What has been the impact of terrorism on the EU?

From ScenarioThinking
Jump to navigation Jump to search

Definition of terrorism

Terrorism is the premeditated use or threat of use of violence by individuals or subnational groups to obtain a political or social objective through the intimidation of a large audience, beyond that of the immediate victim. Although the motives of terrorists may differ, their actions follow a standard pattern with terrorist incidents assuming a variety of forms: airplane hijackings, kidnappings, assassinations, threats, bombings, and suicide attacks. Terrorist attacks are intended to apply sufficient pressures to a government so that it grants political concessions. If a besieged government views the anticipated costs of future terrorist actions as greater than the costs of conceding to terrorist demands, then the government will grant some accommodation. Thus, a rational terrorist organization can, in principle, obtain some of its goal quicker if it is able to augment the consequences of its campaign. These consequences can assume many forms including casualties, destroyed buildings, a heightened anxiety level, and myriad economic costs.

Consequences of terrorism

Terrorism can impose costs on a targeted country through a number of avenues. Terrorist incidents have economic consequences by diverting foreign direct investment (FDI), destroying infrastructure, redirecting public investment funds to security, or limiting trade. If a developing country loses enough FDI, which is an important source of savings, then it may also experience reduced economic growth. Just as capital may take flight from a country plagued by a civil war, a sufficiently intense terrorist campaign may greatly reduce capital inflows. Terrorism, like civil conflicts, may cause spillover costs among neighboring countries as a terrorist campaign in a neighbor dissuades capital inflows, or a regional multiplier causes lost economic activity in the terrorism-ridden country to resonate throughout the region. In some instances, terrorism may impact specific industries as 9/11 did on airlines and tourism. Another cost is the expensive security measures that must be instituted following large attacks – e.g., the massive homeland security outlays since 9/11. Terrorism also raises the costs of doing business in terms of higher insurance premiums, expensive security precautions, and larger salaries to at-risk employees.

Economic impact

For most economies, the macroeconomic consequences of terrorism are generally modest and of a short-term nature.

  • Large diversified economies are able to withstand terrorism and not display adverse macroeconomic influences. Recovery is rapid even from a large-scale terrorist attack.
  • Developed countries can use monetary and fiscal policies to offset adverse economic impacts of large-scale attacks. Well-developed institutions also cushion the consequences.
  • The immediate costs of most terrorist attacks are localized, thereby causing a substitution of economic activity away from a vulnerable sector to relatively safe areas. Prices can then reallocate capital and labor quickly.
  • Terrorism can cause a reallocation from investment to government spending.
  • The effects of terrorism on key economic variables – e.g., net foreign direct investment – are anticipated to be greatest in small economies confronted with a sustained terrorist campaign.
  • Some terrorist-prone sectors – e.g., tourism – have displayed substantial losses following terrorist attacks. In the absence of further attacks, these sectors rebound rather quickly.
  • Small countries, plagued with significant terrorist campaigns, display macroeconomic consequences in terms of losses in GDP per capita.

Based on the results of this study, one can conclude that, despite of being a serious threat, terrorism did not had a big impact on the economy of the European Union countries. Most of the consequences lasted for a short-period of time, and the worst results of terrorism were saw in countries that have a large dependency of tourism as a source of revenues.

Social impact

The social impacts of terrorism

Reference

Economic Consequences of Terrorism in Developed and Developing Countries: An Overview