Archiv | 11.12.2015

Paytime in Europe – The refugee crisis will make Germany pay for causing the euro crisis

This article was published in German November 30, 2015

‚Chickens come home to roost,‘ they say in English. They mean that evil deeds eventually come back to haunt the perpetrator. In Europe, this is happening now. Those who work at the European level noticed it more clearly and more early than national actors. Martin Schulz of the SPD, the president of the European Parliament, told Der Spiegel some days ago that the refugee crisis leads to ‘paytime’ in Europe. Schulz fears that the member states will see the refugee crisis as an opportunity to get back at Germany for its economic behaviour and the resulting euro crisis.

Two things are important here. First, finally someone is saying out loud who is responsible for the economic conditions of the euro zone. Apparently, Martin Schulz realises only now what he and others accomplished. Secondly, he is absolutely right. It is paytime, not only because of the resentment of others towards Germany, but also, and more, because it is fully justified on rational grounds.

It is unnecessary to repeat that Europe, and the West in globo, have implemented the wrong policies in the home countries of the refugees (see here for an article on this). We bear a heavy burden of responsibility for the current situation in the Middle East. Aside from that, it is, of course, far from a coincidence that many refugees choose Germany, the country that dictates economic policy within the EU and is responsible for the euro crisis, as their destination.

As we have been saying for years, economically speaking, Europe has become a divided continent. The inequalities between the countries are staggering. A few countries in the North accumulate large trade surpluses, while their unemployment figures remain relatively low. The model of these countries is, of course, its main exponent, Germany. In most countries of the union, however, and especially in the East and the South, unemployment is alarmingly high. The unemployment figures of these countries did not decrease after the recession of 2008-2009. The contrary is true: their unemployment increased (see Figures 1 to 3).

This is not only true for the smaller, Southern European countries. It also holds for important trading partners, such as Italy and France. Both countries have been very negatively affected by German policies.

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Figure 1. Evolution of unemployment in Italy, France and Germany.

Smaller countries, such as Croatia and Slovenia, that the refugees traverse on their way to the more affluent north are doing much worse in terms of unemployment than Germany.

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Figure 2. Evolution of unemployment in Hungary, Croatia, Slovenia and Germany.

The economic outlook in the smaller countries of Eastern Europe is particularly unappealing to migrants. This is also true for the Baltic states. Although the official unemployment figures of the Baltic countries are moderately low, all three countries suffered severe economic setbacks.

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Figure 3. Evolution of unemployment in Latvia, Lithunia, Estonia, Poland and Germany.

A few months ago, Friederike Spiecker wrote that ‘In reality, the Baltic labour markets have a high number of unemployed people who are unaccounted for in the official statistics that show declining unemployment rates. Many people have become so discouraged that they gave up on seeking employment, hence do not appear in the official statistics. Many others left their country. The declining populations of the Baltic states show that migration plays a much bigger role than declining birth rates: between 1999 and 2014, 78,000 people emigrated from Estonia, 395,000 left Latvia and 595,000 left Lithuania, out of a total population of just under 3 million in Lithuania, 2 million in Latvia and 1.3 million in Estonia in 2014’ (see here for the article).

The level of unemployment remains precarious in many countries and is disastrous in the countries that have been hit the hardest. This is first and foremost due to the misguided policies of the euro group, which is dominated by Germany. Why is this the case? Those who insist upon austerity in the midst of a recession as the only possible remedy, as Mr Schäuble has done repeatedly (see, for example, here), cannot be surprised that unemployment figures in more than half of the continent grew to unacceptable heights, that high unemployment levels persist and that, as a consequence, many leave their home country to seek a better life elsewhere. And those who, since the beginning of the European Monetary Union, have doing nothing else than to create absolute advantages in foreign trade on the basis of mercantilist wage dumping for themselves and have, for years, stubbornly refused to recognise the structural disadvantages that they create in the countries of their trade partners cannot be surprised that these partners are losing their patience and welcome any obstruction to mercantilism.

It is perfectly clear, and, of course, evident that refugees and other migrants move to countries with low unemployment. A country with real high wages (and high productivity) is even better. But this shows the perversity of the situation that German mercantilism has created all over Europe. We know what happened: while wages of the partners developed in proportion to their respective rises in productivity, which is as it should be, Germany fraudulently restrained the growth of nominal wages in relation to its increase in productivity. This enabled Germany to export its own unemployment, even to countries that have significantly lower real wages. As we have known from economic theory since at least Marshall, unemployment should increase most in countries where wages are highest. This creates an incentive for workers to migrate, with the result that the equilibrium in the labour market restores. But this is not what is happening within the euro zone.

One can also look at it like this: if there is high labour mobility, the German export of unemployment should have the effect of increasing immigration of labour from low wages countries. In reality, this only happened to a minor extent. Now, however, the refugees are in the process of restoring the balance between the national labour markets that previously failed to materialise because of relatively low intra-European mobility.

It follows from all of this that the ongoing discussion in Germany about curbing immigration by imposing limitations upon the right to asylum can never achieve its goal. A German upper limit for the number of refugees will immediately cause the Austrians to impose similar ceilings. This, in turn, would trigger the implementation of such policies everywhere in Europe. The result would be that refugees would be forced to remain in Slovenia, Croatia and Greece – countries that are doing worse than the European average and have much higher unemployment figures than Germany. Mrs Merkel knows this, unlike the CSU (the Christian democrats from Bavaria, who in their chronic stubbornness refuse to deal with reality). Merkel knows that this is completely unacceptable to Europe. Immigration quotas are only realistic if Germany, because of its much better labour market situation, agrees to accept more refugees than the other European countries. There are many in Germany that do not like this, but any other arrangement would be patently unfair to the other member states. It would also turn out to be unworkable. The chickens do, sooner or later, come home to roost. For now, Germany stands alone in its view on the refugee crisis, because it has bullied other countries into accepting disastrous economic policies.

Translation W. Denayer