Taking Stock: 9/11 Wasn't a K.O. For the Global Economy

"I was here in my office, in this very room. I'd just come out of a meeting and then there were pictures of the burning World Trade Center in New York and we were stunned," said Rolf Kroker from the Institute of German Economy in Cologne. "Fifteen minutes later the journalists started calling, wanting to know what it meant for the economy, but we couldn't give an answer at that time."

Even today, five years after Sept. 11, 2001, it is difficult to say what the economic ramifications are. Kroker said his institute has not tried to quantify the damage.

"I think it would be incredibly difficult to do that because there are so many aspects to take into account," he said.

The initial plunge

Though the economic implications of that black Tuesday remain undefined, economists can trace the events that followed. The stock markets responded the quickest.

On Wall Street in New York, trade was suspended immediately and did not resume until five days later -- the longest interruption since World War I.

By the evening of Sept. 11, the value of German stocks had dropped by about 10 percent since that morning. And in Tokyo, the Nikkei Index plummeted to lower than it had been since 1984.

However, the global financial institutions reacted quickly and the markets soon recovered from their massive losses.

Some insolvency despite government aid

Together, the European Central Bank, the American Federal Reserve, the Bank of Japan and the Swiss National Bank agreed to increase liquidity to avoid shortages and sustain the dollar.

The American airline industry received a financial boost of $15 billion from Washington and Europe's finance ministers decided to support the European airlines with indirect allowances.

Despite these deliberate efforts, many airlines on both sides of the Atlantic were forced to cut jobs, and some went under completely.

Not everything can be blamed on 9/11

In the fiscal year following the terrorist attacks, there was hardly a year-end-report that didn't mention 9/11. Nevertheless, in some cases the date was used as an excuse for numbers that had been in the red well beforehand.

"Take Germany, for example," said Kroker. "We were already in stagnation at that point and I really don't think that it had anything to do with Sept. 11. For years, Germany has been at the tail end of Europe's business and growth cycles, but that has more to do with the fact that we haven't done our economics homework."

Other countries were more effective in overcoming the initial shock to the markets -- especially the US. Thanks to huge amounts of government aid and tax cuts, which drove the national budget into record high debt, America got on its way and fears of a worldwide recession quickly evaporated.

Cold War "peace dividend" still elusive

Nevertheless, the world economy is not the same as it was before Sept. 11, 2001.

According to Kroker, after the Soviet Union broke up and the Cold War came to an end in 1989, there was talk of a "peace dividend." The money that had previously gone for security and defense was suddenly available for other purposes.

"But after Sept. 11, this money was needed again -- not necessarily for military armament, but for a reinforced security infrastructure. That 'peace dividend' has gone elsewhere now," he said.