Last week’s terrorist attack on Madrid sent a shudder through Europe, dampening prospects for a vast continental economy that has been struggling to latch on to the global recovery led by the United States and Asia.
While the attack itself is likely to have only a minor financial impact on Europe’s fifth-largest economy, the train bombings rocked consumer confidence from London to Rome and fueled concern about a possible new wave of terror, analysts said.
“I think the attacks in Spain will have a dampening effect on business confidence and consumer activity,” said Don Straszheim of Straszheim Global Advisors. “And I believe that al-Qaida probably learned something from the Spain attack, that they can make progress quite simply. It doesn’t take a suicide bomber. I would expect Europe to be targeted further.”
The Western European economy — virtually equal in size to the United States — has barely inched ahead in recent years, weighed down by lumbering France and Germany, which together account for 40 percent of production. Total output of the 15 European Union nations grew just 0.6 percent in 2003 and 1 percent in 2002 after inflation, well below even the relatively modest pace of growth seen in the United States.
In recent months there have been signs of a pickup in consumer spending, although the rising euro has put pressure on manufacturers, making it more difficult for them to sell their products abroad.
“The timing of this bombing is really bad because it affects the confidence, and consumer spending is really the driver for the newfound growth in Europe,” said Gene Huang, chief economist for Federal Express.
German stocks, as measured by the DAX index, are down nearly 6 percent since the bombings that killed 202 people, while other major European bourses are down 3 to 5 percent.
Anirvan Banerji, research director for the Economic Cycle Research Institute, agreed that the timing of the bomb attack was unfortunate for the European economy.
“The problem with the recovery is that it is fragile,” Banerji said. “The euro zone is closer to a window of vulnerability. A year ago, we were in a window of vulnerability in the United States, but here it has slammed shut. There it hasn’t slammed shut.”
The train bombings in Madrid, with their deliberate targeting of civilians at the busiest part of a workday and suspected al-Qaida link, gained an almost-immediate status as “Europe’s 9/11.” The March 11 attacks came exactly two and a half years — 911 days — after the strikes on New York and Washington.
Yet just a week later the emotional impact appears to be fading far more rapidly than in 2001, when millions around the world were shocked by images of the World Trade Center collapsing.
“I don’t think the (Madrid) bombings were anything like the same scale” as 9/11, said Meiron Board, a senior economist at Dun & Bradstreet in London. “People are more worried about an attack on the UK being the next strike on the terrorist agenda.”
Indeed, if the attack on Madrid turns out to be a one-time event, northern Europeans probably will continue their habit of vacationing in Spain, the world’s No. 2 tourist destination after France. But a string of attacks against U.S. allies could have a far more devastating impact.
Ironically Spain has been among the fastest-growing economies of western Europe in recent years and is rapidly closing the gap in living standards with the larger economies of Germany, France and Italy. After adjusting for differences in the cost of living, Spain’s per capita income was $22,400 in 2002, compared with $25,900 in Germany, according to the most recent data available from the Organization for Economic Cooperation and Development.
Spain has benefited from a substantial decline in interest rates that has boosted domestic business and consumer spending, partly as a result of its growing economic integration with the 11 other countries that have adopted the euro as a common currency, said Board of Dun & Bradstreet. The outgoing conservative government led by Jose Maria Aznar also has won praise for its ability to achieve market-oriented reforms while keeping its national budget virtually balanced, Board said.
Straszheim and others said Europe probably would continue to be weighed down by the larger, less nimble economies of Germany, France and Italy, which appear “increasingly resistant to reform, to my eye.”
“A strong Europe would be a big plus, but I think it’s going to be a long time before we see growth in the euro zone.”
Ken Goldstein, an economist with the Conference Board in New York, was more optimistic.
“I think what Spain is going to find out is that as horrendous as the attack was from a purely economic point of view it’s not going to knock Spain from the front of the pack to the back of the pack,” he said.
But he said a series of attacks could have a damaging impact by weakening consumer confidence and spending.
“The big question is not if but when the next attempt is made,” he said.