EagleTribune.com, North Andover, MA

April 21, 2010

Lengthy eruption would put economy under a cloud

By Arthur Max
associated press

AMSTERDAM — Even as Europe's dormant airports sputter back to life, prudent travelers and businessmen should ask: What if Iceland's volcano erupts again?

Because it might. Over and over again, for weeks, perhaps months, scientists say.

The last eruption from the Eyjafjallajoekull volcano in 1821 lasted off-and-on for 13 months — but back then there were no jet engines to get clogged by ash.

What should the world brace for if ash clouds waft over Europe intermittently for six months or a year, repeatedly closing airports with just a few hours' warning?

A devastated tourist industry. Less out-of-season produce at supermarkets. Businesses forced to improvise. And higher prices on just about everything.

Europe's recovery from the economic recession likely would be set back to zero. Banks and governments, worried about runaway inflation, could tighten credit. Railways and roads would be overloaded with freight and people needing more reliable means of travel.

A BMW plant in Germany and a Nissan plant in Japan were forced to close temporarily this week because the ash prevented the arrival of parts shipments. Prolonged disruptions to supply chains could have a profound effect on manufacturing and global trade.

The psychological effects of the uncertainty could be numbing. As long as the volcano keeps rumbling, few people are likely to risk long delays camped out at airports or trapped in overpriced hotels.

Some people may feel more isolated, unable to escape on a cheap last-minute air ticket. They may think twice about visiting Grandma if it means six hours on a train rather than an hour in the sky. Booking a seat on the intercity express may be a lot harder.

Optimists will see benefits in a slower pace of life and the excuse to pass up yet another business conference. Vacations will be closer to home.

The climate might benefit from the absence of polluting aircraft, although the cancellation of 100,000 or so flights would amount to just a blip on the rising graph of the world's carbon emissions.

National railways are enjoying a boom, with extra trains running from Moscow and Madrid and all points in between. Eurostar added 33 trains since the weekend carrying 165,000 passengers from Britain to the continent, or 50,000 more than usual.

Economically, however, the picture would be generally grim.

Travel and tourism account for up to 5 percent of Europe's economic output. Even if the number of travelers drops by just one person in five, Europe would have to scrap its hoped-for return to growth this year, said economic analyst Vanessa Rossi of the London research institute Chatham House.

The spin-off effects of a sharp drop in travel could wipe off 1 to 2 percent of GDP. "That basically means we've got a continued recession," Rossi said.

"If it persists, it's quite chaotic. You find ways through it, but it's going to be more costly," she said. "This is absolutely bad news at the wrong time. But nobody chooses a volcano to erupt. So that's it."

The International Air Transport Association calculated that the airlines lost $200 million a day during the first five days of the volcanic crisis, and carriers are looking to their governments for support.

Tim Clark, president of the Dubai-based Emirates airlines, said the worldwide airline industry faced the threat of "implosion" if the crisis lasts too long. Without government help, "there won't be many carriers left. You simply can't afford to shut down something the size of Europe," he said, putting Emirates' own losses at $10 million.

Countries like Greece and Portugal, already facing debt crises, need tourism to help them limp back to growth — plans that could go seriously awry under a longer eruption. The ripple effect would spread around our interconnected globe.

African agricultural exports, a big chunk of national economies, face potential collapse unless air freight could be replaced with refrigerated shipping containers.

Kenya, which exports 1,000 tons a day of fresh goods, threw away 10 million flowers — mostly roses — since the eruption began April 14. Asparagus, broccoli and green beans meant for European dinner tables was fed to Kenyan cattle because storage facilities were filled to capacity.

If flights remained disrupted, pineapples would soon pile up on farms in Ghana, since the airport has no refrigeration facilities.

European airports like Amsterdam's Schiphol are major transit points for travel between Africa and North America, and from Asia westward. If those airports couldn't receive flights, Europeans would stay home, more business would be done by teleconference, and the United States and the rest of the world would see a drop in travel revenue.

India's imports of rough diamonds from Antwerp and London have taken a hit, denying raw material for its huge diamond polishing industry. Exports of the prepared industrial diamonds and jewelry back to Europe and the U.S. would suffer if flights remain halted, said Chandrakant Sanghvi, regional chairman of India's Gem and Jewelry Export Promotion Council.

Other businesses say they are coping with interrupted air supplies, but they appear not to have given much thought to long-term shutdowns of their supply chains. In the first week of the emergency, the focus was on finding solutions to immediate problems rather than on structural changes.

"I would say it's day-to-day," Ford spokesman Todd Nissen said in Detroit. "There's so many plants that could potentially be affected. ... It's such a complex system."

With its 50 Europe-based planes grounded, international delivery service DHL has engaged in creative routing, said Jorge Wiedemann from its corporate headquarters in Bonn, Germany. Air freight from the U.S. and other points was diverted to Spain, then put on a fleet of trucks. The centralized distribution system based in Leipzig was modified to add regional hubs, he said.

"We are dealing with it on a daily basis." Wiedemann said "So far it's going well and there is no major backlog. How long we can deal with a situation like that is something I can't answer."

Most European food markets rely on local produce, or crops from neighboring countries, especially in the summer. Nonperishable canned or packaged imports usually arrive by container ships.

Those people with a taste for papaya and other exotic produce will have to go without, and menus in high-end restaurants and sushi bars may be red-inked with "unavailable." One Boeing 747 with 110 tons of fish destined for Europe sat on the tarmac in the Middle East, among some 2,000 tons of other disrupted shipments.

Simon Tilford, chief economist of the Center for European Reform, put such breakdowns in the category of "inconveniences" rather than "an existential threat," even under the worst-case scenario.

"There's no doubt it would be very disruptive if it went on for that long. But I don't believe, unless it was a complete blanket on civilian air travel, that the impact on the economy will be that grave." he said.

"Europe is not a particularly trade-dependent economy," said Tilford. Most traffic of goods is internal among the 27 members of the European Union.

"The longer it goes on, the more time we have to find alternative ways of doing things," he said.

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Associated Press writers Adam Schreck in Dubai, Ashok Sharma in New Delhi and Tom Krisher in Detroit contributed to this report.