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The economic consequences of Paris

French and U.S. flags fly at half-mast on Nov. 16, 2015, outside the New York Stock Exchange in honor of the victims of the terrorist attacks in Paris last week.
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French and U.S. flags fly at half-mast on Nov. 16, 2015, outside the New York Stock Exchange in honor of the victims of the terrorist attacks in Paris last week.

We've already started to see what effect the tragedy in Paris will have on the markets. European stocks closed with moderate gains on Monday and those seeking security drove up defense stocks and the price of gold.

What about long-term effects? Experts worry that a decrease in consumer spending and international tourism could exacerbate an already weak global economy. The prospect of future attacks elsewhere could spread economic contagion to the EU as a whole.

While France is likely to see adverse economic impacts in the short term, the damage should be controlled in the long run, according to a note from Howard Archer, chief European and U.K. economist at IHS Global Insight.

That's based on Archer's analysis of the experiences of Spain and the United Kingdom following terrorist attacks in 2004 and 2005, respectively. The London bombings in July of 2005 killed 52 people and wounded over 700, but had limited economic impact on the nation. In fact, consumer confidence ticked up in July and continued increasing until October of that year.

Archer cites data from VisitBritain showing that while there was a drop in demand for travel immediately after the attacks, tourism to Britain increased 5 percent in the third quarter of 2005 on a year-over-year basis.

In gross numbers, the Madrid train bombings in March 2004 were more on the scale of the tragedy in Paris Friday. There, 191 people were killed and over 2,000 injured.

GDP growth in Spain slowed to 0.6 percent on a quarter-on-quarter basis in the first quarter of 2003, according to data from the OECD. That was down from from over 1 percent quarter-on-quarter growth the in Q4 2003. But the terrorist attack came at the end of the quarter, so it's unclear how much it had to do with the slowdown.

"In the first look at the information analyzed, it appears that the attacks of March 11 have not affected the pattern of growth in any significant manner," the Bank of Spain wrote in May of 2014. "Consumer and business confidence seems to have remained unchanged."

Of course, the historical and economic situation is different for France now than Spain in 2004 and the U.K. in 2005. For one thing, the U.K. and Spanish economies were growing when they were hit by bombings. France's GDP increased by just 0.3 percent on a quarter-over-quarter basis in the third quarter.

The U.S., too, saw a downturn immediately after the attacks of Sept. 11, 2001. But the potential economic losses from the attack were largely avoided thanks to the Federal Reserve's drop of interest rates, according to a paper analyzing the economic effects of 9/11, published in 2010.

The paper was based on research supported by the Department of Homeland Security. The authors found that the government policy — especially the Fed's historic reduction of interest rates to 1 percent — reduced potential losses significantly.

"We, rather than the perpetrators, are the major determinant of the consequences of a major terrorist attack," the authors wrote.