Refugees And Reform In Europe

Mohamed El-Erian

There is a simple truth beneath the growing human tragedy of Europe’s refugee crisis, and the European Union cannot address the massive influx of exhausted, desperate people in a manner compatible with its values unless governments and citizens acknowledge it. Simply put, the historic challenge confronting Europe also offers historic opportunities. The question is whether Europe’s politicians – who have failed to deliver on far less complicated issues over which they had a lot more control – can seize the moment.

The scale of the challenge is immense, with the flow of refugees extremely difficult to monitor and channel, let alone limit. Fleeing war and oppression, tens of thousands of people are risking life and limb to find refuge in Europe – a phenomenon that will continue as long as chaos persists in countries of origin, such as Syria, and countries facilitating transit, such as Iraq and Libya.

In the meantime, Europe’s transport networks are under stress, as are shelters, border crossings, and registration centers. Common asylum policies – including, for example, the basic rule that asylum-seekers should be registered at their point of entry into the EU – are not functioning or are being bypassed. And the cherished concept of effortless travel within the border-free Schengen Area is under threat.

These problems are aggravated by coordination failures. Attitudes toward refugees vary widely across countries, with Germany taking a particularly enlightened approach that contrasts sharply with Hungary’s notably heartless one. Some countries, such as the Czech Republic, have blocked deals to share the burden fairly among European Union members, including through mandatory quotas.

Add to that the preferences of the refugees – who, after risking everything to get to Europe, have strong feelings about where they would like to settle – and the policy challenges are enormous, particularly in the short run. European politicians have yet to catch up with the reality on the ground, let alone get ahead of it. And their failure is exacerbating the risks to the EU’s political cohesion that emerged over the Greek crisis.

Politicians have a powerful incentive to get Europe’s response to the refugee crisis right. Beyond the need to alleviate the human misery that fills television screens and front pages of newspapers lies the imperative not to miss the significant medium-term opportunities that migration provides.

Although there are pockets of high unemployment in Europe today, the ratio of workers to elderly people will decline considerably in the longer term. And, already, labor-market flexibility has been undermined by structural inertia, including difficulties in retooling and retraining workers, particularly the long-term unemployed.

As the German government and some corporate leaders, including the CEO of Daimler-Benz, have already recognized, an open-minded approach to refugee absorption and integration can help to mitigate some of Europe’s protracted structural problems. After all, a significant proportion of the incoming refugee population is said to be educated, motivated, and committed to building a better future in their new homes. Capitalizing on this, European decision-makers can turn a severe short-term challenge into a powerful long-term advantage.

An enlightened policy response to the refugee crisis could help Europe in other ways as well. Already, it is unlocking additional fiscal outlays in countries like Germany – which, despite having the means, did not previously have the will to spend – thereby helping to alleviate an aggregate-demand imbalance that, together with structural impediments to growth and excessive indebtedness in some countries, has held back the region’s recovery.

The current situation could also provide the catalyst needed to make decisive progress on the EU’s incomplete political, institutional, and financial architecture. And it could compel Europe to overcome the political obstacles blocking solutions to longstanding problems, such as providing the cover needed for certain European creditors to grant deeper debt relief for Greece, whose already-massive fiscal and employment problems are being exacerbated by the influx of refugees. It can even drive Europe to modernize its governance framework, which allows a few small countries to derail decisions supported by the vast majority of EU members.

Pessimists would immediately point out that Europe has struggled to come together even on far less complex and more controllable issues, such as the protracted economic and financial crisis in Greece. Yet history also suggests that shocks of the scale and scope of the current refugee crisis have the potential to spur remarkable policy responses.

Europe has the opportunity to turn today’s refugee crisis into a catalyst for renewal and progress. Let us hope that its politicians stop bickering and start working together to take advantage of this opening. If they fail, the momentum behind regional integration – which has brought peace, prosperity, and hope to hundreds of millions of people – will weaken considerably, to the detriment of all.

© Project Syndicate