The terrorists responsible for Friday’s massacre in Paris struck at a time of acute vulnerability in Europe. The European economy may once again be growing, but its recovery is tepid and comes after five years of near-permanent crisis.

Unemployment remains very high, particularly among the young. And political tensions, both within and between countries, are simmering as the continent struggles to cope with the arrival of more than a million refugees this year, raising doubts about the European Union’s ability to provide an effective response to its common challenges.

But if the terrorists’ goal was in part to inflict major economic damage, it is not clear they will have succeeded. That was certainly the initial view of the markets, which barely budged, beyond some share-price weakness in directly affected sectors such as tourism and leisure.

Recent history suggests this is the right response. Previous terrorist outrages in Europe had little lasting economic impact. The 2004 Madrid train bombings and the 2005 London bombings led to short-term dips in consumer spending, but these were quickly reversed.

Even the attacks on New York on September 11, 2001, didn’t derail the U.S. economy for long. It started to recover in the fourth quarter of that year after three quarters of recession, no doubt helped by some of the stimulus measures introduced by the U.S. Federal Reserve and U.S. government.

In fact, the Paris attacks could even lead to stronger growth in the near-term.

Both the EU Commission and the Organization for Economic Cooperation and Development have recently estimated that higher government spending in response to the refugee crisis could boost EU gross domestic product by up to 0.2 percentage points. Similarly, extra public spending on defense and security could provide a further stimulus.

President François Hollande has made clear that France won’t cut spending elsewhere to hit eurozone fiscal targets as it raises defense spending, declaring that the security pact takes precedence over the stability pact. For its part, the European Commission has said that the rules allow flexibility for national emergencies.

What about the longer-term economic consequences of the attacks, particularly if, as is feared, they mark the start of a wider European terror campaign? In the past, the most immediate channel through which terrorism might derail economies was higher oil prices. But that seems less relevant today, with the price of oil low, global supply well in excess of demand and the Organization of the Petroleum Exporting Countries showing no appetite to do anything about it.

Instead, there are three major channels through which terrorism might have a lasting impact on Europe’s economic prospects.

The first is the impact of heightened uncertainty on investment decisions. Already, the equity risk premium—the extra returns over and above the supposedly risk-free yield on government bonds—is at historically high levels of around 8%, according to a Goldman Sachs analysis. That sets a high bar for companies to invest in new capacity and tends to encourage them to look for more defensive ways to spend cash, such as buying back their own shares. A prolonged period of low investment will weaken productivity and long-term potential growth.

A second channel is via higher insurance costs and reduced coverage, raising the cost of doing business and hampering world trade. In an interconnected world of extended global supply chains, a terrorist risk in one country can disrupt business on the other side of the world. Following 9/11, the U.S. government introduced a federal insurance scheme specifically to address these risks. Insurers are reluctant to discuss whether European terrorism insurance costs have risen this year, but they do note that thanks to a world awash with liquidity, insurance pricing is currently very soft.

The third channel is via the impact of higher defense and security spending on potential growth. Here, the academic literature is mixed, says Gilles Moec of Bank of America Merrill Lynch. During the Cold War years, higher defense spending was associated with higher long-term potential growth because much of the spending was focused on military research, which had positive spillovers for the civilian economy.

But if today’s higher spending is focused on ordinary police work, the impact on productivity—and ultimately income growth per capita—might be negative as more people will be employed to produce the same national output. This is conjecture, and hard for economists to model.

For now, what the markets will be watching most closely is the political response to the attacks. Following Portugal’s inconclusive election last month and the election of a new right-wing government in Poland, all eyes will now be on the French regional elections and Spanish general election next month to see whether the terrorist threat boosts support for populist parties demanding national action rather than a common European response to the crisis.

A strong showing for populist parties such as France’s Front National might further reduce the political space, not only for countries to work together but also for governments to push forward with the reforms needed to boost domestic growth potential and build the confidence necessary to allow future risk-sharing, particularly in the eurozone. That could turn a terrible human tragedy into a wider economic shock