would quickly increase resentment between Beijing and Washington.

10. Turkey

Lower oil prices have helped, but President Erdogan has used election victories in 2014 to try to sideline his political enemies--of which there are many--while remaking the country's political system to tighten his hold on power. But he's unlikely to win the authority he wants this year, creating more disputes with his prime minister, weakening policy coherence and worsening political unpredictability. Given the instability near Turkey's borders, where the war against ISIS rages, that's bad news. Refugees from Syria and Iraq are bringing more radicalism into the country and adding to economic hardship.

It looks like another strong day for the markets Thursday, as stock futures point to a sharply higher open after the Dow surged 288 points Wednesday in response to the Fed's most recent policy decision. The Fed set the stage for a rate hike in 2015, but reiterated that such a move would be contingent upon the state of the economy.

Also Wednesday, President Obama announced the normalization of relations with Cuba more than 50 years after the blockade began (and, to be fair, more than 20 years after the collapse of the Soviet Union and the end of the Cold War.) The Cuba news could have a big impact on the U.S. economy, particularly in vice industries such as alcohol and tobacco.

Here’s what you need to know about in business news today.

1. Sony halts ‘The Interview’

Sony Pictures made a big move in the ongoing hacking scandal yesterday, postponing -- and possibly canceling -- the release of the film “The Interview” following threats from the group called the “Guardians of Peace.” Sony SNE , as well as theater chains who had already said they would not show the film, took plenty of heat on social media from people claiming they caved to terrorist threats.

2. Nike takes an earnings run

The athletic company based in Portland, Ore., (much to the chagrin of some young execs) will release earnings this afternoon, and the company is expected to report higher earnings per share rise from a year ago. One thing to watch for will be the effect of currency volatility on Nike’s NKE overseas operations.

3. Amazon launches Prime Now

Amazon AMZN has launched Prime Now, a service offering one-hour delivery on thousands of products. It's the newest benefit for Amazon Prime members, and offers delivery of daily essentials through a mobile app.

4. Putin speaks

Vladimir Putin talked about the state of the Russian nation today, and his talk was, well, wide-ranging. He said the Russian economy and the ruble will rebound, and he wouldn’t commit to whether or not he would stand for election again in 2018. Putin also, as is his wont, got metaphorical, comparing Russia to a bear protecting its territory. He said economic growth would return by 2017.

5. Swiss go negative

Switzerland's central bank said it would introduce negative interest rates to stop further currency appreciation, making its most desperate attempt yet to save local industry from a disastrous currency appreciation caused by inflows of capital seeking a 'safe haven' from turbulent markets across the world, writes Fortune's Geoffrey Smith.

The European Parliament in late October called on Internet companies operating in the region to “unbundle” its search engines from its other commercial properties. Although no companies were named, the motion was aimed squarely at Google GOOG , the leading search engine by a long shot in Europe with an estimated 90 percent market share.

The non-binding resolution had no legal weight, but sent the strongest signal yet to the European Commission to take action after almost four-years worth of unsuccessful negotiations to settle an ongoing antitrust probe into the company’s business practices. The company has been accused of anti-competitiveness including claims it deliberate buried search results of rival sites and services. The recent motion sought to “prevent any abuse in the marketing of interlinked services by operators of search engines.”

Newly-elected EU competition commissioner Margrethe Vestager said in November that she would “need some time” to review the case, which has been kept open by her predecessor Joaqu?n Almunia, and talk to complainants before moving forward.

So now what? There are several paths forward, experts say.

“What’s most likely to happen, and what will hopefully happen, is a continuation of the resolution for which Almunia set the framework before he left office,” says David Balto, a former U.S. Justice Department antitrust lawyer.

Politics and pressure behind the scenes from Google’s competitors--including Microsoft MSFT --have dragged the case out “to draw as much blood as possible,” Balto argues. Shortly after the parliament’s vote, one unnamed senior EU official told Reuters that the 28-member state bloc had been used as a “battleground” by American companies. After three rounds of settlement negotiations, Balto says Google’s efforts to address the matter have resulted in better competition in the region.

One question is whether the Commission has enough evidence to support moving from seeking a settlement to conducting an infringement procedure. Florian Wagner-von Papp, director of the University College London’s Institute of Global Law, tells Fortune that he wishes the EC would “put up or shut up.” Antitrust officials should either charge the search giant with flouting European antitrust law, he says, or drop the case altogether. The alternative? More settlement negotiations and “political mud-slinging” by Google’s supporters and opponents.

By charging Google with antitrust offenses, the Commission can take any measures it deems necessary to end that infringement. Could that really include a break-up of Google? In theory, yes--the European Commission’s antitrust division has the right to force a company operating in the region to restructure. But Wagner-von Papp is willing to make a big bet that it won’t happen. “The Commission has to date never imposed a structural remedy in an infringement decision,” he says.

Still, a move toward an infringement decision could leave Google facing fines of up to 10 percent of its annual global sales for the affected years, a staggering amount totaling billions of dollars. The reality has been more conservative. The biggest antitrust fine in the region’s history--levied against Intel years ago but later upped by Europe’s top court--barely broke 4 percent.

Splitting up Google by unbundling its search business from its advertising business would leave the company without a way to make money from its search results, Wagner-von Papp says. Such a move is “nonsense,” he says. “The search engine can be free for users only because Google gets its revenue from advertisers and can channel consumers to their vertical search results,” he says, “much like newspapers can be free if it sells ad space for a high price.”

Balto agrees, calling it an “extreme proposal” that few people take seriously. “Google relies on a lot of synergies among products and advertising revenue that works across products to do what they do,” he says. Consumers would actually suffer if Google’s search business was unbundled from its advertising services.

Politics remain a sore point for those involved. The European Parliament’s involvement was unusual without any prior committee inquiry, Brussels-based antitrust solicitor Matthew Hall says, and the parties on each side of Google are pushing for their own resolution to the case.

