Europe is in the midst of an immigration crisis of historic proportions. Since January of this year, the European Union (EU) has received an influx of an estimated 1 million asylum seekers, with the promise of many more to come. These refugees are fleeing conflict and persecution, much of which can be linked to the rise of insurgency, specifically the Islamic State, in the Middle East. Human rights violations by the oppressive regime in control of Eritrea are also a major cause for the influx of refugees. It is believed that approximately 60% of all immigrants are coming from Syria, Afghanistan, and Eritrea. Refugees select Europe as their destination due to the relatively close proximity and the economic prospects for a better life. While the European refugee crisis is first and foremost a humanitarian crisis, it will undoubtedly have a significant impact of the Eurozone economy, both now and for decades to come.
In the short term, providing basic necessities to refugees will be a significant cost, one that will disproportionately affect different European nations. A majority of refugees initially enter Europe via the Mediterranean Sea, arriving in Spain, Italy, Greece, or other Balkan nations. Upon their arrival, many refugees seek better prospects in other European nations, specifically in Germany. Germany is currently receiving over 40% of all asylum applications in Europe and German Interior Minister Thomas de Maiziere reported that Germany could see as many as 800,000 arriving in the year. Incoming refugees have the right to food, first aid, and shelter in refugee reception centers. The cost of this aid has been a shock to some nations, and the fiscal cost is only expected to rise as winter draws nearer. The E.U. is taking measures to lessen this burden by attempting to relocate refugees and establishing an emergency fund to deal with the crisis.
While the hundreds of thousands of refugees are presently a significant fiscal cost, the influx of refugees has the potential to be a massive boost for the European economy. Recently, a study by Christian Dustmann of University College London’s Centre for Research and Analysis of Migration analyzed the economic impact of migrants to the U.K. from years 2001 to 2011. The study concluded that by the end of the ten year period, the immigrants had contributed more than $31 billion to the economy and payed out more than 64% more in taxes than they received in benefits. It is worth noting, however, that studies indicate it is often times more difficult to integrate refugees, such as those currently entering Europe, into a nation’s economy than it is to integrate economic migrants, which constituted a majority of the immigrants in the U.K. over the studied time period. This is not to say that it cannot be done, simply that it will most likely be a more arduous process.
This large scale immigration to Europe also has the potential to solve current demographic issues that are projected to hinder the European economy in the coming decades. The population of Europe as a whole is rapidly aging. The European Union’s 2015 Ageing Report projected that, among several other alarming statistics, the old age dependency ratio will double to over 50% by 2060, meaning that there will be less than two working adults to support every one senior citizen. The report also projected a 10.5 million person decrease in the overall European population by 2060. A massive inflow of relatively educated working age adults, such as the hundreds of thousands of refugees currently entering Europe, could be the exact remedy the continent needs to prevent the negative impact of a rapidly ageing population.
How can Europe turn this current economic cost into future economic gain? Much of this depends on how the refugees are handled in the interim term. Many tough decision will have to be made about how to relocate refugees in a way that makes the most economical sense. This includes settling migrants where there is a need for their skills rather than simply where it is cheapest for them to live. Refugees must also be provided with intensive local-language training immediately upon arrival into their new countries, in order to accelerate their positive integration into the overall economy. In the end, if this surge in immigration is handled correctly, the new immigrants could provide the necessary framework to support and grow the European economy for decades to come.