The Economic Impact of the Paris Attacks: Resilience Or Acclimatization?

Posted on the 21st November 2015 by Aakanksha, Communications Coordinator

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On the night of November 14th, Paris suffered three simultaneous terrorist attacks committed by members of the Islamic Group. Besides the tremendous consequences in terms of human losses, this event had several economic and political implications.

Firstly, the Paris Cac index Closed down at 0.08% having repercussions on Asian markets, where Japan’s Nikkei index shrank to 0.8%1 . In addition, the euro weakened by 0.55% against the sterling, even though remained steady up to 0.19% over the dollar2 . Besides the financial markets, tourism industries such as Air France, British Airways and Ryanair experienced a relative fall in market values on Monday as business confidence decreased overall. Although some argue that this may threaten France’s growth, as 7.5% of the country’s GDP relies on this sector 3, economists are not concerned as they consider it to be short lived. In fact, there is evidence that events such as this one revealed a temporary slow down of the market during current quarter, without jeopardizing the long term welfare. The reason lies in the role of the France capital in the international context as it represents an important cultural centre in several fields that inevitably attracts visitors.

Moreover, the figures show the extent to which the financial markets have become increasingly resilient to these kind of events as the fluctuations in values are at a minimum. It seems that markets have become able to recover incredibly swiftly to these events in comparison to past episodes, like September 11th, whose effects impacted the long term economic performance of the country. US analyst Sam Stovall forecasts the start of a recovery by next week arguing that event like these will not “throw European economy into recession” 4. This also raises the question of whether the western markets have acclimatized themselves to cope with such events more efficiently i.e. has the frequency of such attacks numbed the response to it?

On the other hand, the local measures adopted by single countries can have more serious impacts than the the contraction of the market. The first issue to be raised is the validity of the Schengen agreement, one of the most important accomplishments achieved by EU. Some countries seemed to have suspended the agreement, establishing border checks and increasing public spending on surveillance and security measures. Despite the apparent benefits these actions may bring, they also involve high social costs in terms of the speed of individual movements. The EU is already experiencing a migration crisis where international institutions face difficulties to accommodate the inflows of migrants among different countries and that would become even harder if nations would close the borders.

Another element to take into account is the nature of the attacks. Paris seems to have become a favourable target as this is the second terrorist attack over eleven months. The frequency of these events could enclose major implications, discouraging investment from abroad because of the vulnerability of EU and a loss of credibility in the international context that would slow down further the economic recovery.

In conclusion, the Paris attack consequences have to be evaluated on different accounts. Although forecasts have predicted heavy falls in market values in the short term, it is important to consider that the future of the French economy will be dependent upon its own counteracting measures as well as the EU ones. The aggregated response of the European Union could prove to be more harmful than the individual response of the French government.

By Orsola Robasto, Communications Team Member

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