During his tenure as Europe’s antitrust chief, Almunia made it clear that he would not be swayed by politics. It’s not yet clear which path Vestager plans to take or which cards she will play to get there. Vestager will “decide on how to take the ongoing antitrust investigations into Google’s business practices forward once she has heard what those most directly affected by the practices in question have to say,” a spokesperson for the European Commission says.

Balto is optimistic. “There are good signs that Vestager will not be swayed,” he says. “I don’t think the delay will lead to a rush to judgment.”

The current proposal, expected to be approved in January, will require that by 2016, 30 percent of the non-executive supervisory board seats at 114 German listed companies will be held by women. In 2015, smaller companies will have to set their own goals for gender diversity on their boards, and to state how they plan to meet those goals. “This law is an important step for equality because it will initiate cultural change in the workplace,” German Chancellor Angela Merkel told parliament. “We can’t afford to do without the skills of women.”

The arguments for gender diversity on corporate boards are many. Studies have linked gender-diverse boards with better financial performance, better governance, increased innovation, and improved opportunities for other women within the affected companies. Then there’s the fact that all-male, all-white boards reflect neither a large company’s customers nor its talent pool.

“There are still many companies that have zero women on their board,” says Brande Stellings, vice president of corporate board services for Catalyst, a not-for-profit that works to advance professional women. “Really, in this day and age, they should be embarrassed.” In the U.S., women hold just 17 percent of the board seats of Fortune 500 companies.

Germany is following in the footsteps of Norway, which enacted a similar law - albeit with a 40 percent quota - back in 2003. Since then, other countries, including France, Spain and the Netherlands, have followed suit. But a close look at the results of these quotas - and of Norway’s in particular, which have been in effect the longest - shows that the results might not be all that their backers intend.

In Germany, as in Norway and other countries before, lobbying against the proposed rule is expected to be fierce. BMW has already come out against the proposal, saying that “BMW as a company doesn’t believe in quotas.” In Norway, the rule was originally supposed to apply to about 500 companies. By the time the law went into effect, about 100 of those companies had changed their corporate ownership structure so that the law no longer applied to them. Marianne Bertrand, a professor at the University of Chicago’s Booth School of Business, who has studied the Norwegian law extensively, says there’s no proof that the Norwegian companies changed their ownership to avoid the law - but it sure does look that way.

In Norway, as in Germany and other European Union states that have enacted quotas, the objections have tended to be two-fold. One, as is the case with BMW, is a general revulsion at the idea of quotas. The other is that there simply aren’t enough women qualified to sit on corporate boards, and that putting more of them on boards would hurt overall board quality.

Corporate boards are presumed to be filled with CEOs and former CEOs, and there are certainly far fewer female CEOs than male ones. Entrepreneurs and partners at law firms tend to get short shrift, making it even harder for women to be considered.

On the other hand, we’re talking about a very small number of women: Stellings says that only about 250-300 board seats become available at Fortune 500 companies each year, and that there are enough women executive officers among Fortune 500 companies to fill every one of those board seats. That doesn’t even count any of the women leaders in government, academia, and consulting. Stellings further points out that half of Fortune 500 board members have never been CEOs.

When it comes to qualified women, she says, “It’s just not an issue.”

In Norway, in fact, despite all the hoopla claiming a dearth of qualified women, the women who were named to boards after the quotas were enacted were actually more qualified than the women who sat on the boards pre-quota, says Bertrand. Obviously, a number of qualified women had been overlooked. The Norwegian government actually intervened here by putting together a binder of women - cue Mitt Romney - who were qualified and interested in serving, says Bertrand.

But many of the hoped-for results of the legislation don’t seem to have materialized in Norway, at least not in the first 10 years. Bertrand, who has recently co-authored a working paper on the subject, says, “We’re really hoping there could be some spillover for other women, and those could come in different forms.” Perhaps women on boards would push for more women in senior management. Or encourage the implementation of more family-friendly policies. Maybe female board members would prove to be inspiring to younger women.

The results suggest otherwise. “There is the possibility that there may have been some change in the C-suite,” says Bertrand. “Beyond that, we find nothing.”

Norwegian companies did experience one other change as a result of the law, one that was not anticipated. Labor expenses went up. That’s not because people were paid more or because more people were hired. It’s because there were fewer layoffs. “One possibility is that women directors care more about workers, or think about broader issues than shareholder implications. Another could be that the layoffs weren’t the right business decision in the long run. That’s something we won’t know for a long time,” says David Matsa, a professor at Northwestern University’s Kellogg School of Management, who co-authored a paper on the subject.

In the U.S., observers agree that quotas are not a possibility. So advocates for greater gender diversity on boards are relying on sponsorships and mentoring of board-ready women, and urging companies to pledge to reach defined levels of board diversity within a set a timeframe. Says Stellings: “It’s really a matter of, are they looking for women? Because then we think progress can happen.”

The monthly sales reports are out from the two major plane manufacturers and Boeing, as it has for most of the year, is running ahead of Airbus for the most planes ordered and delivered in 2014.

According to Reuters, Boeing BA has net orders of 1,274 for the year as of Dec. 2, and has delivered 647 aircrafts. Their continental rival Airbus, meanwhile, has net orders of 1,031 and has delivered just 554 planes.

A major score for Boeing was the $11 billion order it closed with Ryanair in September. Boeing has posted skyrocketing earnings this year, and said in the summer it thinks demand for aircraft will only continue to grow.

Airbus recently closed a deal to sell more planes to JetBlue JBLU . Reuters also notes that Airbus has said it is negotiating a potential deal in China.

DON'T BUY EUROPE-ONLY COMPANIES
Europe's sluggishness in 2014 surprised even conservative investors, and -uncertainty continues. Fears of a full-blown downturn and falling euro have scared pros away from European industrials and other firms with predominantly regional business.

