The streets of the city of London, the capital’s financial district, were quiet when the bomb went off. To mark the Conservative Party’s victory in the United Kingdom’s 1992 general election the day before, the Provisional Irish Republican Army placed a massive Semtex bomb in a transit van outside one of London’s grandest buildings, the Baltic Exchange. The bomb exploded on Friday, April 10, at 9:25 pm, killing three people and injuring 91. Had it been detonated several hours earlier, when the streets around the exchange were full of the City’s financiers and traders, the carnage would have been much worse. Even so, the explosion caused considerable damage in the neighborhood’s narrow, warrenlike streets.

WHEN THE Irish Republican Army bombed British financial targets in the 1990s, investors and the markets barely blinked.

The bombing of the Baltic Exchange signaled a turning point in the IRA’s terror strategy. The paramilitary group had previously attacked military and political targets in England and Northern Ireland. The deliberate attempt to damage the UK’s financial power base was new, and far more treacherous. “Part of the IRA’s tactics were to disrupt the British economy,” says Anthony Richards of the Centre for the Study of Terrorism and Political Violence at the University of St. Andrews in Scotland.

The Baltic Exchange bombing caused hundreds of millions of pounds worth of damage and disruption, and perhaps more significantly, it created a climate of fear. In the five years that followed, the IRA made several more attempts to strike at the heart of the British financial establishment. It aimed to destabilize the economy to such extent that Westminster politicians would have no choice but to make concessions on the matter of British control of Northern Ireland (see “Northern Ireland’s Troubled Economy”).

TOP VIEW From 1992 until 1997, the Irish Republican Army carried on a terrorist bombing campaign targeting British financial institutions. The ordeal parallels America’s current struggle against terrorism in some encouraging ways. Despite the fear and uncertainty suffered by British investors and society overall, the economy and the markets did not flinch and the IRA’s campaign of economic terror ultimately failed.

The parallels between the United Kingdom’s experience in the 1990s and the security challenges currently facing the United States are striking: Large, sophisticated economies endure threats of disruption and violence from politically motivated terrorist organizations. Major global financial centers—the City of London and Wall Street in New York—have become prime targets of violence, causing heightened levels of market uncertainty. This has forced the financial industry to invest vast resources in security, while investors and everyday citizens face a troubled future.

American investors living in dread of the next orange alert can take some comfort from the British experience with terrorism, but only some. “The economic costs [of the terror campaign] were not significant enough to impact the UK economy as a whole, so investors were not scared off,” says Paul Wilkinson of St. Andrews’ terrorism center. However, he adds: “If there had been a more sustained campaign in the financial center, then it could have had some effect.”

In the Crosshairs
Paul Rogers of the Department of Peace Studies at the University of Bradford, England, has written several papers on the economic impact of IRA terrorism in Britain. He argues that the shift in the paramilitary organization’s focus in the early 1990s from economic targets in Northern Ireland to those in Britain was part of a significant change in strategy. The explicit targeting of Britain’s economic base began in 1992 and continued—with the exception of an 18-month ceasefire starting in mid-1994—until the formal peace process began in 1997. During this time, the terrorist organization made six attempts to detonate large-scale bombs in British financial centers, three of which were successful.

Almost a year after the bombing of the Baltic Exchange, the IRA detonated another bomb in the City of London, targeting the Bishopsgate area. It killed one person and injured 44 others, while causing damage estimated at $1.5 billion. The next attack rocked South Key near Canary Wharf, a rapidly expanding business center a few miles to the east of London’s financial district. The bomb killed two people and again caused substantial damage. These incidents agonized London’s business establishment, causing many to wonder if the attacks would hurt the City’s international standing. “There was a huge worry that Frankfurt would gain the upper hand over London as Europe’s leading financial center, particularly after the Bishopsgate bombing,” Rogers says. (Click image to enlarge)