Researches and surveys, so far, highlight how the negative impact of jihad on the EU economy creates a trickle-down effect on people and fields of business that can vary with the maturity of an economy but also with the nature and target of the attack.In this context, security economic literature proves that terrorism effects are amplified not only by the single terrorist attacks but by the perception of the threat of terrorism, generating an economic impact also in the form of counter-measures that economic agents, policy-makers, and consumers at all levels take.
So far, the main focus of studies or policy-makers are still exclusively related to the negative impacts caused by perpetrators and don’t include impacts resulting from responses to terrorism.
Thus, in this context, an analysis of the direct and indirect economic consequences of terrorist attacks in Europe could help to create a framework based on measurable data that could be used to prevent and respond effectively to the destabilization spread in all sectors by these violent events.
Estimating the impact of terrorism in the private sector
Regarding the private sector, substantial costs arise to those sectors directly hit by terrorist attacks, and each category is differently affected by jihadist terrorist activity.
There are multiple risks facing tourism that contribute to the formation of the perception of risk. In particular, security issues (i.e. uncontrollable risks), like terrorist attacks, are perceived by travelers as more important than safety issues (i.e. controllable risks), like a fire in the hotel.[i]
However, according to the World Travels & Tourism Council, among other sorts of incidents, terrorist or security-related incidents have the shortest average recovery time of 11.5 months (minimum 2 months).[ii]
Considering that each country has its own distinctiveness which varies the influence of terrorism, depending on whether it is a rich, large and diversified economy, or a small, poor and more specialized economy, according to data from Eurostat[iii] on arrivals and nights spent of non-residents at tourist establishments, terror attacks in the EU tend to have a short-lived effect only and that tourism levels, on the average, tend to normalise within one to three months.[iv]
As previously mentioned, terrorism can have different sorts of impacts on tourism, with consequences lying outside state control. For instance, the effect of terrorist attacks with high lethality on tourism may be demonstrated by the case of the Brussels bombings attack that was committed on March 22, 2016, aimed at Brussels airport in Zaventem and Maalbeek metro station and resulted in 32 fatalities and more than 300 wounded persons. The most consistent impact of this attack was that, even though CT measures and damages forced the closing of most of Brussels airport for a few months, logically impacting negatively on the number of travelers in the city, data confirm a decrease between 10% to 30%[v] in arrivals and night spent of non-residents all over Belgium for the next 6 months after the attack[vi]. Moreover, once Brussels airport started working again in full capacity, tourism firstly recovered in other regions, as Flanders or Wallonia, before fully restoring in Brussels, starting with domestic tourism before attracting again international tourists.[vii]
About the indirect territorial impact of terrorism on tourism, researchers found[viii] that visitors from the UK and from non-European countries started cancelling reservations in Belgium even before the attacks in Brussels took place, precisely after the attacks in Paris in 2015 (40% of hotel bookings were cancelled over the weekend of the security clampdown).[ix] This effect was probably generated by the news circulating about the search in Belgium for those responsible for the Paris attacks.
Another indirect consequence to take into account is that the economic impact of jihadist activity in tourism goes far beyond the actors and services that are directly linked with this sector (e.g. hotels and catering, airlines, guided tours, etc.); it affects also those who supply goods and services to the firms operating in the tourism industry, generating an economic loss that, even within a few months, can generate a consistently negative impacts even at a national level.[x]
The transports sector is directly subjected to the consequences of terrorist acts and this impact can give insights on how other sectors may be paralyzed by the fear of the incumbent terrorism threat and CT measures put in place by authorities after a terrorist attack.
According to a report by International Air Transport Association (IATA),[xi] terrorist attacks in Western Europe in late 2015 and early 2016 reduced European airlines’ international passenger traffic by an estimated 1.6% in the following year compared to what it would have been in the absence of such events, reducing European airlines’ 2016 revenues by around US$2.5bln.
According to the report, the RPK (Revenue Passenger Kilometers: a way of calculating the number of kilometers travelled by paying customers)[xii] fell below its trend level following the Paris attacks in November 2015. Then it started to rise again immediately afterward in seasonally adjusted terms, but the upward trend was interrupted following the Brussels bombing in March 2016. Same as the effect of jihadist attacks on the tourism industry, for airlines, the impact seems to be only temporary (a few months) but, given that European airlines’ international traffic accounts for around 24% of the whole industry RPKs, the impact was felt at a global level too[xiii].
Terrorist attacks also have a negative impact on city transports, disrupting labour and private companies. For instance, in the case of the bombings of the London public transport system on July 7, 2005, some firms reported that they had to find alternative means of transport for their employees unwilling to use public transport into central London. For smaller firms, this constituted the principal cost of the attack[xiv].
In a report redacted by the global insurance company, Marsh, which assesses the terrorist threat in Europe in 2018-2019 it is claimed that according to the insurance sector “the threat of Islamist extremism remains high in Europe … Religious extremist attacks in the EU will likely target the entertainment and hospitality sectors and public spaces frequented by tourists”.[xv] Besides this perspective, the truth is that terrorism insurance is considered to be a difficult product to construct and price.
