- Reuters/Heinz-Peter Bader
Following a topsy-turvy summer of economic volatility and political turmoil, Europe is facing another major collective-action problem: the refugee crisis.
While most of the recent issues in the EU been internal ones, this crisis is unique in that it unites the problems of developing markets with those of industrialized economies.
Consequently, although “there seems little likelihood that this crisis will become systemic in nature,” its “impact on the political risk outlook is, in our view, significant,” argues Citi’s Tina Fordham.
In light of that, we put together five major political-economic risks stemming from a failure to act in response to the crisis.
“Addressing the refugee and migration crisis will require further reforms, cooperation and coordination, not to mention political leadership,” adds Fordham.
1. The exacerbation of anti-immigration sentiment.
- REUTERS/Umit Bektas
There seems to have been a shift in the public consciousness following the heartbreaking photo of a drowned Syrian toddler.
However, “the crisis could exacerbate anti-immigration sentiment – already high in many countries – over the medium- to long-term if sympathy for the plight of refugees from war-torn countries collides with tensions over austerity policies and challenges in integration, housing and unemployment,” writes Citi’s Fordham.
Most notably, there has been increasing support for political parties with anti-immigration platforms in Europe, as Business Insider’s Myles Udland recently noted.
2. Short-term burden on public finances of European countries.
- Reuters/Yannis Behrakis
Refugees, who “unlike voluntary migrants, rarely begin gainful employment soon upon arrival … tend to be a burden on public finances in the near-term,” writes Citi’s Fordham.
“Even though moderate numbers of refugees should limit the scale of the fiscal impact, sometimes the logistical and organizational challenges of housing, feeding and processing refugees can exceed the arrival countries’ capabilities,” she continues. “In countries with little fiscal space, even modest additional strain on public finances could be problematic.”
3. Medium- to long-term economic implications in Europe.
- Reuters/Laszlo Balogh
The medium-term economic implications “will depend on how well the refugees and other migrants will be integrated into the labor market, the skill levels and composition of the arrivals and the needs of the destination country,” argues Fordham.
Although some European countries have not seen stellar successes in integrating migrants so far, “the capacity to benefit from immigration, skilled or unskilled, also represents an opportunity for countries that face shrinking, greying populations and suffer from misshapen demographic pyramids,” writes Fordham.
4. The risk of a British exit from the EU.
- Reuters/Laszlo Balogh
“The refugee crisis may raise the risk of Brexit, either by reducing the likelihood that the UK government secures the reforms it seeks ahead of the referendum, or by undermining public support for remaining in the EU, or both,” argues Fordham.
Still, there’s plenty of time to go before the referendum – and other factors can swing this in different directions.
And, in any case, although some in the UK might think that leaving the EU would help them “regain control of [their] borders” – that’s not going to make the UK a less attractive destination for migrants or refugees.
5. Security in the Middle East.
- Reuters/Bernadett Szabo
The refugee crisis follows an increasingly worsening security situation in the Middle East. As a result, the crisis could add support to the possibility of military intervention – which the UK, France, and Russia are reportedly considering, points out Fordham.
“While we do not expect large-scale ‘boots on the ground’ operations, further conflict, such as drone or air strikes on terrorist-held territory, could upset the fragile dynamics in the region – and spark more outflow of people to safe havens,” she argues.
Now that you’ve taken a look at the refugee crisis, check out …