Leroy N. Soetoro
2016-08-02 17:28:04 UTC
PARIS The shocks have come one after another: Islamic State killings of
civilians in Brussels and Nice. A deadly outburst of terrorism in Germany.
A fresh terror-linked atrocity in a small French town. Warnings abound
that more may be on the way.
The surge of attacks in Europe has raised questions over whether a
potentially durable new threat to stability is settling in. The political
challenges for Europes leaders are stark, and the impact on the regions
economy may be just as profound.
We are experiencing a structural change, a phenomenon of war on our
doorstep that didnt exist before, said Georges Panayotis, the president
of the MKG Group, a tourism consulting company based in Paris. If its
not resolved, the problem will continue.
The effects of that shift on businesses, large and small, have been deep.
At the Mont-Saint-Michel, a spectacular medieval abbey that is one of
Frances top tourist destinations, business at the Sodetour Group, a chain
of local hotels and restaurants, slumped by up to 70 percent for months
after the Nov. 13 terrorist attacks in Paris. It has never fully
American and Japanese visitors in particular canceled reservations, even
though the site, perched on an isolated rock off the northwest coast of
Normandy, is far from Paris. Gilles Gohier, the chief executive, said he
had to tell nearly a third of his 230 employees to go home for four
months, and temporarily shut half of his five hotels and four restaurants.
Since then, he has eliminated 17 positions and is hiring new employees
only on temporary contracts.
Business had just started to revive when the Bastille Day massacre in Nice
happened. Cancellations jumped by 20 percent and were expected to rise
further after this weeks killing of a priest near Rouen, located in lower
Normandy, an attack carried out by militants claiming allegiance to the
What happened in Rouen shows that it could happen here, or anywhere, Mr.
Gohier said. This makes it impossible to plan for business in the
future, he added.
All of that has hit the European economy in one of its most vital sectors,
tourism, just as a tenuous recovery was starting to take hold.
This year, growth in the 19 countries that use the euro returned to levels
not seen since the 2008 financial crisis. On Friday, the European Union
reported that the momentum slowed in the second quarter, as the economy
advanced just 0.3 percent from April to June, down from 0.6 percent in the
previous quarter. France slid back into stagnation with zero growth in the
three months to June from the previous quarter.
Uncertainty has multiplied in recent months as terrorist assaults have
become more frequent and widespread. Investors have not pulled away. But
visitors are rethinking Europe as a central travel destination, and the
tourism industry, which accounts for 10 percent of economic activity in
the European Union, has begun to feel the sting.
European governments, meanwhile, are spending hundreds of billions of
euros on enhanced domestic security and operations against the Islamic
State, even as Brussels pressures countries to cut deficits.
France, the European Unions third-largest economy after Britain and
Germany, was already struggling to emerge from a long period of stagnation
and high unemployment. France is the most visited country in Europe,
attracting more than 84 million tourists last year, and economists had
forecast a long-awaited uptick in growth for 2016. After the Nov. 13
terrorist attacks, the momentum slowed, and a slump in foreign tourism had
only recently started to reverse.
But when further Islamic State-inspired attacks were carried out in
Europe, the impact was magnified.
In France, growth in nightly hotel room bookings after the Paris attacks
fell to single digits from 20 percent. After the Brussels bombings,
bookings went negative, and after Nice, bookings fell by double digits,
said Mark Okerstrom, the chief financial officer of Expedia, a global
We havent seen a bounceback, he said. What we dont know for certain
is whether theres an overall dampening impact to global travel, or to
At Paris Plage, a makeshift beach erected along the Seine, a dozen armed
police officers guarded an entry checkpoint on a recent day. Army troops
marched past families playing in the sand and half-empty activity points
along the river. The patrols, which cost taxpayers about 1 million euros,
or $1.1 million, a day, will add to an already mounting bill after France
pledged to spend 816 million this year to reinforce security.
The ripple effect has been tangible.
Rental apartments in Paris and Nice sat empty after people canceled plans
to visit France, said Adrian Leeds, the head of the Adrian Leeds Group, a
French real estate agency with properties in both cities. And clients who
had been thinking of moving to France have suspended their property
Its really affected things, she said. But people will come back when
things have settled down.
The terrorism threat adds another layer of complexity in a region already
grappling with a large influx of migrants and the repercussions of
Britains vote last month to leave the European Union.
Finance ministers from the worlds 20 largest economies, meeting last week
in China, cited geopolitical conflicts and terrorism as growing threats to
the global economy. The world has already known terrorist attacks, said
the French finance minister, Michel Sapin.
But today, the frequency of the attacks is creating a new situation of
uncertainty, with economic consequences, he added.
In Belgium, where Islamic State attackers bombed the Brussels airport and
subway in March, killing 32 people, the economy has already suffered a
nearly 1 billion loss in business and tax revenue, the government said
this week. The biggest hits were to hotels, restaurants and tourism.
Concerts, carnivals and sporting events were canceled, sapping revenue
from the entertainment industry.
Germanys government acknowledged last week that the country had become a
target of the Islamic State after a spate of assaults against civilians on
a train, at a shopping mall and at a concert. Travel companies are
fielding questions over whether Europes largest economy is still safe,
and economists said that consumption spending, a motor of growth, could
decline if consumers started going out less.
All that may turn travelers away from Europes largest economies and
toward calmer places like Spain, Greece or Scandinavia.
That may not stop terrorism concerns from hitting the industries that make
travel possible. Air France-KLM and Lufthansa, two of Europes largest air
carriers, recently slashed their profit forecasts for the year, citing
repeated terrorist attacks in Europe as deterring tourists and business
executives from traveling.
The attacks have also taken a toll on the luxury industry, which relies
heavily on foreign tourists, especially from Asia, for European sales.
Leading brands like Hermès, Louis Vuitton and Prada have reported slumping
sales as high-spending tourists stay away.
On a recent morning, a handful of visitors flitted through Louis Vuittons
mammoth flagship store on the Champs-Élysées, a contrast to previous
years, when the summer tourist season would see the shop buzzing with
customers. This week, LVMH Moët Hennessy Louis Vuitton reported flat sales
in the first half of the year, citing a falloff in European tourism after
We do not see any improvement in tourist traffic in France, and we will
not see one while we are in a state of emergency, which prevents customers
from coming, said Axel Dumas, chief executive of Hermès, the maker of
10,000 Birkin bags.
For Mr. Gohier, whose hotels and restaurants face the Mont-Saint-Michel,
that can only be bad news for a smaller business like his.
When you lose business, it has an economic impact, he said. The
terrorists want to create maximum damage.
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