In fact, to provide relief for insurers offering terrorism insurance and to support the supply of insurance policies that include terrorism insurance, several euro area and other countries have developed government and insurance industry-wide programs for terror coverage[xvi]. For instance, in Germany, terrorism insurance is generally included in policies. To reduce the vulnerability of insurers, in 2002, a specialist company covering terror-related property damage called EXTREMUS was created by the Government and the Association of German Insurers[xvii].
The primary objective of the program is to protect medium-sized companies against property and business interruption losses caused by terrorism. Its annual capacity amounts to €10 bn whereby only the first €2.5 bn are carried by EXTREMUS itself. The remaining €7.5 bn are covered by a state guarantee[xviii].
The insurance sector has also adapted to the latest terrorist attacks involving motor vehicles. Also, in this case, each EU member state has its Insurance Code for these dramatic events. For instance, in France is stipulated that the insurer shall not be responsible for loss or damage resulting from an intentional act of the insured.[xix] As terrorist attacks are considered as part of the “ordre public” the French insurance policies, to ensure indemnification of victims of acts of terrorism for their bodily injuries, since 1995 has established a special fund, Fonds de Garantie des Victimes des Actes de Terrorisme et d’autres Infractions,[xx] which indemnifies all victims of terrorist acts committed on French territory.
Indirect costs on local economies
Soft targets in general (e.g. shopping centers, clubs, restaurants, schools, gatherings, entertainment centers, etc.) are places that are typical of a large concentration of population combined with a low level of security and, compared to hard targets, not permanently protected[xxi]. Although Governments, including at the local level, bear the primary responsibility for protecting soft targets against terrorist attacks[xxii], the private owners or operators usually are the only subjects related to their security needs and reduce their vulnerabilities.[xxiii]
In fact, in the days after 2015 Paris attacks, Securitas, a provider of security agents, received so many calls from department stores, museums and other outlets scrambling to hire thousands of guards and intensify screening that had to accelerate hiring to meet the demand. Same happened at Visiom, a French maker of metal detectors, where orders from sports stadiums, concert halls and large stores unprecedentedly increased since the Paris attacks[xxiv].
This can generate economic losses on small local businesses, because most of the abovementioned effects of a jihadist attack (e.g. impacts on consumer behavior, transports, tourism) reverberate on them which suffer the consequences of being considered either as targets or as places to avoid in the aftermath of a jihadist attack.
The indirect impact of terrorist activity on the stability of local economies is different from the impact they suffer for crime risk: shoppers or customers can avoid most violent crimes by carefully selecting safer places to shop, but they cannot reduce their risk of being attacked by terrorists unless they avoid public places altogether. Moreover, it is reasonable to assume that, following a terrorist attack in a given area, potential investors and existing firms alike may be more averse to local investment due to the increased risk of future terrorism, whether real or perceived, and the subsequent loss of capital or business activity.[xxv]
All these elements cause enormous difficulties to small businesses or entire sectors in achieving recovery. As an example, the repercussion estimated on the live music sector, in 2015, after a series of jihadist attacks in Paris where 130 people died and 89 of the victims were attacked at the Bataclan concert hall, brought ticket sales in Paris fall 80% compared to the year before and several shows were cancelled as a safety precaution. But the repercussions extended globally, impacting the whole live events sector. A survey released a few weeks after the attack by digital marketing platform SpinGo, looked at how the Paris terror attacks had impacted public opinion in the US on attending live events. It found 1 in 3 Americans were worried about a violent attack happening at a live event.[xxvi]
There is still room for improvement
In the abovementioned events, appropriate and proportional security measures, effective crisis management, and emergency communication are key elements to improve in order to mitigate the effects of terrorism at both micro/macro-economic level and, as a consequence, on society as a whole.
So far, in the EU research field, unfortunately, much knowledge is based on theoretical reasoning with only limited and highly fragmented empirical evidence. The major cause of this gap is the restricted availability of data on the behavior of targets of jihadist attacks, dramatically reducing the possibility of improvements in this field. Then, given political and economic inter-dependencies in the EU, the previously mentioned economic repercussions of terrorism can stretch beyond national economies, echoing across the continent. Hence, introducing new European standing mechanisms to review the implementation of counterterrorism policy and support of the victims in the EU is crucial to guarantee a quick response to recover in the aftermath of a terrorist attack.