DO BUY EUROPEAN MULTINATIONALS
Some contrarians are seeking out a group whose stock price they view as unfairly maligned: "Companies with global operations that just happen to be domiciled in Europe," says Rob Taylor, co-manager of the $29 billion Oakmark International Fund. Katrina Dudley, who co-manages the Franklin Mutual European Fund, for example, favors BNP Paribas BNPQY , which has a global retail-banking franchise--but has the double whammy of being French and having paid $9 billion after a guilty plea for violating restrictions on transactions with certain countries. It trades at less than 10.5 times forward earnings "despite being one of the few banks in Europe currently earning a double-digit return." Adds Taylor, who is bullish on German carmakers such as Daimler DDAIY and BMW BAMXY : "We're not investing in a government, an economy, or a GDP. We're investing in a business. Is Germany going to go into a recession again? Interesting question. But it really has nothing to do with whether a company is cheap." Daimler's largest markets include the U.S. and China, and it's on track to set new sales records this year, Taylor says. A Europe ETF can be useful, but Dudley warns against funds that don't hedge to offset the impact of the euro. The -WisdomTree Europe Hedged Equity Fund includes just European dividend payers that get more than 50% of their revenue outside the eurozone. (It outperformed a comparable non-hedged fund by 7.0% to -2.9% over the past year.)

DON'T BUY CHINESE STOCKS
Between slowing growth and government anti--corruption crusades (which are raising compliance costs), the Chinese market has become more perilous. "A lot of companies that were go-to businesses for investors are not the go-to businesses anymore," says Lewis Kaufman, manager of the Thornburg Developing World Fund, who oversees $4 billion. Kaufman says, "It's a much more constrained environment in terms of investing."

DO BUY INDIAN AND MEXICAN STOCKS
One has been hot--and one just may be ready for a turnaround. "We think India and Mexico are doing the right thing from a macro standpoint," says Marko Dimitrijevi?, founder of Everest Capital, which oversees $3 billion in hedge funds. He says reform agendas are likely to spark the two economies, and their currencies should hold their values against the U.S. dollar. In India, Dimitrijevi? praises Tata Motors TTM , which bought the Jaguar and Land Rover brands in 2008 and executed a turnaround so successful that Jaguar's profits last year exceeded its acquisition costs. Mexico's economy, meanwhile, may be bottoming out, says Kaufman. It seems poised to rise as the country opens its oil industry to private and foreign companies for the first time in decades, he says. Plus, Mexico's trade relationship should make it a prime beneficiary of U.S. economic growth. Dimitrijevi? owns shares of cement company Cemex CX , which will prosper as Mexico launches more infrastructure projects like roads and airports. Cemex has also expanded into Texas and Florida, so it should benefit when new-home construction eventually picks up. Kaufman prefers his exposure in the form of U.S. companies like railroad Kansas City Southern KSU , which will bring more cargo across the border in both directions as Mexico's energy industry begins to bloom.

Sources for all graphics: Dealogic; Bloomberg; S&P Capital IQ; MSCI; Everest Capital

DON'T BUY U.S./JAPANESE/EUROPEAN GOVERNMENT DEBT
"Bonds are expensive," says Brian Singer, portfolio man-ager of the $900 million William Blair Macro Allocation Fund. His fund is betting against Japanese and Euro-pean credit and is neutral on U.S. credit. Inker of GMO agrees. Japanese sovereign debt is yielding 0.5% while inflation is at 3%. "I can't fathom any reason why anyone would want to own" Japanese bonds, he says. When it comes to long-duration U.S. bonds, Heather Loomis, West Coast director of fixed income at J.P. Morgan Private Bank, is negative, given that the largest buyer--the Federal Reserve--is going into hibernation. Marathon's Bruce Richards says U.S. Treasury bonds are "the most overpriced asset in the world." If rates rise 100 basis points, you will lose close to 20 points in your Treasury bonds, he says: "There are very few assets in the world that, in your base case, you could lose 20%."

DO BUY EMERGING-MARKETS DEBT
Investors are too concerned that emerging markets are overly indebted, argues Rob Arnott, CEO of Research Affiliates, a sub-adviser to Pimco for $61 billion in assets. The BRIC countries (Brazil, Russia, India, and China) have about 40% debt to GDP, vs. 125% for the G-5. Emerging markets are also growing faster and yielding average interest rates four points higher than the G-5 after inflation. Because Arnott is more worried about inflation in the U.S., he recommends locally issued debt, which is available through Pimco Emerging Local Bond Fund (not affiliated with Arnott). Gerardo Rodriguez, portfolio manager of the BlackRock Emerging Market Asset Allocation Fund, looks for countries that have momentum or "can develop their own capacity to have domestic-driven growth." He points to Mexico and India and favors the BGF Emerging Markets Bond Fund. It invests in "hard currency" bonds, a better choice if you are concerned that local inflation is a threat.

DON'T BUY EMERGING MARKETS AS A GROUP
With China decelerating, emerging markets as a whole have sputtered. They also have to contend with rising U.S. currency and interest rates, which mean more expensive imports and a higher cost of capital. "Overall there's some value in select emerging markets, but it's hard to look at the asset class with a broad brush as exciting at the moment," says Kaufman of the Thornburg Developing World Fund. There are other reasons to opt out of the blanket approach: First, emerging markets used to rise and fall as a group, but that correlation has been diminishing since 2008, so grouping them together makes less sense than it used to. Second, nearly half of the benchmark MSCI Emerging Markets index is dominated by China, South Korea, and Taiwan, which are not expected to be major growth drivers.

DO BUY FRONTIER MARKETS
More nascent "frontier" countries in Africa and Southeast Asia boast not only cheaper valuations than emerging markets, but also economies that are chugging along, and they offer better diversification: "For now, frontier markets are peripheral to the global economy, so they're less risky," says Laura Geritz, who manages $4.5 billion, including the Wasatch Emerging Markets Small Cap Fund and Wasatch Frontier Emerging Small Countries Fund. She says many of her frontier holdings actually rise when the U.S. market falls. She thinks the best opportunities now are in markets such as Nigeria, Zimbabwe, Sri Lanka, Vietnam, Bangladesh, and the Philippines, where she's finding companies with skillful, often Western-educated management teams. "The companies that survive in Nigeria or Zimbabwe have to be really well run--it's the only way to survive," she says. The category's benchmark, the MSCI Frontier Markets 100 index, however, is also disproportionately weighted to just a few countries. Instead, retail investors might buy a single-country fund, such as the iShares MSCI Philippines ETF. "If you're looking for frontier-market-like growth with a more established market, we prefer the Philippines," Kaufman says. "We just think it's a safer way to play a very high-growth area." In a different tack, he owns certain U.S.-based companies such as Colgate-Palmolive CL , which generates half of its business in developing markets.

