HOW SAFE ARE WE? SHAPING EUROPEAN ECONOMY BY GEOPOLITICAL SHOCKS

Abstract

Could we measure the impact of geopolitical shocks, such as the Russian invasion of Ukraine and COVID19. on shaping economic diplomacy and investor decisions? This is the question that runs through this study. We are attempting to highlight and identify the vital interconnections between the economy as reflected in the functioning of a state's stock market and the geopolitical risks it faces, attempting to draw useful conclusions for economic diplomacy. The economic analysis of geopolitical risks and its integration into the economic policy framework is a major concern of the current scientific research and therein lies the value of the present study. By statistically exploiting data from 2000 for the countries facing strong geopolitical risks: the BRICS (Brazil, Russia, India, China & South Africa), MENA (Middle East & North Africa countries: Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, Palestinian Authority, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates & Yemen) and SAHEL (four countries bordering Lake Chad - Cameroon, Chad, Niger, Nigeria – as well as Burkina Faso, The Gambia, Guinea, Mali, Mauritania, and Senegal), but also for the G7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, & the US, as well as the European Union) due to their involvement in geopolitical crises (either through peacekeeping missions and development aid or by sending military equipment), it is possible to analyse the effects of geopolitical risks on the functioning of their economies, as reflected in stock market fluctuations. The conclusions are twofold: they feed the information "arsenal" for shaping economic diplomacy, and at the same time help investors to protect themselves from geopolitical risks by diversifying their investment portfolio.