In the U.S., Kosovo's declaration of independence from Serbia is cause for celebration. Unfortunately, that view is not shared by all, particularly Russia and Serbia.
You want political risk? You got it.
U.S. and Russian relations were already heated, because of the proposed U.S. missile shield in Ukraine, but Kosovo's independence turns things up a few notches. Russia is a staunch ally of Serbia. Add Chinese and Spanish disapproval to the mix (they have their own separatist concerns with Taiwan and the Basque region, respectively) and you have yourself a spicy geopolitical gumbo.
Franz Ferdinand: Not just a rock band
Political instability in Eastern Europe is nothing new, nor is its uncanny ability to bring world powers to conflict. Hopefully, the recent geopolitical debate surrounding Kosovo's independence will remain civil and diplomatic (even after the U.S. embassy in Belgrade was attacked by protesters yesterday). If tensions escalate, free-market reforms in some of the rapidly growing Eastern European economies -- where Russia continues to have a strong influence -- could be delayed or even reversed.
One country to watch as these events unfold is the economically progressive Slovakia, which is set to adopt the euro currency in 2009, but is against Kosovar independence. It will be interesting to see if this process hits any speed bumps if strained East-West relations continue.
Global repercussions
If you don't think Eastern Europe matters in the scope of the global economy, think again. According to analysts at the Economist Intelligence Unit, foreign direct investment in Eastern Europe "hit a record [$112 billion U.S.] in 2006, putting the region ahead of Latin America and second only to Asia among emerging markets." U.S. investors in the region include:
|
Company |
Investment Type -- Location |
|---|---|
|
U.S. Steel (NYSE: X) |
Steel Plant -- Smederevo |
|
Altria (NYSE: MO) |
Tobacco Factory -- Nis |
|
Microsoft (Nasdaq: MSFT) |
Development Center -- Belgrade |
|
Ball Corp. (NYSE: BLL) |
Factory -- Belgrade |
In fact, Altria is Serbia's single largest foreign direct investor. Any disruption of the flow of capital from foreign investors could have serious consequences to the region's growth.
Investors who hold shares of the aforementioned U.S. companies, as well as those who are hoping for sustained growth in Eastern Europe, need to stay tuned to the events surrounding Kosovar independence. Don't forget what history teaches us: What happens in Eastern Europe can have a profound effect on the world.
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