Europe With or Against Migrants: Is It All about Economics?

In less than half a year, over a million refugees crossed the EU borders seeking safety from war, terrorism and civil unrest in their home countries. Accepting such a large number of migrants has an unpredictable impact on their hosts’ economic and social situation. However, the political side of the debate seems to be entirely centered around morality.

The EU has proposed creating a €10 billion fund for managing the influx of refugees. Meanwhile, there are fears of an increase in unemployment and added stress to already slowing economies in Europe. However, a report released by the IMF argues that accepting migrants across Europe will most likely be beneficial to the hosts’ economic development in the medium and long term.

A quick integration of immigrants into the local workforce will help counter effects of the ageing population and increase the work force overall, thus improving social welfare. Migrants are also noted to be willing to work in many low-paying positions that are difficult to fill. In general, the IMF estimates that in 2020 the economic output would be 1 percent higher than it would be if we denied refugees. What would be necessary for a faster integration would be subsidies for local employers, lower taxes for small businesses and the self-employed, all of which would only be a temporary expense.

However, it is not that easy for policy makers to simply cite analysis and change immigration control across their borders if their electorate is fighting against it. In western countries, there are fears of immigrants staying inside their own communities and trying to influence the local customs, language, as well as disrupt peace through trying to impose religious laws or even commit acts of terrorism. Nationalist parties across Europe have gained support in the second half of 2015. Moreover, the main driving force behind accepting refugees – German Chancellor Angela Merkel – is facing opposition from her own parliament as well as contradicting statements from Germany’s president Joachim Gauch in the Davos 2016 economic forum, where he stated that the German society needs quotas imposed on immigrants passing the borders.

Currently, the European Union is considering drastically changing the foundation of their immigration policy. The struggles of Greece and Italy as migrants flee across the Mediterranean have shown that the border states cannot be expected to take the entire burden of immigrant registration. Therefore, new legislation and administrative bodies are being put into place so that migrants may move quicker from their first-entrance countries and further into Europe. Previously, immigrants had to stay in their “first contact” country.

In addition, several countries, including a few outside the EU borders, have been announced as safe to return to, and migrants that were found to be trying to exploit the welfare available within the Schengen zone are being deported there. While many of these allies have been accommodating in the face of an international crisis, Romanian P.M. Victor Ponta had at one point stated they will follow quotas set by the EU only if accepted into the Schengen area. He later retracted his bid when it became clear that the migrant crisis facing the European Union would hold back the member states from expanding the Schengen borders. However, this maneuver does show the stance of the less influential EU member states.

Altogether, while an equal distribution of migrants across Europe will not harm the local population, culture or economy, many governments on the continent are reluctant to be the first to open their borders, greatly due to the pressure from their own electorate. Last week’s EU summit on immigration ended with meagre progress, and it is unclear whether members of the EU will be able to come to a conclusion soon enough.

By Reinis Jēkabs Ozols
Market Analyst at the Investment Fund