Crisis brings unpredictable effects in its wake. Often these effects go unremarked in the first throes of the crisis as it unfolds, and then make themselves felt as the acute stage of the crisis passes. The Euro crisis has revealed a number of political and economic fault lines dividing the European Union and accentuating its character as a work in progress with a great deal of necessary integration yet to be achieved.
Migration Patterns Shifting
The effect of the crisis on migration patterns from southern to northern Europe is now coming into view. The ramifications of mass migration may be profound, weaving together demographics, labor markets, and the political dynamics of social welfare states—and they are testing national and European identity. If present trends are a guide, those European nations which rapidly adapt to shifting migration pressures will be better positioned to benefit, and can increase their economic strength. However, the calculus goes beyond adding up economic advantages and disadvantages. The changes taking place highlight problems in some of the basic foundations of the post-war European social welfare state model. The shifts of adapting to more immigration will not be easy shifts to navigate, and stresses are already beginning to show.
Southern European Unemployment Drives “Crisis Migration” to the North
Source: APA
With German unemployment at 6.9 percent, and unemployment rates in Spain at 24 percent—and as high as 54 percent for workers under 25—it’s not surprising that Germany is seeing a flood of immigrants from southern European countries that have been hardest hit by the Euro crisis. In 2012 there were almost 400,000 such migrants from the south; there are expected to be more than 500,000 in 2014.
Germany Cautiously Revamps its Attitude Towards Immigration
This is not an unprecedented phenomenon. The same thing happened in the 1960s, when a previous generation of southern Europeans (and Moroccans, Turks, and Tunisians, among others) came to Germany as guest workers during its post-war Wirtschaftswunder—“economic miracle.” The difference is that in the previous wave, most were “temporary” workers, and most took low-skill work. (As an aside, U.S. politicians, now pushing for immigration reform, like to point to the negative consequences that followed from this temporary work model.)
Among the consequences was that encouraging these “temporary” workers to return to their home countries proved difficult, especially as many brought their families with them—and yet they were socially and legally blocked from integration into German society. The resulting stresses caused a backlash from ethnic Germans, and from the 1970s to 1999, the opinion of the German public and of the political elites turned negative—as the German newsmagazine Der Spiegel recently noted, “the main goal of immigration policy was to prevent immigration.” In the 1980s, under Helmut Kohl, the government at one point even offered foreigners a bounty of 10,000 deutsche marks to clear out.
As European integration gained steam in the 1990’s, immigration grew—but until the European sovereign debt and banking crisis, migrants would often avoid Germany because of its perceived anti-immigrant culture. In the early 2000s, Germans were beginning to realize that their demographic situation was worsening. With the German equivalent of the baby boomers beginning to retire, and fertility rates far below replacement, demographics became a drag on GDP. German industry was looking at a steady future workforce squeeze and the German government was looking at a troubling shortfall in tax receipts. By current estimates, there will be a shortfall of 5.5 million skilled workers by 2025—unless they can be encouraged to come to Germany from elsewhere.
The Current Influx of Immigrants is Helping Germany Meet a Crucial Labor Demand
For Germany, it’s a perfect storm. German labor market reforms in the last decade started to reverse a trend that’s hamstrung other European economies. For years, Europeans tended to value the tenure of older, established workers more than opportunities for younger workers. Economists agree that this phenomenon, an unintended consequence of the European welfare state, and it thwarted progress and was a drag on GDP. German companies and policymakers adjusted. Younger workers, according to a recent Deutsche Bank report, tend to contribute more to dynamic and productive corporate cultures. The workers Germany is now attracting are young and highly educated. The entrenched anti-immigrant culture is shifting, as is the longstanding perception among ethnic Germans that immigrants are takers and not makers.
