The Syrian Refugee Crisis: How Will It Impact Europe’s Economies?

The Syrian Refugee Crisis: How Will It Impact Europe’s Economies?

If you turn on the television or flip through a newspaper these days, you are likely to come across news on Europe’s ongoing and rather tragic refugee crisis.

On a daily basis, thousands of families escaping war and poverty in the Middle East gamble away their life savings and cling to the hope of making it to Europe to start anew. Some make it across the Mediterranean in rickety boats stuffed to the brim, while others simply perish out at sea. In what has become this generation’s worst displacement crisis, 4.1 million Syrians refugees alone have fled their war-torn country.

This crisis’ humanitarian impact should be obvious to all. Men and women—desperate and starving—are dying. Families are being torn apart. Innocent children are suffering. Regardless of this, many European countries receiving this flood of immigrants are poorly equipped to provide them with homes, jobs and other basic requirements, be it as a result of a limited economy, lack of space, xenophobic sentiments from the population at large or inefficient government policies.

This begs a question: What are the economic impacts on Europe of this current Syrian refugee crisis?

According to plenty of analysts, the economic impacts of the Syrian refugee crisis are quite different when considering both the short and the long term.

Economic Impact of Europe's Syrian Refugee Crisis

Short Term Economic Impact of Europe’s Syrian Refugee Crisis

In the short term, analysts suggest that Europe will instantly feel the economic impact as countries will need to budget sufficient funds to provide refugees with shelter, food and other essential needs, as well as work through the asylum application process.

Large economies such as that of France will very easily set aside money to cover these additional expenses. According to a The Wall Street Journal article penned by journalist Simon Nixon, France “will need to spend an extra €300 million ($334 million), peanuts compared with an €8 billion emergency reserve.”

For other EU member countries, however, these funds could pile up. Nixon says, for instance, that “Germany has set aside €6 billion to tackle the refugee crisis [and] the [European] commission must decide if the crisis constitutes an “unusual event” sufficient to trigger flexibility clauses in its stability and growth pact, as Italy, Hungary and Austria have requested.”

Maria Saveriadou, Meridian Trust - Corporate & Fiduciary ServicesTaxlinked.net member Maria Saveriadou, who runs Meridian Trust - Corporate & Fiduciary Services in Larnaca, Cyprus, agrees that, in the short term, “the refugee crisis will result in a dramatic surge of public costs, which will need to be funded somehow or by someone.”

Maria cites Finland as a good example of a country tackling the problem head on. She believes “the Finnish government has already proposed a two year solidarity tax, with an increase on capital gains tax and high earners to cope with the financial challenge, and it is almost sure that other EU countries will follow.”

In turn, per an analysis put together by Jeffrey Kleintop for Charles Schwab, this added spending providing for incoming Syrian refugees could contribute “a 0.25% boost to GDP” since “funds allocated to humanitarian agencies along with cash and vouchers being provided directly to refugees are likely to be spent right away, giving a boost to economic activity. This boost in government spending may have a more significant impact on economic growth in the short-term for the southern European countries most affected, such as Greece, Italy, and Spain.”

Long Term Economic Impact of Europe's Syrian Refugee Crisis

Long Term Economic Impact of Europe’s Syrian Refugee Crisis

In the long term, most economists agree that the inflow of Syrian refugees will play a positive role in Europe’s growth.

Europe’s aging work force will require a replacement of sorts some time sooner rather than later, leading analysts to believe that incoming refugees could help alleviate this growing demand for workers.

Statistics from the United Nations Department of Economic and Social Affairs, for instance, predict that the German work force will contract by 13 million people in the next forty years, and these spots will need to be filled to avoid economic slowdown.

In response to this predicament, German state governments said in a joint declaration in early September 2015, “The vital question is, can we make good use of migrant potential and skills in our employment market and so achieve a successful immigrant society? Every euro we spend on training migrants is a euro to avoid a shortage of skilled labour and will later avoid many transfer payments.”

IMF Chief Christine Lagarde, in an interview with The Huffington Post’s Highline, shared this point of view on Europe, particularly Germany, welcoming thousands of refugees. She said, “I don’t want to prejudge because they have not done the analytical work, but I would bet that if the influx is well-managed, yes, it is bound to be a positive in a society which is aging and which has the fiscal space to accommodate it.”

Besides providing a new and younger source of labour, Syrian refugees may contribute in other ways. According to a study released by Chmura Economics & Analytics on the incorporation of refugees in Cleveland, OH, USA, “refugees are highly motivated and wish to give back to their host country. Refugees are more likely to be entrepreneurial and enjoy higher rates of successful business ventures compared to natives.”

Furthermore, this study claims that, generally speaking, “refugees do not take jobs away from natives and the diversity of skilled immigration can positively impact the income and productivity of welcoming nations. At the local level, refugees provide increased demand for goods and services through their new purchasing power and can be particularly revitalizing in communities that otherwise have a declining population.”

Voices from the Frontline

In Lebanon and Syria’s other neighbouring countries, the situation is difficult according to people on the ground.

Wissam Abousleiman, a Taxlinked.net member who runs Abousleiman & Co.Lebanon-based Wissam Abousleiman, a Taxlinked.net member who runs Abousleiman & Co., an accounting and management consultancy firm, says things in his country are “extremely dire and extend beyond any tax schemes to support refugees,” with unofficial refugee numbers exceeding two million.

Wissam says that, “economically, this has led many businesses to shift to cheaper labour, which has increased unemployment. In fact, the Lebanese government has not been effectively dealing with the influx due to internal political issues and regional agendas. Very minor discriminatory policies have been put into effect but none that aim at resolving the boiling social issues for all people involved. Consequently, the refugee situation is only being dealt with by the efforts of the international community through their representative agencies and local partners.”

Number of Syrian refugees in neighbouring countries

Number of Syrian refugees in neighbouring countries

At a macro-level, though, political pundits assert that the inflow of Syrian refugees into neighbouring countries have brought benefits to the local economies.

In a recent blog post for the Brookings Institution, authors Massimiliano Calì and Samia Sekkarie point out that “the Lebanese economy has been growing beyond expectations over the past two years, with the World Bank estimating 2.5 percent growth in real terms this year, the country’s highest growth rate since 2010.”

More specifically, Cali and Sekkarie write that “the inflow of refugees has arguably helped the Lebanese economy withstand the negative effect of its neighbour’s civil war. Refugees have been an important source of demand for locally produced services in Lebanon, funded from own savings and labour income, from remittances of relatives abroad and from international aid. In a recent World Bank report we estimate that an additional 1 percent increase in Syrian refugees increases Lebanese service exports by 1.5 percent. And the UNHCR and U.N. Development Program estimate a similar economy-wide impact from the $800 million that the U.N. spends annually on Syrian refugees in Lebanon.”

Nawaz Neeraj, a Taxlinked.net memberRegardless of one’s position, says Nawaz Neeraj, a Taxlinked.net member and professional tax advisor in the Mauritius, “this topic encourages good debate, namely on the positive and negative impact” of the Syrian refugee crisis on the regions involved.

Question: In your opinion, are there other economic impacts of the Syrian refugee crisis on Europe & the Middle East?