1. Introduction

The economic integration of the European Union (EU) is advancing at a fast pace. With the creation of the Single European Market in 1992, cross-border exchange of goods, services, capital and persons was significantly eased. From an economic point of view, this process has strengthened the resiliency of the united political and economic systems in global competition. However, from a security policy perspective, the new freedom of movement also has disadvantages. For, in the shadow of integration, new possibilities for action arise for actors to use these freedoms for illegal purposes or to try to undermine or destroy the twin gains from globalization and economic growth. [1]

From a security policy point of view these effects are thus counterproductive for the pri-mary goals of economic integration. New phenomena and actors create new and, above all, undesirable costs. This applies in particular, to international terrorism and trans-nationally organized crime. Since the 1990s, decision-makers in the EU have pointed, with increasing regularity and intensity, to the security risks, their potential to endanger the political and economic stability of the Union and, not least, to the possible costs of their spread throughout the EU. Yet what costs do these sources of insecurity generate, how high are they and how useful could measures to combat them be?

All these questions touch upon the interplay between security and economics. In particular the relatively young research on European security economics examines the question of how the negative dynamic of economic integration and insecurity in the EU can be prised open without putting the advantages of globalization on the line [2]. In this respect, we do not only need to find ways to calculate and quantify the actual economic consequences of insecurity, but we also need to understand the operational rationales of political actors in the defense against and their examination of insecurity as well as their cost-benefit calculations when formulating security policy counterstrategies.

2. What does (In-)security cost? Assessments of political decision-makers using the example of terrorism and organized crime

What can be said, for instance, about the rationale for the dealings of European political actors in the defense against and examination of insecurity? In a 2006 memorandum, the European Commission determined: “Security involves high costs.“ [3]  But what costs do the political decision-makers in the EU exactly anticipate? What determines the price of (in-)security? The “new” security risks such as international terrorism and transnational organ-ized crime are distinguished, above all, by a certain blurriness and inconstancy. That means that the negative consequences of these risks to European societies and economies can turn out very differently.

a) Immediate Costs and Consequences of Insecurity

The political decision-makers of the EU and in the EU member states already looked into a variety of considerations with respect to the immediate consequences of terrorism and or-ganized crime for Europe in the 1990s, that is, after the emergence of discussions on the “new” security risks. However, these initial considerations were on a very general level, which was related not least to the fact that, up until then, only very little had been known about the structure and the mode of operation of such new sources of insecurity for Euro-pean societies. This is not surprising, in that the considerations of the possible conse-quences of terrorism and those of organized crime were almost identical. Traditionally both of them were, at the core, defined in the EU as “offenses” i.e. as criminal behavior [4], an analysis which endures even today.

It was only around the turn of millennium that the EU formulated the possible conse-quences of terrorism and organized crime in more detail in two separate documents: in the Strategy of the European Union for the Beginning of the New Millennium (also Millennium-Strategy) [5] of 1999 and in a framework decision of the Council on 13 June 2002 on combating terrorism. This latter decision occurred as an immediate reaction to the attacks of 11 September 2001 [6]. In both documents, an extensive analysis was undertaken of the threat emanating from these two security risks as well as the possible consequences. Eco-nomically induced cost-benefit considerations apparently play no greater role here. At least the term “cost” did not appear in any form, quite apart from there being no attempt to quantify the conceivable consequences of these risks. Rather, the statement spoke more generally of “losses” or “damages”. These were, in turn, divided into different categories, among them the physical and psychological consequences for the individual, social and political consequences, damage to the infrastructure as well as economic consequences, that is, direct losses and costs to the economy. The latter play a greater role in the EU documentation on organized crime than in the area of terrorism, above all, because it is assumed that the economic consequences of organized crime are easier to measure on the basis of lost legal or confiscated illegal goods.

Without a doubt the terror attacks of 11 September 2001 and their destabilizing effects on the economy world-wide brought new impulses for a change in the handling of the cost aspects. Calculations estimate the macro-economic damages of the 11th of September to be up to two billion US dollars – with a not-insignificant effect on Europe as well. Fundamen-tally, this magnitude makes clear how complex the structures of the world economy are, how very interdependent the individual national economies are and how vulnerable they are. Terror attacks such as the 11th of September thus can cause macro-economic secon-dary damage which goes well beyond the direct economic losses and costs. If one wants to figure out the economic costs of such huge catastrophes, then, in addition to the direct costs, indirect costs – caused, for example, by the interruption in the supply chain and pro-duction cycles, as a result of short and long-term medical care of victims or slumps in the stock markets and declining trust of investors in the stability of the markets – must also be considered.