This Time Actually is Different
Many of the new migrants from southern Europe are doctors, engineers, skilled mechanics, and IT specialists. Increasingly, they express the desire to plant roots in Germany. Most learn German quickly, thanks in part to new initiatives from the government to encourage integration. While their grandparents, even if they did had remained in Germany for an extended period, often didn’t learn German. The new migrants are cosmopolitan—often taking their vacations not to visit their homeland, but to visit their compatriots in France, the Netherlands, or the U.K. The migration encouraged by the Euro crisis may well be forcing the rapid development of a united Europe that is more than a dream of ideologues in Brussels. More and more German employers and municipalities, desperate for qualified workers, are crafting ways to encourage migrants to stay.
New Immigrants to Germany Mean to Stay
Source: Reuters
Even Silver Clouds have a Dark Lining
This new reality of migration within Europe is not without its problems. First are the problems posed for the southern European nations. Germany isn’t the only European country facing a demographic crunch; Spain’s birth-rate has also been alarmingly low for decades. The outflow of migrants to northern Europe may be granting the Spanish government a short-term reprieve in some of its burden of unemployment benefits, but longer term, it is a drain on Spain’s economy. Should the trend continue, Germany would be benefitting in terms of more robust GDP growth and a larger working-age population to pay taxes and contribute to social welfare programs—to the detriment of the southern nations from which the migrants are coming.
In fact, some of Spain’s woes can be traced to an immigration boom that it experienced from 1999 to 2006. Some analysts believe that, in the absence of labor market reforms, the Spain’s immigration boom masked a stagnation in real GDP growth per capita—and it helped encourage the inflation of Spain’s property bubble. Throughout that period, Spain’s current account balance weakened steadily. Now, the post-crisis “brain drain” of Spain’s best and brightest threatens to undermine its recovery even further, potentially crippling future growth.
On the German side, all is not necessarily rosy either. The recent shift in immigration policy is new and untested, and does not have deep roots in German political culture. There is plenty of literature showing a negative correlation between mass immigration and the sense of social solidarity—which is needed to support a social welfare state. In essence, the more diverse a population, the less willing its citizens are to chip in for the support of those they don’t identify as part of their “we.” By contrast, the U.S.—which isn’t the extensive social welfare state—has been more successful at promoting an ideal of citizenship that doesn’t hinge on one’s cultural identity.
Some Migrants are More Equal than Others
While Germans seem to be growing in their acceptance of educated southern Europeans who are coming, there are other potential influxes that make them less sanguine. In 2014, the last restrictions against immigrants from Bulgaria and Romania will fall. Germany and the U.K. are already making common cause (or political hay) out of the prospect of a flood of indigent Gypsies coming from Bulgaria and Romania as “welfare tourists.” German municipalities, which bear the brunt of integration costs, are still loudly complaining about immigrants received from Eastern Europe. Germany may be relaxing its stance, but it still wants to be selective about the migrants it receives, and it may be a delicate and politically fraught game to try to enforce the distinction.
Economic Reality Outruns the Politicians
The European crisis has lit a fire under workers, and they’re taking advantage of the European Union’s free movement of labor—and that’s revealing further ways in which the structure of the E.U. is inadequate to handle the forces it has set in motion. As they are learning from their experiment with a common currency, the more European countries try to integrate, the more evident it becomes that further social, fiscal, and policy integration is needed.
The conversation about deeper fiscal integration still does not seem to be one that most European politicians are willing to engage in. For now, Europe remains a collection of have and have-not nations who are trying to present a unified face. It seems that the stronger northern economies, especially Germany, will continue to reap economic benefits from new migrants, benefits such as GDP growth and support for their retirees that comes from a broader tax base.
Germany’s choice, so far, looks excellent—to welcome migrants, to structure its labor markets to give young workers opportunity, and to try to craft policies that encourage the immigration of those with the most critical technical skills. As long as they can mitigate the potentially corrosive effects of the migration of unskilled or marginal workers, Germany will continue to ride out the crisis with a shrewd strategy for growth. The southern economies in turn will be brought face-to-face once again with the need for structural reform in their labor markets. If they refuse their medicine, they may well stagnate while Germany forges ahead.
Source: Guild Global Market Commentary
