Immigration: A political and economic issue

Donald Trump has successfully placed immigration at the center of the U.S. Presidential election. But while the issue is still largely a debating point in the United States, it has quickly and violently become a life and death issue for the European Union, which is in the midst of the most significant immigration and refugee crisis since the Second World War.

The BBC reports, "More than 300,000 migrants have risked their lives trying to cross the Mediterranean to Europe so far this year, according to the UN. This compares with 219,000 for the whole of 2014." (8/28/15) By including refugees, AFP News Agency puts the figure even higher, stating "Nearly 340,000 refugees and migrants illegally crossed the border into Europe from January to July 2015, according to the EU's border agency Frontex. The figure compares to 280,000 for the whole of 2014." (8/31/15) This promises a drastic increase for all of 2015.

The spike in immigration in Europe has its roots in general disintegration in the Middle East and North Africa, which in itself is a function of flawed Western interventionism and botched foreign policy. With war tensions in the Middle East and the rise of ISIS, the suffering of the local civilians has been appalling. With the political and social institutions collapsing in failed states such as Syria, Iraq, Afghanistan, Somalia, and Libya, those leaving likely see no possibility of returning. So, unlike in years past, they are not willing to stop in refugee camps to await developments in their home countries. They have made the decision to go all the way to Europe, and they are willing to risk all to get there.

The waves of immigrants, both refugees and migrants, tend to enter the southern periphery countries including Greece, Italy and Spain in addition to new eastern EU member countries like Hungary. Immigrants perceive these EU countries as close with porous borders. Furthermore, these periphery countries condone lax border controls because they understand that these immigrants have no wish to settle in their countries. Rather, the migrants are intent on moving out fast, under the EU's Schengen Plan, into the richer northern countries, like Germany and the UK, which also offer more generous social benefits to newly arrived immigrants.

Notably, excluding the UK and Ireland, which were granted an opt out, the 26 remaining nations of the EU have accepted membership of the Schengen Area. Membership requires each nation to abolish all passport and other types of control at their common intra-EU borders. Thus, once  migrants have entered the EU through the relatively porous southern borders, they can move at will, like any EU citizen, to any member country, with the exception of the UK and Ireland. Naturally, migrants head to those relatively rich countries. This strains the availability of housing, health, education, social security and jobs greatly to the cost and disadvantage of legitimate local citizens.

According to Eurostat Data, as early as 2009, Germany had 7.2 million foreign citizens. The Wall Street Journal reported that Germany has had to nearly double its 2015 forecast of migrants from 450,000 to 800,000 (8/19/15), or almost one percent of its population. These are very serious numbers. Further, on August 24th, BloombergBusiness reported that recently a German town was shaken by three days of anti-immigrant riots. Under this pressure, Germany's Chancellor Merkel, the most powerful politician in Europe, has called for more even sharing of the immigrant load by fellow EU members. This will send shudders down the backs of UK ministers.

British citizens prevented their governments from joining the EU's common currency, the euro. Nevertheless, Britain was lumbered with much of the Greek and Eurozone rescue packages through its ill-advised membership of the EU. Now, it appears that Merkel is trying to "share the burden" of mass migration by pushing the UK into accepting hundreds of thousands more migrants under the Schengen Plan of which, again, it is not a member. British Prime Minister David Cameron has done just that by offering asylum to "thousands" of refugees.

Even before the current crisis, the UK had accepted huge numbers of migrants from the EU's new eastern members, like Poland. In just the past three years, the British government, according to its Migration Statistics Quarterly Report of August, has nearly doubled its immigration from an estimated 177,000 in March 2012 to 330,000 in  March 2015.

Immigration is a highly emotional subject in the UK that was forced to accept massive immigration first from its former empire, then from within the EU and now from the Middle East. Doubtless excessive immigration will be used to considerable effect by Britain's third party, the Eurosceptic UK Independence Party (UKIP), in the 2016 in/out EU referendum. Already, the charismatic UKIP party leader, Nigel Farage, has said that only by leaving the EU can we have a sensible Australian-style points system to control immigration. Considered by international bodies as fair, the Australian model is politically acceptable and could play a decisive role in the UK's in/out referendum on continued EU membership.

The cost of the current mass migration into the EU will strain national finances and social and religious differences. Already, the British people are deeply conscious of these potential problems. If, as a result of the current crisis, the UK were to vote to leave the EU, it could have a shattering effect on the world and foreign exchange markets. Also, it could threaten seriously the continued cohesion of both the EU and its currency, the euro, now the world's second largest.

Clearly this situation presents the European Union with a crisis that is perhaps more significant than its debt crisis, but far more tangible, and ultimately, I believe, more solvable. But as in the past, the crisis will once again highlight the political paralysis and ineptitude of EU leaders. If unresolved, I believe the crisis will lead to a faster downfall of the entire European experiment.

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John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

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