Read more from the Fortune 2015 Investor's Guide "Don't Buy This, Buy That" series:

Consumer Stocks
Stocks, Bonds and Funds
Energy and Mining
Real Estate and Industrial Stocks
Technology and Biotech Stocks

This story is from the December 22, 2014 issue of Fortune.

These changes in monetary policy sent the Euro below $1.24 in early November, its weakest in over two years, making European goods and tourism less expensive abroad. This did not lead to rejoicing on the streets of European cities, however.

"They ought to encourage consumption to reactivate the economy," said Luis Carrasco, 42, as he stood in front of a Barcelona restaurant where he is a chef.

Many economists would argue that people like Carrasco do not understand that the ECB is doing just that, albeit indirectly; lowering rates and buying assets should get credit flowing, which in turn should increase house prices and household spending.

But another school is arguing that Carrasco is exactly right, and that what European households need is not contorted monetary policy changes but, rather, an influx of cold, hard cash. The ECB should send each European adult a check, they say, and let him spend it how he likes.

John Muellbauer, a professor of economics at the University of Oxford who recently published a piece titled, "Quantitative Easing for the People," says that sending EUR500 euro checks to every EU citizen would cost a sixth of the EUR1 trillion Draghi talks about spending on asset purchases, and would increase EU consumer spending by EUR34 billion, or 1.4% of GDP.

London-based fund manager Eric Lonergan, along with Brown University professor Mark Blyth wrote the recent Foreign Affairs article "Print Less but Transfer More," which argues that transfers of between EUR500 and EUR1,000 per capita would have a far greater effect on consumption than the ECB's plans.

"It's much more efficient and sensible to directly target household spending," Lonergan says.

While stimulating the economy via society-wide handouts may seem silly or simplistic, it's an idea with a long history. In the 1936 economics classic General Theory of Employment, Interest and Money, John Maynard Keynes suggested that the treasury could juice the economy by burying bottles of cash in coal mines and having people dig them up.

And on the other side of the political spectrum, Milton Friedman noted in his essay “The Optimum Quantity of Money” that dropping cash to people from a helicopter would have a similar effect.

"It's funny that the left and the right are unified on this policy," jokes Muellbauer.

But while Keynes and Friedman were speaking with tongue in cheek, governments have performed a kind of cash handouts in the recent past. During slow economic times in 2001 and 2008, the U.S. gave out tax rebates, giving economists a chance to study the effect handouts would have.

While much economic theory holds that people would not spend the money, the opposite happened. According to a study from the National Bureau of Economic Research (NBER), households spent between 20% and 40% of their rebates on non-durable goods, like food, during the three-month period in which they received their checks, and they spent another third of the rebate during the following quarter. The poor spent more than the rich.

And in 2008, another NBER report found that households spent between 50% and 90% during the quarter they received the rebate. The spending was on a mix of non-durable and durable goods (particularly cars).

Two of the beauties of the giveaway approach, says Lonergan, are that it would be applied equally to all EU citizens, no matter the country, and it would let people do what they want with their money instead of pushing them to buy assets, as cheap credit does.

"If I'm a Spanish or Italian household and I'm in a bad situation, I'll use it to improve my situation," he says. "If I have debt, I will use it to repay it. If I have more money, I may take a holiday or put it in a pension fund. Sometimes it's good to let people to do what they want. They know what's best for them."

The idea that people would spend the money (instead of putting it under the mattress)--and in a variety of ways--was backed up on the streets of Barcelona.

"In Spain, the majority of us have debts, so we'd use it to pay debt," said Juan Galera, 53, a self-employed mason working in the Tres Torres neighborhood. "I'd use it to pay one mortgage payment."

Several blocks away, Pepi, who was cleaning the sidewalk outside of a dental clinic, said if she received a check, she would buy food and use it to pay her rent and electricity bills.

Of course, after years of pushing austerity policies, no one expects the EU's greatest economic power, Germany, to embrace a handout scheme any time soon. And there is another problem with the plan: while the idea was well received, a EUR500 handout wasn't exactly embraced as a panacea.

"Would it solve the crisis? That's another question. EUR500 doesn't go very far," said Galera.

Pepi, who did not to give her last name, was more pointed.

"Just EUR500?" she asked. "More would be a little better, no?"

By Richard I. Kirkland Jr.

With the fall of the Wall and the lifting of the Curtain, Western managers and investors must rethink their strategies for doing business in Europe in the 1990s. Suddenly the Old World has gained a new frontier. East of the Elbe, Communist parties are on the run. A year from now, or even sooner, most will probably be sharing power — and some may even be out. Freer politics inevitably will create freer markets. The possibilities are huge. Among the 12 members of the European Community, the campaign to forge a true common market by the end of 1992 was already boosting growth rates and capital spending. Now, says Percy Barnevik, the lanky Swede who heads Switzerland-based Asea Brown Boveri (ABB), the world’s largest heavy-engineering company, ”the opening of Eastern Europe could prove even more important than the drive for a single market.” The combined GNP of East Germany, Hungary, and Czechoslovakia is larger than that of China. The three countries also have relatively well-trained and reliable workers who toil for less than a quarter of what their Western brethren are paid. Give them access to their developed neighbors’ markets and hefty injections of Western capital, predicts Robert Hormats, vice chairman of ( Goldman Sachs International, and ”they could become the tigers of Europe.” Morgan Stanley chief equity strategist Barton Biggs believes that over the next five years East Germany could prove ”the fastest-growing economy in the world.” He advises buying West German and possibly Austrian stocks as the best way to play this emerging market. Who wins and who loses if the East’s backward economies finally integrate into the global economy and take off? The right answer is everybody wins and nobody loses — except, of course, the political leaders who are toppling. Sure, a lot of investment that might have flowed to Spain, southern Italy, or other low-labor-cost areas along Europe’s Mediterranean sunbelt could be diverted to Central Europe in the 1990s. West Germany’s high labor costs, for example, are particularly hurtful for a mass-market carmaker like Volkswagen. But John Lawson, an auto industry analyst with Nomura Securities in London, says, ”The opening of the East could prove the salvation of the West German motor car industry.” East Germany’s new Prime Minister, Hans Modrow, recently suggested that his country would reverse course and allow Westerners to form joint ventures and make direct investments. If that happens, why should Volkswagen, whose Wolfsburg headquarters is just five miles from the East German border, continue to export capital to distant Barcelona when it can tap workers in nearby Karl Marx City who speak the same language and cost less than $3 an hour?

