Nice terror attack underlines challenge to security forces, euro zone's economic dangers

French troops patrol around the Eifel Tower on January 12, 2015 in Paris, France.
Jeff J Mitchell | Getty Images
French troops patrol around the Eifel Tower on January 12, 2015 in Paris, France.

Pointing a finger at law enforcement agencies and security services, the president of the French administrative region covering Nice is apparently still waiting to hear how a huge 19-ton refrigerator truck could enter the elegant beachfront avenue called Promenade des Anglais (The English Promenade) and continue a murderous rampage for 1.7 kilometers before being stopped by a road barrier.

And the head of the French equivalent of the U.S. Homeland Security will also wonder how it escaped the police attention that two days prior to the attack the terrorist – a truck driver known to police for violence and weapon offenses – could afford a $360 daily charge (plus a heavy deposit of several thousands of euros) to rent a truck in one of Nice's suburbs.

That is exactly the kind of danger the head of security talked about to the French parliamentary committee on May 24, 2016, while discussing the counter-terrorist measures the government had put in place following the Paris massacres in January and November of last year.

He told the French legislators that al-Qaeda and various Islamic State affiliates had now decided to use booby-trapped vehicles and huge explosive devices instead of the suicide squads they activated during previous terrorist attacks in Paris and Brussels.

And there is worse. This man also warned the French parliamentarians that large-scale terrorist attacks could be expected from some 400 to 500 terrorist operatives trained in Syria and Iraq who were now on the loose in France.

That seems to have been an underestimate of the actual danger: The French media are currently reporting that in the southeastern administrative region that includes Nice alone there are between 2,000 and 3,000 "sympathizers of radical Islam," and that more than 500 people in that area were suspected of being "active duty" terrorists.

That is the sad background to likely new tragedies in the months ahead.

Tourism hurt

The fallout from this latest attack will deal a serious blow to euro area's fragile economic recovery. The business and consumer sentiment will be adversely affected, and people planning their holiday travel may think again about their destination.

That is particularly dangerous for France, the most visited country in the world. Some 85 million visitors from abroad are expected this year. The French tourist industry provides jobs and incomes for 1.2 million people and accounts for 4.2 percent of the country's payrolls. The World Bank estimates that in 2014 foreign visitors to France spent $66.8 billion.

With an average growth rate of 1.2 percent in the year to the first quarter, the French economy's forward momentum remains weak and quite sensitive to possible demand reversals during the peak tourist season and in the traditionally strong consumer spending months toward the end of the year.

Other major euro area economies also face dangers of terrorist attacks. According to British media reports on Friday, the Foreign Office considers that Germany, Spain and Belgium are in a group of countries exposed to a high risk of terrorist attacks.

Germans would probably agree with that assessment, because their own intelligence networks have been warning for months of a highly probable large-scale terrorist event. That would raise the country's security alert to a whole new level. So far, Germans had to deal with relatively low-intensity scuffles with migrants and other forms of migrant-related social unrest, including Bavaria's claims to independence. None of that is good for a nation used to social and political stability.

Like France, Spain is a country where heightened terrorist threats can do great damage to its booming tourist industry. With 68 million tourist arrivals last year, Spain was the third most visited country in the world. Tourism provides livelihoods to 900,000 people and accounts for 5 percent of total employment.

Korean tourists pose for a selfie outside the Louvre musem on Nov. 15, 2015 in Paris.
Getty Images
Korean tourists pose for a selfie outside the Louvre musem on Nov. 15, 2015 in Paris.

Italy, according to British intelligence estimates, is in a group of countries facing lower risks of terrorist attacks. I hope these estimates are right, but I worry about security threats that could come from large inflows of migrants from areas with a heavy presence of IS and al-Qaeda operatives, such as war-torn Libya and the rest of North and Central Africa. That is a threat that Italy can ill afford, with its unemployment rate of 11.7 percent, virtually stagnant demand and output, the banking sector's estimated bad debts of 360 billion euros (about one-fifth of the economy) and a gross public debt of 160 percent of GDP.

Being the fifth most visited country in the world, Italy's tourist industry would be particularly hard-hit by any major terrorist attacks. The country's 50 million tourists are generating jobs and incomes for more than one million of Italians - about 5 percent of total employment.

Investment thoughts

Radicalized and well-trained "lone wolves," with their apparently large support networks, are tough to catch. Military analysts now believe that the IS and al-Qaeda are widening the war through terrorist acts to compensate for the losing ground on Middle East battlefields.

The French government got that message and declared last Saturday that the country was in a state of war. Brushing off the criticism of his ineffective antiterrorist action, the prime minister told an anxious nation a day later that "terrorism will be part of our lives," but he refused the "mental Trumpisation," apparently referring to proposals for an enhanced police monitoring of the Muslim community.

Spreading terrorist warfare, uncontrollable migrant and refugee inflows, growing EU divisions and the highly uncertain future of the lofty European project (i.e., the European economic and political union) are all results of a blurred vision and mismanagement.

None of that can be corrected until after the French elections in May 2017 and German elections in September of the same year. The French and their erstwhile sworn enemies across the Rhine are now facing a long moment of truth.

Meanwhile, the ECB will continue to soldier on. But the headwinds are getting stronger and more treacherous exactly when the ECB needs to double down on the support to its flailing banking system, sluggish business investments and frightened consumers.

This is one more of those "whatever it takes" ECB moments. Pray out loud that the bank will find, and use, some new bazookas – and that they won't misfire.

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