The Impact of Refugees on the Eurozone Economy
Over the past few months, the European Union has encountered a massive influx of an unmanageable number of refugees, and the current migrant crisis has caused member countries significant problems. Despite all the talk about financial costs, it is much more difficult to solve all the practical issues relating to the provision of accommodation, food and heating for large numbers of migrants arriving in uncontrolled amounts. The number of people who have already crossed the borders of the Schengen Zone, and those who are still waiting to cross it, are in the hundreds of thousands. At present, it seems that the situation is getting seriously out of control.
The Mediterranean Sea represents one of the most common passageways into Europe. In 2015 alone, more than 220-thousand illegal immigrants sailed into the EU via this body of water. Unfortunately, about 1% of them succumbed to the dangers of this treacherous ocean and sadly lost their lives in pursuit of a better life.
Further along the route, some 140-thousand refugees have successfully crossed the Serbian-Hungarian border. For economies of more modest means, such as those located in Eastern Europe, such vast numbers of uninvited guests have dealt a real blow to the already scarce resources.
Between January and September 2015, the EU granted access to more than 500-thousand refugees who had crossed into Europe from countries located in the Middle East and North Africa. However, while these refugees may, indeed, now have their feet solidly on European ground, the extent to which the EU can accommodate these people remains to be seen. According to Dimitris Avramopoulos, the EU Commissioner for Migration and Home Affairs, today’s immigration crisis may have dire consequences that are comparable to the movement of refugees during the Second World War. The Hungarian border has become a common gateway for migrants, and it is projected that the majority of refugees will attempt to gain access to the richer Eurozone countries through its borders.
How is Europe dealing with the looming crisis?
It is more cost-effective to proactively avoid any kind of chaos than it is to stop it. For this reason, a large amount of money has been allocated to solving the problem of the influx of illegal immigrants. Despite stable funding, the majority of Eurozone countries have their own individual take on the problem and are in no hurry to become cohesive parties under a single strategy that aims to deal with this troubling problem.
Germany is looking for an economic benefit
By the end of 2015, at least 500-thousand registered refugees will have arrived in Germany. Despite the apparent critical nature of the situation, the country, under the leadership of Angela Merkel, may not be profiting from its new arrivals; however, the government is, at least, trying to minimize losses against a background of constantly rising costs.
However, Germany will, undoubtedly, be required to spend at least some money. The main burden of cost will impact budgets at every level, i.e. land, local and federal coffers. The state budget includes separate provisions for articles to cover the needs of migrants. However, as a result of the costs that are expected in 2016, this will certainly need to undergo a major revision. A total of one billion Euros has already been allocated to cover the needs of migrants until the end of 2015. It is anticipated that this sum will increase at least threefold in the forthcoming year. There are even suggestions that, before the end of 2016, the cost of providing for refugees in Berlin alone will be in the region of 10 billion euros.
How Germany struggles with the refugee crisis
The German government does not hasten to send the budget surplus to pay off public debt. Instead, the government in Berlin has channeled taxpayer funds to strengthen demand in the domestic markets. Refugees consume various goods and services in large quantities, which means that doctors and translators, bus drivers and companies that provide hostels and hostel maintenance services will be in great demand. In fact, in addition to the need for rental housing, the demand for craftsmen, consumer goods, and food products is set to significantly increase.
Of course, the chosen method for spending this 10 billion can not be called the most effective, since such a tactical move will not bring about long-term shifts in economic development. At the same time, receiving refugees may not entail negative macroeconomic phenomena, which is also important. A positive trend is also envisaged in the labor market in Germany. Approximately one thousand jobs will be created in the Federal Office for Migration and Refugees, and about three thousand jobs will be created in the German Federal Police.
Expenditures in Germany are on the rise; however, the budget remains deficit-free. The ideal financial discipline of the government and the vast majority of ordinary citizens eliminates the need to patch holes in the budget due to the increase in utility rates or taxes for entrepreneurs.
What kind of benefits will refugees bring to the economy?
Numerous economic experts in the Eurozone have long been concerned about manpower shortages. The majority of Old World countries are anticipated to have an acute need for labor in the forthcoming decade. If appropriate action isn’t taken right now, within 15 years, the German labor market will experience a crisis point, with an estimated shortage of 10 million hired workers. Germany still doesn’t have a strategy for attracting such a large number of workers; as such, the surging wave of refugees may be coming at an opportune moment.
If the German government and parliament can develop a joint effective plan of action expeditiously, hundreds of thousands of refugees can effectively and efficiently be transformed into skilled migrant workers who deliver a tangible economic effect and possibly halt the looming worker deficit. At the same time, the process of active refugee adaptation can solve some of the problems that are typically associated with the influx of large numbers of unplanned migrants from other countries.
The economic risks associated with the influx of refugees
A similar lack of manpower in 10-15 years time will be experienced not only in Germany but also in other European countries, in particular Hungary, which currently has a rapidly aging population. However, unlike its richer western neighbor, Budapest is already unable to cope with the current costs and is facing serious losses.
At present, no published official economic calculations are available; however, the criticality of the situation Hungary finds itself in is visible to the naked eye. As a result of being the European gateway to hundreds of thousands of migrants, Hungary is under a very heavy economic burden. The Hungarian government currently has no budgetary provisions for the maintenance costs associated with the continual stream of refugees; as such, is it likely that almost every Hungarian family will feel the negative economic impact of this situation. Tens of millions of forints have already been spent on dealing with the problems associated with the influx of illegal immigrants; however, the cash reserves of this small Eastern European country are running out fast.
Realization of the fence building project that was constructed on the border with Serbia cost Budapest 29 billion forints. According to Laszlo Parragh, the President of the Hungarian Chamber of Commerce and Industry, this unfavorable situation will clearly affect the consumer sector of the state, and will make the already unfavorable investment climate even worse.
What problems will the refugees encounter in the intermediate term?
Expenses that Germany and other countries directed towards the adaptation of migrant workers can not be recouped if the refugees living in the EU do not want to work and, instead, rely on social assistance. In this situation, the financial burden on the state budget will increase rapidly and exponentially.
It is extremely difficult to predict how events will unfold. Certainly, European officials believe that the arriving refugees, which include many young people, will want to build a career, develop professionally and live a full life within the more prosperous countries of the European Economic Area. For example, the majority of Syrian refugees were middle class in their own country. They have what is considered a good standard of education and are not against active self-realization in new conditions.
Europe will not survive without a new labor force
The average age of citizens in the European Union is rapidly increasing. It is anticipated that people of pensionable age will make up almost a third of the continent’s population over the next 30-40 years. The question as to how such a large amount of senior citizens can be supported will be pertinent for every European country.
Under normal conditions, the pension system is based on the principle of solidarity between generations and, for this to work, there needs to be four working men for every pensioner. Today, this proportion is still preserved; however, by 2060, there will be only two workers per pensioner. The aging population of the EU is slowing its economy down by 0.2% annually. The lack of the required number of migrant workers will inevitably lead to a deep financial crisis since the burden of pension payments will be very heavy in every sense of the word.
To put a stop to this threatening tendency once and for all, Europe needs to develop a strategic plan today to identify how it will secure 42 million workers by 2020 and 257 million wage earners by 2060. To solve the problem through simple natural population growth is not possible and, therefore, the opening of borders to migrant workers may represent the only way to ensure the survival of the European Union in the near future.
The number of young Germans, French, Italians, Hungarians, Poles and the representatives of additional countries who pay taxes for a generation of pensioners is declining rapidly. Young people from Africa and Middle Eastern countries may be the only candidates for the labor shortages and, as such, it is these individuals who will fund a comfortable life for future European pensioners.