Because Europe’s overall growth would accelerate, plenty of other eager foreign investors — from the U.S., Japan, possibly even South America — will almost surely pour into Spain to fill that gap. Expanding global markets is not a zero-sum game. Western Europe has the most to gain from Communism’s march toward freer markets. At $43 billion last year, its exports to the Russians and their satellites were ten times larger than America’s and more than 11 times larger than Japan’s. Within Europe, West German companies will be the biggest winners, followed by the Austrians, Italians, French, and Finns. And the big West German banks, along with Siemens, Mannesmann, and other capital goods makers, will lead the charge. Last year Deutsche Bank alone financed more than 20% of West Germany’s $15 billion in exports to the East. American companies will benefit because they will be able to increase sales to a Western Europe made even more dynamic by its expanding Eastern frontier. $ Deutsche Bank chief economist Norbert Walter estimates that the 600,000 ethnic Germans and East Germans who have emigrated from Eastern Europe this year will add a full percentage point to West German consumer spending in 1990. Their hunger for Western goods was poignantly captured by TV images of East Germans prowling the Kurfurstendamm, West Berlin’s main shopping street. Since West German factories are humming at full capacity, only a surge in imports will satisfy that demand. And in the slightly longer run, if peace really does break out between the superpowers, no Western economy — or stock market — ultimately stands to gain more from falling defense spending than America’s. Farsighted executives had their eyes on these opportunities well before the Berlin Wall blew open on November 9. In September, General Electric of the U.S. began negotiating with Hungary’s reform-minded government to buy Tungsram, a state-owned lighting manufacturer with sizable exports to the West. By mid-November, GE Chairman Jack Welch had a deal. For $150 million GE bought just over 50% of Tungsram — plus an option to purchase 20% more if the company’s exports can double. Says Welch: ”We recognize that we are swimming in uncharted waters. But acquiring Tungsram gives us an entry into a part of the world that has been held primarily by Siemens and Philips. By positioning us for a Europe in which, down the road, East and West will blur, it helps us toward our strategic goal of being No. 1 in our global markets.”

Other companies with long experience in the East are either expanding there or contemplating doing so. Fiat has licensed technology to Polish carmakers since 1921. In 1991, Poland’s state-owned FSM will start exporting more than 50,000 subcompact Fiat Mickros to the West — the first time a completely new Fiat car has been built outside Italy. Fiat is also talking with FSO, another Polish automaker, about building a medium-size car and is on the verge of striking a giant joint venture deal with the Soviet Union. ABB is negotiating with two Polish turbine makers, Domel and Camech, to form joint ventures to sell components in both Eastern and Western Europe. Two years ago Eastman Kodak set up a joint venture in Hungary that sells $5 million of film, cameras, and photo processing a year. David Harari, Kodak’s manager for Eastern Europe, says he is discussing a deal with Poland ”six to seven times larger.” Political leaders on both sides have barely begun to grapple with the challenges of melding Europe’s postwar halves. How much aid should the Western allies offer the East, under what conditions, and in what form? What if demonstrators filling the streets of Leipzig or Prague, having won first an inch and then a yard, suddenly demand unlimited mileage — a complete break with the Warsaw Pact? How would Mikhail Gorbachev respond? Will reunification, or at least economic reintegration, of the two Germanys derail Europe’s Project 1992 or merely slow it? And how and when should the U.S. and the Soviet Union bring troops home from Central Europe? The uncertain outlook for Russia’s perestroika — and thus Mikhail Gorbachev’s survival — guarantees that Western investors in the East will have to live with higher than average political risk for at least the next decade. But political risk isn’t the worry it used to be. The Communist bloc is so desperate for Western technology and capital that even if hard-liners regain control, they’re unlikely to expropriate foreigners’ factories or profits. That certainly did not happen in China after last June’s Tiananmen Square massacre. The bigger risks are economic. If your host government is going to let inflation explode, fail to deliver vital supplies, and waste foreign loans on consumer subsidies, you might be wiser to reject his invitation. Hungary and Poland, which are the most eager to attract Western investment, are also among the East’s biggest debtors. Forecasters at WEFA Group near Philadelphia estimate that the two countries’ ratios of net debt to hard currency exports are 237% and 500%, respectively.

Partly because of their troubles — and because they have made the greatest strides toward democracy — the Poles and Hungarians are furthest ahead in introducing promarket reforms. But will they go far enough? Says Britain’s Philip Hanson, a professor at the University of Birmingham’s Center for Russian and East European studies: ”Serious radical reform — cutting subsidies, freeing prices, and allowing convertible currencies — is acutely painful for large numbers of ordinary people, who at least temporarily lose their economic security. That’s why I’m not convinced that any of these countries will make the breakthrough to a true market economy.” Given the gap between Eastern Europe’s vast potential and its present woes, would-be investors may feel understandably confused about what they should be doing. Here are tips from old hands in the region. — Place affordable bets. Says Dwayne O. Andreas, chairman of Archer Daniels Midland and an ardent advocate of more East-West trade: ”It’s like anything else. You don’t risk the farm. You risk three acres.” GE’s $150 million purchase of Tungsram is the largest Western investment in Hungary since World War II. But that investment is less than 10% of what the company may spend buying back its own stock next year, and even smaller potatoes compared with GE’s total capital spending budget. — Do your homework carefully. Four of the eight Eastern European countries don’t even appear on most Western shopping lists (see table). Under longtime leader Nicolae Ceausescu, Rumania’s once promising economy is on a quick march back to the 15th century — a century tiny Albania never left. Ethnic animosity and hyperinflation could tear Yugoslavia apart well before the next millennium. Bulgaria is at least trying harder, but it’s a long way from Sophia to Vienna.

