Merkel and her fellow EU leaders are under pressure to save Schengen. © Sean Gallup/Getty Images

As an economist, it’s always tough to know what it’s appropriate to write about following human tragedies. The mindless murders in Paris last weekend are no exception. To date, acts of terrorism, horrific as they may be, haven’t normally left permanent macro scars on the economy. But in this respect, most of the world has been largely fortunate. In extremis and if it becomes persistent, terrorism can undermine or wreck economic institutions and become part of a broader conflict or even war, e.g. Northern Ireland during the “troubles,” Lebanon, and Colombia’s experience with the FARC. At the very least, even if the macro consequences are fleeting, they can certainly raise the costs of transactions and business, e.g. security, transportation and distribution, and insurance.

How then should we start to try and think about the longer-term economic effects of the Paris attacks on the EU, not least since experts tell us that we must remain on a high state of alert for more incidents?

Take a step back. Before the attacks, it was fair to argue that the biggest threat to the EU was what we call in the trade the “tail risk” of disintegration. Tail risk basically means a relatively low probability outcome that has catastrophic consequences. The risk of disintegration is certainly bigger than it was earlier this year.

Greece may still be flirting with exit from the Eurozone; Portugal’s new anti-austerity government might break with Brussels over its economic programmes; and Spain’s Catalan independence campaign and forthcoming national elections may stir things up. Yet these may all prove more manageable than the consequences of two major shocks to the system—the UK referendum on EU membership, and immigration. The UK electorate may well end up voting for the devil they know, but judgement now is on a knife-edge. If the vote went the other way, it would fracture the EU, and might serve as a green light for others with weak commitments to it.

Read more on the Paris attacks:

Liberals must fight the far right, or they’ll win

Is Britain safe?

Who is winning the social media war?

The immigration crisis, though, was the most immediate…

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