Economic implications of the WTC/Pentagon drama
Following the terrorist attacks in the US, economists and markets in the EU began to weigh the potential impact of these attacks on the European and wider global economy. Some state the downside risks for economic downturn have risen (many European markets plummeted after the attacks), or even call for a postponement of the euro, others continue to see a world recession as unlikely.
Several questions arise while considering what the economic impact might be on the European, US and world economy:
- What are this event's immediate economic consequences?
- Could the event lead to a self-reinforcing spiral of falling consumer confidence, falling demand and falling output?
- Will the Organisation of Oil Exporting Countries (OPEC) stick to its plans to keep oil prices stable?
- Will these attacks have significant long-term effects on the world economy?
The World Trade Centre (WTC) in New York was a powerful symbol of the achievements of the American capitalism and housed offices of many influential firms. When the hijacked planes crashed into the buildings it caused the closing of the world's two largest stockmarkets (the New York Stock Exchange and the Nasdaq) for four days.
European Commissioner for economic and monetary affairsPedro Solbes Mira andBelgian finance ministerDidier Reynders played down the effects of the terrorist attacks in the US on the value of the euro. Commissioner Solbes said that the Commission did not expect any major problems, even though there is not enough information available for the moment.
Speaking at the European ParliamentEuropean Central Bank's (ECB)president Mr. Wim Duisenberg confirmed that "the ECB was ready to provide liquidity if bottlenecks in the payment system would appear". The Central Banks in the EU have declared that they will continue to provide liquidity for the smooth operation of payments and settlements systems.
German finance ministerHans Eichel said he doesn't expect a global crisis following the US attacks, as "the world economy would not succumb to acts of violence by crazy people".
Aformer French interior ministeron Wednesday urged Laurent Fabius, finance minister, to push for the suspension of the introduction of euro banknotes to counter the economic risk caused by US terror attacks.
Norbert Walter, chief economist ofDeutsche Bank, believes the danger of a global recession is very real. He expects a clear contraction of U.S. output in the final quarter of this year, amid a decline in consumer spending and in demand for U.S. exports on the markets of Europe and South-East Asia.
According to theCentre for European Policy Studies (CEPS)' Director Daniel Gros an immediate concern might be the material damage, which is immense, but the US economy is large enough to absorb it without any problems. Mr. Gros states psychology is the main reason to expect some economic fallout as this shock comes at a time when both the US and Europe show the first signs of a fragile turnaround. He concludes this is a classic situation in which what we have to fear is fear itself.
According to theFinancial Timesthe longer term economic implications will depend on the US response once it becomes clear who was behind the attacks, and any counter-retaliation by the perpetrators.
Union of Industrial and Employers' Confederations of Europe (UNICE)'s President, Georges Jacobs "this great shock, these events must not be allowed to destabilise economic activity and confidence. The business community, in the USA, in Europe and elsewhere, must do all that it can to ensure that disruption is as short-lived as possible. I am confident that we can meet this challenge."