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French flag at memorial for victims of Paris terror attacks
Markus Kuger

Paris Terror Attacks Bring Political, Economic Consequences

by Markus Kuger | Dun & Bradstreet Editor

November 19, 2015 | No Comments »

French flag at memorial for victims of Paris terror attacksA new wave of violence in the wake of last Friday’s terrorist attacks in Paris could undermine France’s long-term political and economic stability. The fallout from the attacks could also alter the European Union’s refugee policy and have lingering consequences for business in the region, according to Dun and Bradstreet.

Hours before the deadly attacks that resulted in more than 130 deaths, the French government had reintroduced border controls in order to prepare for the Climate Summit in Paris on November 30. The measure now seems likely to be extended beyond its initial December 13 deadline to control France’s borders, especially as some of the attackers had close links to neighboring Belgium.

These border checks, together with increased security measures at railway stations, could cause minor delays for people and goods using the country’s transportation system. But the overall impact on supply chains should be minimal.

Tourism Industry

Tourism in Paris also could suffer, though likely on a small scale. After the attacks, the French government declared a state of emergency; police and soldiers are currently patrolling the streets and major tourist sites.

In the immediate aftermath of the terrorist attack at the offices of satirical magazine Charlie Hebdo in January 2015, overnight hotel stays in Paris fell substantially. That trend was mostly reversed during the summer months of 2015. D&B expects tourism to decline initially due to the most recent attacks but likely recover, especially if the euro remains weak, making Paris — typically an expensive holiday destination — more attractive for tourists from overseas in spring and summer 2016.

Political Impact

The biggest risk stemming from the attacks could be in the political field, which in turn could have some economic implications. A lack of unity between the country’s political parties in the aftermath of the attacks may result in political instability.

President François Hollande’s popularity was already low before the latest terror attacks, and his re-election in 2017 is uncertain. A presidential victory of Marine Le Pen from the far-right Front National party cannot be ruled out. Such an outcome would lead to increasing social tensions in France, host to Europe’s biggest Muslim population.

Even if Le Pen does not become president, there is a risk that the Front National party’s rise in popularity over the past years (the party finished first in the elections to the European Parliament in 2014) will force the center-right Les Republicains (the party of former President Nicolas Sarkozy) to the right. This could lead to a growing rift between France’s Christian-secular majority and its Muslim minority.

Refugee Crisis

Equally disturbing is the prospect of the EU closing its borders to refugees from the Middle East. Driving this outcome is the possibility that one of the attackers entered the EU as a refugee with a Syrian passport (an alleged claim that has not been confirmed yet).

Given the region’s negative demographic outlook, shutting borders could, over the long run, lead to higher taxes to finance social welfare spending. Wages could also rise due to labor shortages and higher taxes, resulting in a general loss of competitiveness in the EU.

In the next few months, policy makers in France and the EU will need to balance the ongoing need for immigration from an economic and humanitarian perspective with the electorates’ deeply rooted skepticism against immigration from the Middle East.

Having previously worked for the European Parliament in Brussels, Markus Kuger joined D&B’s office in Marlow/United Kingdom in June 2010. In his role as Senior Economist in D&B Macro Market/Country Insight Products, he is writing about his home country Germany as well as the UK, France, the Netherlands, and Poland.

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