Add up the missiles fired, the planes lost and the support costs, and a 30-day aerial bombardment of Serbia could cost NATO countries $3.2 billion, estimates John Llewellyn, chief economist of Lehman Brothers. Rehousing two million displaced Kosovans and supporting them for a year could push the total cost up to $16 billion, he reckons.

However, this is just 0.1 per cent of NATO's total economic output, and stock markets in New York and London have been surging to records as if nothing has happened. Shares in defence companies are doing particularly well.

But the war is already being felt in central Europe: Hungary has delayed a bond issue because of market uncertainties. Croatia's tourism industry is suffering, while the disruption oftransport links is causing problems in Romania and Bulgaria. Austrian exporters are particularly vulnerable.

The war is also hitting foreign exchange markets. International investors have been seeking safety in the dollar, which has risen strongly against most other currencies, including the pound. The euro, meanwhile, has plunged to record lows. If ground troops are sent in, the economic impact of the war will escalate. The Gulf war, with 600,000 troops, cost around $32 billion in total $4 billion for the UK alone (although it recouped $3.2 billion from other countries). The Falklands war in the early 1980s (when the UK went to war to reclaim the Falkland Islands in the south Atlantic from an Argentine invasion force) which was far more limited than any likely ground war in Serbia cost the UK more than $4.8 billion.

But success in Yugoslavia could reap dividends. Digby Waller, defence economist at the International Institute for Strategic Studies in London, said: ``There would be a big economicdividend if the position is decisively resolved, with removal of Milosevic and without dragging the Russians in. The ending of the isolation of Serbia would have a big positive impact on Europe.''

The Observer News Service