Refugee crisis: Germany and Europe’s economies are under an unbearable burden

This article was written after seeing the hot topic #European Refugee Problem Rising#. Many people have written about issues such as the struggle between the United States and Russia behind the refugee wave. Although I have done some research, financial writers do not talk about politics. Let’s switch to an economic perspective and look a little deeper at the impact of refugees on the European economy.

I have lived in Germany for a while, and I like the rigor and seriousness of the Germans. They do not brag or be slanderous, not only because Germany is the economic engine of Europe and there are various German stories passed down by word of mouth, but When doing economic and financial market research, you will often find and sigh: Wow! German statistics are rigorous and serious! When you look for data from other countries, you often wonder: What is all this? It's not as good as a developing country like our country.

Therefore, our theme this time is: The impact of refugees on the European economic order and development is very huge, especially for Germany. It can be said that the impact of refugees on the European economic order and development will be unbearable. If the German economy cannot pick up and the European economy loses its main engine, how will it recover?

The "European Refugee Crisis" broke out in 2014-2015 and reached its peak in 2015. When I was looking at the European economy, I hoped to find data on refugees, and Germany lived up to my trust: According to German immigration data, there was an unusual surge in "immigrants" from Asia in 2015 (see the graphic below). . Immigrants from “unknown origins,” “Europe,” and “Africa” also saw relatively large jumps. Although it is unlikely that any organization can count the entire number of refugees, the data in Germany can generally reflect the rapid influx of refugees that year.

Since the global financial crisis that started in the United States in 2008, triggered the debt crisis in Greece in 2009, and then the European debt crisis broke out in 2010, Germany has taken the lead in the euro zone’s finances. The rectification and results of the Eurozone's finances are obvious, and the Eurozone's finances are getting better year by year. Please see the graph below. Since 2010, the overall fiscal deficit in the Eurozone has gradually narrowed, and the ratio of fiscal deficit to GDP has also recovered at a relatively fast rate.

By 2014, the European debt crisis gradually subsided, the European economy gradually recovered, and Germany's GDP also began to rebound from its low level. However, the recovery phase in the economic cycle was abruptly interrupted by the "refugee wave" in 2015, and the German economy was once again under pressure to decline (see the graphic below). According to German statistics, the annual increase in the number of Asian "immigrants" until 2019 was still significantly higher than before 2014. This may be because the previous "immigrants" have stabilized, driving more relatives and friends to choose to "immigrate". Since then, the German economy has failed to "take off" again and has always been worse than the United States.

After Trump became the President of the United States in 2017, everyone should be familiar with the trade war script launched by the United States since then. Among them, the United States is also relatively tough in its trade war with Europe, and its targets are also very focused. Germany, as the engine of the European economy and with exports an important pillar of the economy, has suffered serious economic damage. The economy is in a slump, and Merkel can only try to support it.

What is more serious than the economic damage is that Germany has also lost its dominance over the euro zone’s finances. The credit for rectifying the euro zone's finances over the past many years is now about to be plucked by others, and Merkel is under greater pressure. Lagarde, the new president of the European Central Bank last year, was previously the president of the International Monetary Fund (IMF). What about before that? Is the French Finance Minister. Lagarde's views on the euro zone's finances are quite different from those of her predecessor, Draghi, known as "Super Mario." Her appointment was originally driven by the dissatisfaction of the Eurozone countries with strict fiscal austerity policies, as well as the expectation of countries to re-find a balance in their finances. The epidemic in Europe is like a gift from heaven, accelerating the pace of the euro zone's fiscal unification. Lagarde has already made commendable achievements as president of the European Central Bank.

The situation faced by the German economy now is much more severe than that in 2014-15. At that time, the fundamentals of the German economy were still good, there was a trend of recovery, and the euro zone had fiscal dominance, so it could still hold on. .

However, after the last round of "refugee waves", the US-EU trade war, the loss of fiscal dominance in the Eurozone and other events, coupled with the epidemic in Europe, the German economy now feels like it is unable to protect itself. If a new wave of refugees comes, the German economy may not be able to sustain it. Germany is also the top student in epidemic control among major European countries. If Germany cannot handle it, let alone other European countries.

The overall situation in the United States and Europe in recent years shows that one of the consequences of the Eurozone's economic recovery being weaker than that of the United States is that the euro will fall against the dollar. Of course, the Eurozone countries, including the European Central Bank, are happy to see the euro fall. The reasons are as follows:

At the European Central Bank meeting held earlier this month, Lagarde also signaled that she was not satisfied with the rise of the euro (the euro rose to 1.20 at that time). "Because the appreciation of the euro puts downward pressure on prices, we must monitor it carefully and this has been discussed intensively," she said at the time. Although Lagarde specifically emphasized at the time that "the European Central Bank does not target specific exchange rate levels." However, in fact, after the European debt crisis, the European Central Bank was relatively firmly in support of lowering the euro exchange rate. Because exchange rate appreciation will not only lower import prices and thereby weaken inflation, European appreciation will also reduce the export competitiveness of European goods. These adverse consequences of the appreciation of the euro are contrary to the ECB's inflation goals and economic growth goals that she emphasized. Therefore, Lagarde still continued the European Central Bank's stance of lowering the euro exchange rate.

The most typical example is that when the euro rose to US$1.25 against the US dollar in January 2018, Draghi, then president of the European Central Bank, said that exchange rate fluctuations "constitute a source of uncertainty and the European Central Bank needs to Monitor the appreciation of the euro." Since then, the euro has returned to the downward channel in 2018, falling all the way to the lowest level before the epidemic this year, as low as 1.08.

The above personal analysis and opinions are welcome to discuss.