Since 2004/2005 a tendency to emphasize the direct and indirect costs of insecurity more strongly in the documents of the EU and its member states can be observed. Along with this there have been attempts at developing new methods with which the costs of terrorism and organized crime in the EU can be reliably calculated. In 2004 Great Britain, as the first EU country, attempted to develop indicators, to measure the direct and indirect conse-quences of transnational organized crime for the British national economy [7]. In 2006 the European Commission made attempts to model the costs of terror attacks on critical infrastructures, such as nuclear power plants, chemical and biological laboratories or transportation and telecommunications networks [8]. However, these models of cost calculation differ considerably with respect to the definition and the scope of the respective selected indicators. In consequence, the results and computations turn out very differently and are not appropriate for systematic use. The problem of the non-quantifiability of immaterial costs, in particular, has not been resolved methodically. Also the attempt to offset a (lost) human life with money may still arouse ethical concerns and objections.

b) Costs and Benefits of Measures against Insecurity

The strategies of the EU on fighting terrorism and organized crime have developed and differentiated since the middle of the 1990s, slowly at first and mostly with respect to an apparent threat of international terrorism – as a rule in reaction to an attack. The EU has increasingly emerged as an active player in the formulation and coordination of European policies in the areas of justice and home affairs and has provided significant impulses for the development of strategies and joint methods for combating crime and terror.

At first the efforts of the EU concentrated on the coordination and harmonization of legislation in the member states as well as improved EU-wide cooperation in combating crime, through, inter alia, the establishment of Europol and Eurojust. Two aspects played a significant role in the further development and formulation of a strategy which also shapes the overall understanding in the EU of security and security policy: first, that sources of insecurity, such as international terrorism and transnational organized crime have manifold faces and causes. Appropriate strategies for combating them must allow for this diversity in forms of expression and scope and be applied comprehensively and preventively. And secondly, since the EU Council Summit of 1999 in Tampere, the conviction has taken hold that, with respect to transnational security risks, internal and external security are increasingly merged with each other [9]. From this can be inferred that any counterstrategy must be effective both within the EU and beyond. All in all this means: combating terror and crime must be aligned multi-vectorally and include the various dimensions of insecurity, both temporally and spatially.

Naturally, considering the limited resources available for combating terror and crime, such a multi-vectorally designed strategy initially presents the political decision-makers with considerable practical problems. Which problem areas and spheres of activity will be given priority and how many resources will be employed, where and when? In the attempt to determine the costs to the EU member states for combating terror and crime, one is naturally quickly faced with limits. Comparisons between the member states are notably difficult because of their different sizes, the degree to which they are affected as well as institu-tional and organizational structures (division of competencies, existence and participation of various bureaucrats and institutions, various allocations in the public budgets, etc.). If one orients oneself to the category used by Eurostat – “public order and security” – under which many of the measures carried out in EU member states in the area of combating terrorism and crime fall, one can, at least, determine general trends; Since the early 1990s expenditures in this area have risen continually, with Great Britain and Spain currently registering the highest costs in a European comparison

The EU also earmarks financial means in its budget for combating terrorism and crime, especially in the area of Justice and Home Affairs (JHA), in EU internal structural promo-tion as well as within the framework of aid policy for third countries. For the current household phase 2007-2013 a series of JHA-relevant financing programs on the scale of several hundred million Euros are to be deployed especially for combating international terrorism and organized crime. In 2006, within the framework of external aid policy the stability instrument was created in addition to other instruments [10]. To begin with, it makes available financial means, amounting to a total of 2.6 billion Euros, for immediate crisis reaction and stability promotion in third countries until 2013. International terrorism and transnational organized crime are explicitly mentioned here as destabilizing factors which are intended to be stemmed with the help of this instrument.

Overshadowing everything is the question of what benefit the political strategies in the EU and the measures against terrorism and organized crime, which have been planned and carried out, actually provide for European societies and economies? Although the EU, in the allocation of financial resources, has always – and, not least, as justification to the gen-eral public – held up “effectiveness” and “(cost) efficiency” as the guiding principles of its expenditures policies, the cost-benefit aspects have, up until now, played a subordinate role in security policy. Given the new security risks and the necessity of finding adequate an-swers to them, this has changed. Thus, in 2006, the Commission suggested organizing anti-terror policy and combating crime in accordance with the following cost-benefit criteria [11]. 

