The man who drove a car into a crowded Christmas market in Berlin, killing 12 and injuring dozens more, has been handed a life sentence. The verdict, delivered in a Berlin court this morning, brings a measure of closure to a tragedy that shook Germany and the wider Western world. But for those of us in the Square Mile, the real story is the ripple effect on fiscal policy and the cost of security.
The attacker, a failed asylum seeker from Tunisia, was convicted of murder, attempted murder, and dangerous driving causing death. The judge described his actions as "a despicable act of terror" and handed down the maximum penalty allowed under German law. The market, a beloved seasonal institution, became a symbol of the vulnerability of open societies to lone-wolf attacks.
Meanwhile, across the Channel, the UK government is quietly ramping up its own sentencing guidelines for terror offences. The Home Secretary announced this week that minimum sentences for terror-related crimes will be increased, with life imprisonment becoming the default for the most serious cases. This is not just about public safety. It is about the bottom line. Every terrorist attack, every foiled plot, every heightened security alert costs the economy billions. The UK's counter-terrorism budget has already ballooned to over £3 billion annually, a figure that weighs heavily on the public finances.
Investors should take note. The cost of security is a hidden tax on growth. It diverts resources from productive investment into defensive measures. Gilt yields, already under pressure from high inflation and the Bank of England's continued tightening, could face additional upward pressure if the government is forced to borrow more to fund these measures. The fiscal multiplier of security spending is notoriously low: it protects assets but does not create them.
The European Central Bank faces a similar conundrum. German bond yields, the benchmark for the eurozone, have remained relatively stable despite the trial, but the underlying tension is clear. The cost of policing and intelligence has risen by nearly 40% across the EU since 2015, according to Europol data. This is a drag on the region's competitiveness, especially when compared to the United States, where security spending is more efficiently integrated into the private sector.
There is also the matter of capital flight. Investors abhor uncertainty. The Christmas market attack, and the subsequent trial, have revived memories of the 2016 Nice truck attack and the 2017 Barcelona van attack. Each incident reinforces the perception that Europe is a higher-risk environment. This perception has real consequences. Foreign direct investment into the EU has fallen by 12% over the past five years, with a significant portion redirected to Asia and North America.
The UK, for all its Brexit bravado, is not immune. The ramping up of terror sentences is a signal to the markets that the government is serious about protecting its citizens. But it is also a signal of the threat level. The UK's terrorism threat assessment remains at "substantial," meaning an attack is likely. This status has been unchanged since 2014. It is a drain on the national psyche and the national purse.
In the City, we are accustomed to risk. But the risk of terrorism is different. It is unpredictable, unhedgable. Insurance premiums for major events and public spaces have soared. Some venues now require government-backed indemnity to host events. This is a market distortion that the Treasury is loath to admit.
The German life sentence is a moral victory. But the finance minister knows that the cost of terror will be paid for many years to come. The UK's tougher sentencing is a political move. But the Chancellor knows that the real deterrent is not jail time. It is a robust economy that can absorb shocks. That is the bottom line.
