The recent dramatic events in Paris are going to have serious short-term and long-term impacts on the second largest European economy.
For a start, these terrorist’s acts happened at the worst economic moment for retailers. The risk of new attacks combined with the Emergency states and the “Cop 21 event” – the United Nations conference on Climate Change -, organized in Paris in December could cost to France few percentage growth. With a modest growth +0.3% in Q3 and 1.2% expected in 2015, a bad last quarter could boost the unemployment rate higher than the current 10.3% (against 4.5% and 5.3% respectively for Germany and UK). This would increase a debt to GDP close to 100% and a 4% budget deficit well above the European Maastricht rules. It means that more austerity measures would be needed and can be expected.
Secondly, politically the impact of these attacks could have disastrous consequences on France, but also on Europe. Despite the appeal for national unity from French President François Hollande, critics against his international and national politics in relation to security have already started. One month before a regional election and less than two years before a Presidential election where the Extreme Right candidate arrived on top of pools, effects could be quite serious. Likely, the big winner of the situation would be the extreme right leader, credited with 31% of votes before the attack. For memory, the first top economic measure preconizes by Marine Le Pen is for France to leave the Euro area.
Unfortunately, more social and racist events can be expected in a country which fails to integrate millions of people from its old colonies. Amalgam between Islam and terrorism was already made after the attack on “Charlie Hebdo, – a satiric newspaper in Paris -, last January. This time, things could be worse creating a bigger gap between different communities. Before next elections, a temptation to adopt populist measures can be strong.
Fundamental economic and social reforms are strongly needed in a country still living on his past glory. France has just started a difficult and uncertain trip, where nobody today can see the destination. This could have serious long-term implications for France, but also Europe.