[i] R. Carballo, C.J. Leòn, M.. Carballo (October 9, 2017) The perception of risk by international travellers. Worldwide Hospitality and Tourism Themes Vol 9 No. 5. https://www.emerald.com/insight/content/doi/10.1108/WHATT-07-2017-0032/full/html?skipTracking=true
[ii] (November 4, 2019) Travel & Tourism Industry is More Resilient Than Ever According to New Research by WTTC and Global Rescue. World Travels & Tourism Council. https://wttc.org/News-Article/Travel-Tourism-Industry-is-More-Resilient-Than-Ever-According-to-New-Research-by-WTTC-and-Global-Rescue
[iv] M. Nikšić Radić, D. Dragičević, M. Barkiđija Sotošek (2018). The tourism-led terrorism hypothesis – evidence from Italy, Spain, UK, Germany and Turkey. Journal of International Studies. https://www.jois.eu/files/16_539_Niksic%20Radic.pdf
[vi] T. Zeman , R. Urban (2019) The Negative Impact of Terrorism on Tourism: Not Just a Problem for Developing Countries?. DETUROPE – THE CENTRAL EUROPEAN JOURNAL OF REGIONAL DEVELOPMENT AND TOURISM Vol. 11 Issue 2 2019. http://www.deturope.eu/img/upload/content75-91.pdf
[vii] D. Vanneste, P. Tudorache, F. Teodoroiu, T. Steenberghen (2017) The impact of the 2016 terrorist attacks in Brussels on tourism. Belgeo. https://journals.openedition.org/belgeo/20688#ftn9
[viii] D. Vanneste, P. Tudorache, F. Teodoroiu, T. Steenberghen (2017) The impact of the 2016 terrorist attacks in Brussels on tourism. Belgeo. https://journals.openedition.org/belgeo/20688#ftn9
[x] M. Ehrenfreund (November 18, 2015) How do economies recover after terrorist attacks? World Economic Forum. https://www.weforum.org/agenda/2015/11/how-do-economies-recover-after-terrorist-attacks/
[xi] D. Oxley (May 2017) Estimating the impact of recent terrorist attacks in Western Europe. IATA. https://www.iata.org/en/iata-repository/publications/economic-reports/the-impact-of-recent-terrorist-attacks-in-western-europe/
[xii] Revenue Passenger Kilometres (RPK) is a way of calculating the number of kilometres travelled by paying customers, by multiplying the number of paying passengers by the distance travelled. Source Aeroflot Glossary https://ir.aeroflot.com/fileadmin/user_upload/files/eng/glossary_eng.pdf
[xiii] (2009) TERRORISM AND INTERNATIONAL TRANSPORT: TOWARDS RISK-BASED SECURITY POLICY – Round Table 144. The OECD and the International Transport Forum: Joint Transport Research Centre. https://www.itf-oecd.org/sites/default/files/docs/09rt144.pdf
[xiv] T. Brück, F. Schneider, M. Karaisl (June 30, 2007) A Survey on the Economics of Security with Particular Focus on the Possibility to Create a Network of Experts on the Economic Analysis of Terrorism and Anti-Terror Policies and on the Interplay between the Costs of Terrorism and of Anti-Terror Measures – the State of Play of Research. DIW Berlin For the European Commission, Directorate General Justice, Freedom and Security. https://ec.europa.eu/home-affairs/sites/homeaffairs/files/doc_centre/terrorism/docs/sececon_full_report_en.pdf
[xv] (May 2019) 2019 Terrorism Risk Insurance Report. Marsh. https://www.mmc.com/content/dam/mmc-web/insights/publications/2019/may/2019-terrorism-risk-insurance-report.pdf
[xvi] ECB Financial Stability Review (December 2007) https://www.ecb.europa.eu/pub/financial-stability/fsr/focus/2007/pdf/ecb~7585877f4b.fsrbox200712_18.pdf
[xvii] GERMANY TERRORISM RISK INSURANCE PROGRAMME. OECD. https://www.oecd.org/daf/fin/insurance/Germany-Terrorism-Risk-Insurance.pdf
[xviii] H. Schaloske (April 26, 2019) Terrorism insured – a German view. Clyde&Co. https://www.clydeco.com/en/insights/2019/04/terrorism-insured-a-german-view
[xix] (2018) Terrorist attacks through the use of motor vehicles in selected European countries. Swiss Re. https://www.swissre.com/dam/jcr:3f9290a5-6c14-4a68-aba1-93d34c4348f5/swiss_re_terror_acts_motor-vehicles_2018.pdf
[xxii] United Nations Office of Counter-Terrorism. Vulnerable targets. https://www.un.org/counterterrorism/vulnerable-targets
[xxiii] (November 11, 2016) Economic impact of Paris attacks. DW. https://www.dw.com/en/economic-impact-of-paris-attacks/av-36354136
[xxiv] L. Alderman (January 31, 2016) Terror Threats Thaw Budgets Across Europe. The New York Times. https://www.nytimes.com/2016/02/01/business/international/europe-training-financial-firepower-on-terrorism.html
[xxv] R. T. Greenbaum, L. Dugan, G. LaFree (April 2006) The Impact of Terrorism on Italian Employment and Business Activity. Urban Studies, Vol. 44. https://ccjs.umd.edu/sites/ccjs.umd.edu/files/pubs/2COMPLIANT%20-%20The%20Impact%20of%20Terrorism%20on%20Italian%20Employment%20and%20Business%20Activity.pdf
[xxvi] L. Graham (December 4, 2015) Music venues will need more security in light of the Paris terror attacks. CNBC. https://www.cnbc.com/2015/12/04/music-venues-will-need-more-security-in-light-of-the-paris-terror-attacks.html