Brussels Attacks Impact the EU's Economy

Mar 23, 2016

After early falls, global sharemarkets reacted calmly to the Brussels terror attack. But the repercussions go much deeper because we are now looking at co-ordinated attacks on the Western way of life and the tourism industry will be in the front line.

Accordingly, on its own, the terror attack on Brussels will not cause mayhem in the European Union. But, because Brussels is the default capital of Europe and the base for so many international institutions, it will have a much bigger effect on overall European confidence than earlier terror incidents.

Markets soon realised that the travel industry, led by hotel groups and airlines, will be in the front line of the terror war. The level of tourism and internal European travel is likely to fall as it is affected by the insecurity in Europe.

Some airline stocks like Air France, British Airways and Lufthansa fell by more than 4 per cent at one stage and hotel groups like Accor suffered a similar fate. A string of other stocks were hammered, including airport operators in Frankfurt and Paris, Intercontinental Hotels, Royal Carribbean Cruises, Carnival Marriott and TripAdvisor. Brussels airport remains closed.

Illustrating the tourist problem, Channel Nine 60 Minutes team attempted to go into areas of formerly peaceful Stockholm and was attacked. Europe has been a tourism paradise because of its vast amounts of history and attractions and the ease of travel between countries. The euro might have caused great problems with the prosperity of individual countries, but it has made travel around Europe much easier for tourists.

If you can be attacked in a city historically as safe as Stockholm, then there are very few cities in Europe that are now safe.

What multiplies the Belgian affect is, firstly, that it is linked with shootouts in the streets of Brussels and the earlier, and bigger, French terror attack. And, secondly, that the problems facing Europe are much bigger than the immediate impact of terror attacks.

As a result of the massive refugee inflow, European countries now have substantial populations of people who are very unhappy with their lot and are looking for governments to do something about it. But Governments don’t have the money or the ability to adjust to such a vast intake of people.

Compounding the problem for Europe is that its banks and financial structures are laden with debt. There is no doubt that emerging countries have borrowed heavily but the same applies to Europe. If the economies turn down, then this debt will be harder to service. Already negative interest rates are adversely affecting the strength of the debt laden banks.

Australia will not be directly affected but we are vulnerable because the European banking system is a source of considerable financing for Australian banks.

I need to underline that one attack on Brussels on its own does not change the game, but if such attacks are repeated on different European cities or in other parts of the western world then an entirely different situation will develop.

In particular we will see the rise of right wing parties — it’s already happening in Germany and if there is a substantial attack on Germany, it will be the end of Angela Merkel who has played such a huge role in welcoming refugees to Europe.

Of course, the sad thing is the vast majority of refugees will be excellent migrants because they have often been prosperous in the Middle East but, unfortunately, a small minority is very dangerous. And that small minority is having an enormous perceived impact, although in many cases the terror attacks have come from people who have been in the country a long time.

 

Source: The Australian