At the moment Hungary gives Western investors the most options. Some 850 foreign joint ventures with outside capital of roughly $1 billion will operate there by year’s end. Many have begun in just the past 12 months. In addition, Hungary’s ambitious new privatization program may well expand if, as expected, an even more promarket coalition government comes to power in next spring’s elections. Meanwhile, auditors from Price Waterhouse, Ernst & Young, and other major accounting firms are busily checking the books of Hungarian companies that plan to list shares on the Eastern bloc’s first stock market, scheduled to open in Budapest next year. Though Poland shares Hungary’s eagerness to attract Western capital, its economy — and its accounting practices — are both in much worse shape. Says economist Warren Oliver of the London brokerage firm UBS Phillips & Drew: ”It’s simply impossible to know what you’re buying in Poland. I’d challenge GE’s acquisitions department to make sense of the books kept by a Polish state industry.” What Poland’s Solidarity-led government does offer is a breathtakingly radical plan to cut subsidies, free prices, and move quickly to a convertible currency. Says Deutsche Bank’s Walter: ”No Communist country has ever adopted a more conceptually convincing program for moving to a market-oriented economy. We must all look more carefully at what could happen in Poland.” Because their break with the past is so sharp, the Poles can also expect big injections of Western aid. The U.S. Congress just approved an $852 million package, while West German Chancellor Helmut Kohl has promised at least $1.5 billion. East Germany is almost everyone’s favorite turnaround candidate. Though its economy has been hammered by the migration of many of its best young workers, that damage can be repaired quickly — if the Communists move to adopt fundamental reforms, including free elections. Should that happen, Jan Vanous, research director of PlanEcon, a Washington, D.C., consulting firm, believes the annual flow of private and public money from West Germany alone could ”easily” top $10 billion and continue for at least a decade. Says he: ”No other East European country can dream of this type of windfall from making the right political and economic moves. It would take real talent not to pull the East German economy above the average standard of living in the Common Market by the year 2000.” — Don’t leap into Eastern Europe without a hard-currency safety net. You’ll need some way to get your cash out. A system of fully convertible currencies won’t emerge for several more years, possibly longer. If your main interest is serving the domestic market, creative bartering is still the only way to change your zlotys or forints into real money. For example, PepsiCo exports chairs from timber-rich Poland to its Pizza Hut franchisees in the U.S. in order to get profits out of its Polish bottling operations. Manufacturers must make sure they strike the right balance between exports and local sales. France’s Saint Gobain recently joined forces with Yugoslavia’s largest glassmaker. Though a major customer of this new factory will be state carmaker IMV, which itself exports compacts in a joint venture with Renault, Saint Gobain earns no hard currency from those sales. That will come from exports to Greece. — Don’t expect a quick payoff. Says Juergen Aumueller, president of American Express Travel Services in Europe: ”Patience is the key.” Despite the current euphoria, no Eastern European country is moving from Stalinism to Thatcherism overnight. Outmoded plants and unpredictable supply lines will continue to make planning an art, not a science. Richard Norton, PepsiCo’s vice president for Eastern Europe, figures lack of spare parts alone forces plants there to endure 20% more downtime than their U.S. counterparts. Corruption will remain endemic, contacts essential. Unless you’ve got the % in-house expertise to negotiate this morass, William Cornelius, director of trade policy for Dow Chemical, suggests it may be wise not to take a majority stake in an Eastern bloc joint venture. Says he: ”Without at least 50% of the deal, your partner may not direct enough of his energies toward solving your company’s problems.” — Above all, don’t delay. Start exploring the possibilities in Eastern Europe. The number of companies capable of competing successfully on world markets, as do Tungsram or Ikarus, a Hungarian busmaker, is larger than you might think — but it’s still limited. Demand for these islands of efficiency is sure to rise. Smart investors, such as America’s George Soros and Italy’s Carlo de Benedetti, are already sniffing out opportunities. Japanese interest is also growing. Daihatsu, Japan’s No. 8 auto company, is talking with Poland’s FSO about a joint venture that would produce 120,000 small cars a year, some for export to the Soviet Union and the West. Says Stewart White, a partner in the London law firm of Denton Hall Burgin & Warrens: ”In our new Tokyo office the first question potential Japanese clients ask these days is whether we have expertise in East-West trade.” Early birds will also grab the best local managers. Peter Hargitay, owner of a private holding company in Zurich that specializes in communications, finance, and public relations, expanded into Hungary more than a year ago, just as the latest round of reforms were launched. By doing so, he was able to recruit Janos Fekete, the former head of Hungary’s National Bank, as chairman of his subsidiary. Fekete also heads the commission advising Hungary’s Parliament on future economic reforms. As the world enters a new decade, a new Europe is emerging as well. What’s in doubt isn’t the trend but the timing. The day after the Berlin Wall split apart, David Roche, Morgan Stanley’s top European equity strategist, advised his clients to immediately boost their stake in German stocks, despite the likelihood that an overheating economy could temporarily drive up interest rates. Explains Roche: ”I’m trying to tell people where they’re going to make money over the next five to ten years. Just as markets in the 1980s were defined by Reaganomics and Thatcherism, the 1990s will be defined by the shifting of the ideological plates that have separated the world’s geopolitical land masses.” Despite the difficulties that lie ahead, companies that aim to remain globally competitive shouldn’t wait too long to invest ; either time or money in those changes.

Reporter associate: Mark M. Colodny

To celebrate, they snipped a ribbon unfurled across the stage and assembled a foam puzzle showing the European Union and US flags. The audience checked their cellphones.