• Effectiveness: The financial means must be so allocated that the security policy meas-ures show a deterrent and preventive impact. A positive and quantifiable effect on European economies must be demonstrable. 
• (Cost) efficiency: Security measures must be worthwhile. Cost efficiency is easier to measure in the area of combating crime than in the area of combating terrorism, since the immediate financial losses which occur as a result of organized criminal activities, are more easily identified. Preventive security measures against terrorism can quickly be seen as a waste of money, especially if the anticipated threat scenario does not mate-rialize. 
• Proportionality: The possible costs of the measures should not exceed their expected usefulness. This principle should, if possible, not only be limited to the financial as-pects, but also incorporate the balance between freedom and security.

In 2005 and 2006, the EU commissioned a cost-benefit estimate of JHA relevant measures. In the area of organized crime the programs Grotius II, Oisin II, STOP II, Falcone and Hippocrates were evaluated ex post facto in relationship to their efficiency and cost effectiveness [12]. However, the results are only generalizable to a limited extent, since the evaluation criteria are tailored especially to the individual programs. The results of a commis-sioned cost-benefit analysis of terrorism-relevant EU projects are still due [13].

3. Conclusion

Only step by step does the awareness of the costs of (in-)security develop among the Euro-pean security actors. In the past 15 years, relevant considerations have become ever more differentiated. Yet the efforts to date to quantify the costs of international terrorism and transnational organized crime in the EU are still only in the early stages. The economi-cally-guided documentation of the immediate costs and consequences of insecurity and of the relevant counter-actions is very fragmentary and characterized by considerable re-cording problems. In particular the determination of indirect costs is still largely unre-solved. Cost comparisons between EU member states as well as efforts to measure the ef-fectiveness and the (cost) efficiency of countermeasures have also proven to be difficult. In the light of these difficulties and challenges, which European decision-makers are con-fronted with, also the research on European security economics still has a multitude of dif-ficult tasks to resolve.


Dr. Regina Heller, Senior Researcher, Institute for Peace Research and Security Policy at the University of Hamburg (IFSH)


[1] Brück, T./Karaisl, M./Schneider, F. (2007): Survey on Economics of Security with Particular Focus on the Possibility to Create a Network of Centres of Excellence and on the Interplay between Costs of Terrorism and Anti-Terror Measures – the State of Play Research, Draft Report. Berlin: DIW.

[2] See: EUSECON – A New Agenda for European Security Economics, http://www.economics-of-security.eu/eusecon.

[3] Commission of the European Communities (2006): Commission Staff Working Document - Annex to the communication from the Commission to the Council and the European Parliament: Evaluation of EU Policies on Freedom, Security and Justice – Impact Assessment {COM(2006) 332 final}; SEC(2006) 815. Brussels, 28. June 2006: 18.

[4] European Council (1996): Conclusions on the report of the High-level group on organised crime, in: EU-Bulletin 4-1997, chapter 5. Justice and home affairs cooperation. Dublin, 28. April 1996.

[5] European Union, The prevention and control of organised crime: a strategy for the beginning of the new millennium, Official Journal C 124 of 3.5.2000.

[6] Council of the European Union (2002): Council Framework Decision 2002/475/JHA of 13 June 2002 on combating terrorism. (2002/475/JHA), Official Journal L 164 of 22.6.2002: 3-7.

[7] United Kingdom Home Office (2004): One Step Ahead. A 21st Century Strategy to Defeat Organised Crime, Presented to Parliament by the Secretary of State for the Home Department by Command of Her Majesty. London: UK Home Office, March 2004.

[8] Commission of the European Communities (2006): Commission Staff Working Document, op. cit.: 18

[9] European Council (1999): Presidency Conclusions. Tampere, 15./16. October 1999.

[10] Regulation (EC) No 1717/2006 of the European Parliament and of the Council of 15 November 2006 establishing an Instrument for Stability, Official Journal OJ L 327 of 24.11.2006, 1-11.

[11] Commission of the European Communities (2006): Commission Staff Working Document – Accompanying document to the Proposal for a Council Directive on the identification and designation of European Critical Infrastructure and the assessment of the need to improve their protection: Impact Assessment {COM(2006) 787 final; SEC(2006) 1648}; SEC(2006) 1654. Brussels, 12. December 2006: 12-28.

[12] European Commission (2005): Ex post evaluation of the Grotius II, Oisin II, STOP II, Falcone and Hippocrates Programmes and Interim Evaluation of the AGIS Programme. Final Report, Ref. JAI/D4/2004/01. Brussels: Directorate General Freedom, Security and Justice, undated.

[13] European Commission (2006): Invitation to tender. Framework contract for evaluation. Brussels, undated.