The horrific events in Paris of November 13, 2015 shocked the world. The tragic loss of at least 129 lives is difficult to comprehend, and our hearts go out to those who have been affected. The human cost is beyond quantifying, and is of course the primary concern.
The economic fallout from the attacks is also worthy of comment and very real, adding to the difficulties faced by France and the whole of Europe going forward. At a time when nations of the European Union are struggling with sluggish economic performance and unsustainable debt burdens, the need for heightened security will present a significant challenge. In addition, dealing with refugees from countries associated with terrorist groups will be even more difficult than before.
The Paris attacks are part of a pattern of escalating violence among the Islamic State (IS or ISIS) and associated groups. On November 12, a suicide bomber killed at least 44 people in a Beirut suburb. A group supporting the Islamic State also said it was responsible for downing a Russian Metrojet flight on October 31 which killed 224 people.
Jihadist extremism is an extremely difficult national security problem. One issue is that the recent escalation is occurring in the midst of a refugee crisis in Syria, where civil war has led to the deaths of hundreds of thousands of people. Not only is there fighting among forces loyal to President Bashar al-Assad and rebels opposed to his rule, but also against jihadist militants from the Islamic State which have expanded their presence. An estimated 11 million Syrians have been displaced by the war, and more than four million have left the country entirely. Dealing with these millions of displaced families presents enormous resource challenges for nations accepting the refugees, particularly in light of strained social networks and limited job opportunities in most of the region. As news has surfaced that one of the terrorists involved in the Paris attacks may have entered Europe as a refugee from Syria, the issue of dealing with this mounting humanitarian crisis has grown even more complicated.
Increased security will be necessary going forward, although many areas have been in a state of alert for months. Analysts are speculating that the Paris attacks would have taken a year to plan and that there are likely other events in the planning stages. From an economic perspective, the potential for attacks raises uncertainty not only for tourism but also for business investment. The travel industry has seen some fallout, with flight cancellations and changing plans.
As noted, the European economy has already been fragile and is particularly vulnerable to the combination of a need for additional spending and potential retrenching as consumers and businesses slow their spending as they wait to see what will happen.
Perhaps a bigger issue over time is the fundamental change in the global risk perspective that events of this nature bring. In effect, in Europe, the United States, and elsewhere there is greater perceived uncertainty associated with all types of activity than was previously observed. As a result, investments across a broad spectrum are viewed more cautiously (the discount rate is raised in financial parlance), and fewer projects are undertaken. This outcome reduces the rate of capital formation and sends ripples through the world business complex, thus dampening long-term growth prospects.
On the other hand, such events can and often do awaken a spirit of determination that can generate entrepreneurial endeavors and public initiatives which spur additional expansion. The phenomenon has occurred on numerous occasions through centuries of history.
The renewed sense of urgency in dealing with Islamic State extremists will likely lead to further military action. An alliance including the U.S. and Russia that seemed highly unlikely before the attacks is now a possibility as world powers join forces to fight ISIS. A major obstacle to a U.S.-Russia joint effort is each nation’s relationship with Syria, with the Russians seeing President al-Assad as part of the solution, while the United States sees him as part of the problem. Beyond military action are calls for other strategies such as concerted efforts to answer the social media outpouring from Islamic State-friendly accounts with positive messages in an attempt to make IS recruiting more difficult.
The economic cost of the recent terrorist attacks is very real, though it is of course dwarfed by the human cost. The immediacy will pass, as it has with much larger unexpected tragedies over the years, but the economic effects will linger for quite a while. Now, however, is a time for sympathy and compassion for those directly affected. The rest will come later.
Editor’s Note: The main image accompanying this guest column shows people placing flowers and candles in front of the restaurant where attacks took place on Friday on Rue de Charonne, Paris, Sunday, Nov. 15, 2015. (Photo: AP/Frank Augstein)