The event, with its long Chamber of Commerce-style speeches, highlights the disconnect between Europe and Silicon Valley. Although Europeans are trying to emulate the U.S. tech industry’s success, they still have much to learn – starting with the need to loosen up, in keeping with the region’s free and easy vibe.

"If Europe took a selfie, it would be an old lady," Mauro Battocchi, Italy’s consul general, said on stage.

The new tech hub, which formally opened in September, is intended to showcase the best of European innovation at a time when American technology by the likes of Google, Facebook and Apple dominate. The overseas start-ups will need to prove that they have something new to offer Bay Area investors who have plenty of other options to choose from.

There's a good reason for the Europeans to look for money in the Bay Area tech scene. In 2013, venture capitalists invested $33 billion in US companies, according to Dow Jones Venture Source. That's more than four times the amount invested in companies in the entire European Union.

The gap is even wider in the tech industry. Total venture capital invested in the US tech industry reached $8.67 billion last year compared with just $1.44 billion in Europe.

The new European hub is hosted in a co-working office in downtown San Francisco called Rocketspace, which is already home to incubators for Canada, Brazil and Spain. Start-ups from all over Europe will be invited to work out of the office, get training and participate in events, at no charge.

In typical bureaucratic fashion, the organization sponsoring the hub has a mouthful of a name: European Institute of Innovation and Technology Information and Communication Technology Labs. The hub, itself, is known by the acronym, EIT ICT Labs, which shows just how desperately the organizers could use help from Silicon Valley’s marketing gurus.

A number of countries already have start-up incubators in Silicon Valley including Germany, France, Spain, and Italy. They offer services ranging from mentorship, education classes, and networking opportunities. However, EIT ICT Labs says it will distinguish itself by drawing from start-ups all across Europe, and this rather than any other major program offerings seems to be their major selling point.

"We can pick the best of the best and make the selection process more streamlined," says Paul Campbell, the Silicon Valley advisor for the hub.

Yet, others aren't quite sure of that will be enough of a distinction.

"It's hard to say if this is another European outpost,” said Bernd Girod, associate dean of online learning at Stanford University and who also teaches electrical engineering. “It could be big if they get some excellent smart people. They have the money to succeeded, but money is not all that success takes.”

EIT ICT has a 2014 budget of $300 million Euros ($381 million), but won't discuss its specific investment in the San Francisco hub. So far they have leased four desks for European start-ups to use but haven't specified how they intend to choose the start-ups or who will fill the desks.

"We need to show that we're a strong ecosystem to invest in," Willem Jonker, the CEO of the European group, said in his speech at the event.

However, the event's formality made attendees skeptical of EIT ICT Labs' ability to bridge the cultural gap between Europe and Silicon Valley. During the speeches and panels, most of the entrepreneurs mingled at the bar where, their chatter making it difficult to hear the speakers.

"We're quite embarrassed," said Dr. Anne Bruinvels who came to pitch her Dutch start-up Px Healthcare which uses cancer patients' data to create personalized treatment plans. "We believe that Europe is far more dynamic than how it was represented today. I hope they are open to listening to feedback. With our input they could possibly create a lot of impact. Without it, it could fail and that would be a terrible waste of the investment."

Yet despite the lackluster enthusiasm for the speeches, the energy perked up during the pitching session. Start-ups were given a few minutes to present their business ideas to a board of judges who gave them feedback, American Idol style. And, like on American Idol, attendees cheered whenever someone made a particularly good pitch.

"I love the vibe in San Francisco," said Glenn Bilby, an Australian based in Sweden who came to pitch his start-up, Quick Posture, a tool that lets doctors diagnosis a patient’s movement and posture problems. "It feels like anything is possible. This must succeed."

And perhaps, if the agency manages to lose the tie and roll up its sleeves, it will.

Jim Farley, currently the company’s executive vice president of global marketing, will be taking over as the head of Ford’s operations in Europe, the Middle East and Africa. Current EMEA head Stephen Odell will take Farley’s old job.

When the company reported earnings last month, falling sales in Europe were seen as a major reason for declining revenues. Ford had net losses of $439 million in the automotive business in Europe last quarter.

Rumors of this change had been swirling in recent days, and it was officially announced by Ford this morning.

The company announced two other changes: Marcy Klevorn will take over for retiring chief information officer Nick Smither, while Kim Pittel will replace Robert Brown as vice president for sustainability, environment and safety engineering. Brown is also retiring.

As was rumored yesterday, this morning the iPhone maker issued 2.5 billion euros in debt, the first time the company has offered bonds in a currency other than U.S. dollars. The Wall Street Journal reported the debt offering Tuesday morning.

A source close to the deal told Bloomberg that the half of the bonds are eight year notes, and the other half are for 12 years. Goldman Sachs GS and Deutsche Bank DB ran the sale.

This is Apple’s AAPL third bond sale in the past few years, with $12 billion raised in April of this year, and a $17 billion raised in 2013.

The Journal said the proceeds from the bond sales -- which offer relatively low yield but are considered to be safe investments give Apple’s stability as a company -- will be used to pay dividends and complete share buybacks.

The newspaper reported Monday that the technology giant hosted an investor call this afternoon about the possible debt issuance, which could be partially made in euros.

The call was hosted in London by Deutsche Bank DB and Goldman Sachs GS , according to the Journal. This would be the first debt issuance Apple has ever made in a foreign currency.

Sources close to the situation told the Journal that the bond issuance could be on Tuesday, and could be for up to $5 billion in non-dollar bonds.

The Journal notes that Apple’s AAPL debt issuances are usually large with relatively slim yields for investors. In April, the company issued $12 billion in debt, and last year had a record-breaking $17 billion round.

The April debt issuance offered yields of 1.068% for three-year money and 4.483% for 30-year cash, which the Journal notes is only slightly better than U.S. government debt. Why, then, was there so much interest? Because, quite frankly, no one can see a future where Apple collapses. It has the second highest debt rating possible, and investors believe they will almost certainly get their money back.

