A compromise on freedom of movement rules is now the EU's greatest economic risk
by George Magnus / November 16, 2015 / Leave a comment
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.
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Borje W.