Europe sliding towards financial abyss - and terrorists know it
Terrorism is defined by the US state department as "premeditated, politically motivated violence perpetrated against non-combatant targets by sub-national groups or clandestine agents, usually intended to influence an audience". The atrocities in Paris at the weekend conform to every one of those characteristics.
All terrorist acts also have the same purpose - to trigger a response and to spread fear. The first of these reactions is already well under way, not just in France, which is scrapping compliance with the EU's fiscal compact so as to step up spending on security and defence, but across Europe, Russia and even the US. Politically and fiscally, security has overnight become the number one priority.
The second objective - fear - is a much harder thing to measure, at least in terms of economic impact. In a 2011 study, the US economists Gary Becker and Yona Rubinstein found that the fear factor will generally have behavioural effects out of all proportion to the likelihood of actually being caught up in such an event. Even in Israel, citizens are far more likely to be the victim of a car accident than a terrorist outrage. But that doesn't stop people altering their behaviour, sometimes quite radically.
Drill down beneath the expressions of public defiance that invariably follow a terrorist event, and you nearly always find an underlying atmosphere of insecurity and elevated risk aversion, triggered by fear of repeat attacks.
Avoidance of crowded spaces is one obvious manifestation of these behavioural changes. Most people will indeed carry on as before, but it only takes a 10pc drop in footfall to have marked economic effects.
Yet it is to the wider geo-political impact of terrorism that we must look for the longer-term economic consequences. In providing a pretext for war in Afghanistan and Iraq, 9/11 ended up having a massive economic effect far beyond any immediate behavioural changes. The fiscal costs alone of these wars were vast. On its own, Iraq is estimated to have cost the US $1.1 trillion, and that's ignoring after-conflict costs, which compound over time. The wars also triggered a series of interest rate cuts in the US and beyond, helping to unleash a dangerous degree of credit expansion that culminated in the global financial crisis. The underlying causes of the financial crisis were many. Nonetheless, the attacks played an important part in the chain of events.
The latest outrages come at a similar point of sluggishness in the world economy, which is once again teetering on the brink of recession. America, Britain and Germany are about the only bright spots. For an economy that relies heavily on tourism, any nascent recovery in France, which recorded 0.3pc growth in the third quarter, may well be snuffed out.
In any event, the global economy barely got a mention at last weekend's meeting of the G20 in Turkey, where the migrant and terrorist crises dominated the agenda. The bottom line is that virtually everywhere, emerging markets alongside advanced economies, policymakers have run out of road.
From both a political and economic perspective, the terrorists could hardly have chosen a more vulnerable moment to strike, with Europe wearied by years of crisis, paralysed by political indecision and shipwrecked by incompetent policy. If, in France, the real winner turns out to be Marine Le Pen's Front National, the latest batch of murderous, Middle Eastern gangsters will have hit the jackpot. (© Daily Telegraph, London)