The money raised in Apple’s April’s debt issuance was used to pay dividends and for share buybacks, the paper said.

The company announced in a blog post Tuesday that acquired CityVox, one of France’s biggest review sites, for an undisclosed amount. Last week, Yelp, which boasts 130 million unique users per month, acquired Germany’s Restaurant-Kritik, a restaurant review service.

“Hot on the heels of our acquisition of Restaurant-Kritik in Germany last week, the acquisition of CityVox further illustrates Yelp's commitment to the development of the European market and clearly underlines our goal of becoming the go-to local business review site internationally,” Mike Ghaffary, Yelp’s Vice President of Business and Corporate Development, said in a blog post.

“We are looking forward to integrating this review and photo content into Yelp and putting it at the service of consumers throughout France, whether they be locals or one of the millions of annual visitors to the culture-rich country,” Ghaffary said.

Yelp also plans to tap into CityVox's photo library to “enrich the Yelp content in France,” according to the post. The company hopes that the move will “attract” more users to the service in the country.

The acquisitions come as the company has been aggressively pushing for an increased footprint overseas. For instance, Yelp launched in Hong Kong in September.

In July, the company YELP made news for turning a profit for the first time since going public in 2012.

In 2013, Fortune profiled Yelp CEO Jeremy Stoppelman who notably rejected advice from both Peter Thiel and Elon Musk over the years.

Monthly job growth in 2014 is, on average, faster than at any point since the financial crisis. Overall economic growth appears to picking up too, with real GDP growing by more than 4% in the second quarter of this year, and many economists predicting higher overall growth compared to
last year.

But news outside the U.S. isn’t so bright. European economies are still battling depression-era levels of unemployment and the threat of deflation. And emerging economies, like China, are having trouble maintaining the kind of growth they have become accustomed to in recent years. The most recent readings out of China have the world’s second-largest economy growing at roughly 7.5% per year, down from the 10% growth it averaged for two decades before its economy began to slow in 2012. And this pattern holds for other emerging economies like Brazil and Russia.

Optimists hope that an accelerating U.S. economy will have what it takes to drag the rest of the world out of the doldrums, as it has done during so many past recoveries. But David Levy, economist and chairman of the Jerome Levy Forecasting Center, argues that the problems of the rest of the world will end up taking the U.S. down, rather than the other way around.

Levy is calling for a 65% chance that there will be a global recession by the end of 2015, based on the simple fact that emerging markets have continued to invest in an export infrastructure to sell goods to the West that it no longer has the wherewithal to buy.

Levy is an intellectual descendant of the economist Hyman Minsky, a heterodox thinker who spent many years working at the Jerome Levy Economic Institute and whose theories were largely ignored by economists up until the latest financial crisis. Once the crisis struck, however, Minsky’s ideas seemed to make a lot more sense. He argued that capitalist economies slowly and naturally become unstable over time, as banks and private businesses take on more and more debt, until the system finally snaps under the weight of these obligations. After surveying the wreckage caused by an over-leveraged banking system, which had gorged itself on debt backed by overvalued real estate, the economics world has begun to pay much closer to attention to Minsky and his views on financial instability.

Indeed, Minsky and his ideas have captured the attention of big-name figures like hedge fund titan Ray Dalio and economist and Financial Times columnist Martin Wolf, who began his latest book with a quote from Minsky arguing that economists ought to formulate theories in which depressions are a naturally occurring state for capitalist economies. These thinkers have been drawn to the Minksian notion that, over the long run, capitalist economies will inevitably suffer from the kind of trouble we’ve been in recently because capitalist systems encourage the growth of debt.

We hear a lot of people warning about the dangers of debt, specifically the government variety. But for Minksy and his followers, it’s private sector debt that is the problem. Here’s how economist Paul Krugman has described the Minskian concept of debt:

He argued that conventional views of financial crisis were too narrowly focused on the specific issue of bank runs. In Minsky's vision, excessive leverage--too much reliance on borrowed money--creates a risk of crisis whoever the borrower. Banks, which in effect borrow money short-term from their depositors but invest in assets that can't easily be converted to cash, may be especially vulnerable. But business and household debt also expose the economy to the possibility of a self-reinforcing downward spiral.

The following chart, provided by Levy, shows the accumulation of private debt in the U.S. and in China:

As you can see, debt in the U.S grew and grew until the trend was finally snapped in 2008. This process of “deleveraging” is beginning to end in America, but in places like China, the debt buildup hardly paused, and now the ratio of debt to GDP held by non-financial businesses in China is higher than it ever was in the U.S. So, what is this debt financing? Investment in businesses and real estate, to fund the great Chinese export machine. The problem is that exports haven’t grown in China to justify that demand, as the following chart shows:

You can see the same general trend for other emerging markets. They’ve continued to invest, hoping that the export growth catches up to pre-crisis levels. Eventually, the consequences of this overinvestment will be clear, just like the U.S. economy had to deal with its own over-investment in real estate.

So what happens when emerging markets are finally forced to face the music? It’s tough to say what a financial crisis in China would look like, Levy argues. The government in Beijing has the ability to take a much more activist role in protecting the financial system than even the U.S. did. But either way, the world’s second largest economy, and others like it, are headed toward much slower economic growth.

Twenty years ago, a recession across the emerging world might not have been a huge deal for the U.S., but the American economy is more reliant on global trade today than it has been in a long while. Thirty percent of the jobs added since the financial crisis has been the result of rising exports, according to the Treasury Department, and there are now more firms exporting goods and services in America than ever before.

The U.S. economy is even more closely connected to the European economy, which Levy also shows has done a poor job of deleveraging:

The European banking system never really recovered from the financial crisis. A stress test released on Sunday showed that 25 out of 130 institutions are unsound while critics argue that the failure rate should be far higher. Levy has little confidence that Europe will be able to withstand an economic shock stemming from the emerging economic world. And once Europe is dragged under, he says, there isn’t enough economic strength at home to keep the U.S. economy from avoiding another recession.