Wildfires sweeping France, Spain have cost Europe $3.6 billion this year, says report

Wildfires and heatwaves across France, Spain and several other European countries have already caused economic losses exceeding €3 billion ($3.51 billion) this year, underscoring the growing financial impact of climate change-fuelled disasters.

According to Financial Times estimates, nearly 500,000 hectares of land have been destroyed during the first two months of this year’s wildfire season. The restoration cost for the five worst-affected Eurozone countries — France, Spain, Portugal, Greece and Romania — has reached around €3.1 billion, already surpassing the European Commission’s estimated annual average loss of €2.5 billion ($2.9 billion) for the entire European Union.

The estimates are based on the European Commission’s methodology and similar calculations used by the French government. They measure the cost of restoring burned land to its previous condition, including reforestation and long-term maintenance, with costs varying depending on forest type, land cover and the age of vegetation.

Economic damage much higher

However, experts warn that the actual economic damage will be significantly higher.

According to FT, insurance claims for damaged homes and businesses are still being processed, while farmers continue to assess crop losses. The tourism industry, which is at its busiest during summer, has also suffered widespread disruption.

Additional long-term costs are expected through higher insurance premiums, reduced tourist arrivals, increased public spending on firefighting resources and the growing challenge of insuring properties in high-risk areas.

The current estimates also exclude the latest wildfires in Greece, where authorities have begun assessing property damage to determine compensation for affected residents.

Drought adds to economic pain

Europe is also facing severe drought, which is creating fresh economic challenges.

Falling water levels in the Rhine and Danube rivers have disrupted cargo transport and industrial operations, affecting major German chemical companies including BASF, Covestro and Evonik, whose production facilities are located along the Rhine.

The Danube’s historically low water levels are also threatening energy supplies.

Hungary’s nuclear power station, which generates nearly half of the country’s electricity, is expected to shut down because of insufficient cooling water.

Romania has already suspended operations at one of the two reactors at its Cernavoda nuclear plant for the same reason.

Sarah Meier, a climate economics expert at ETH Zurich, told FT that the financial impact of this year’s fires could ultimately be much greater than previous estimates.

Her earlier research found that wildfires reduced GDP in Portugal, Spain, Italy and Greece by an average of €2.1 billion annually between 2011 and 2018.

“If the fires end up reaching cities, it’s going to be far, far above that,” FT quoted Meier as saying.

France’s Gironde region, home to major aerospace and defence industries, has been among the hardest hit. Wildfires forced companies such as Safran, Dassault Aviation and ArianeGroup to temporarily halt production and evacuate employees.

The region’s agricultural sector has also suffered. While Bordeaux’s vineyards have largely avoided direct fire damage, concerns remain that smoke exposure could affect grape quality and the upcoming wine harvest.

Oyster farming in the Arcachon basin has also been impacted, while tourism — responsible for around seven per cent of Gironde’s economy — continues to face significant disruption, reported FT.

According to Gironde’s Chamber of Commerce and Industry, around 40,000 businesses have been directly affected by the fires. By July 30, nearly 19,500 businesses had ceased operations completely, while between 120,000 and 150,000 workers had been placed on state-supported reduced working hours.

In Spain, wildfires spread to within 50 km of Madrid, destroying homes, commercial buildings and vehicles in several rural communities. The Union de Pequenos Agricultores y Ganaderos, which represents small-scale farmers, estimated that around 18,500 hectares of productive agricultural land, mainly grazing pasture, had been damaged.

GDP impact limited

Despite the widespread destruction, economists believe the disasters are unlikely to significantly reduce national GDP figures.

Ioannis Kountouris, associate professor at Imperial College London, noted that many important economic costs are rarely included in official estimates, including increased hospital admissions caused by smoke and air pollution.

Andrew Kenningham, chief Europe economist at Capital Economics, said that while natural disasters initially reduce economic activity, reconstruction spending funded by governments and insurance payouts can temporarily support GDP.

However, Meier cautioned against viewing this as genuine economic progress.

“This is not economic growth we like — it’s just replacing destroyed capital.”

With inputs from agencies