Germany’s asylum test is a chance to rebalance its bloated surpluses
Jonathan Lindsell, 16 September 2015
Over the weekend Germany closed its Austrian border to force its EU neighbours to accept more asylum seekers themselves, rather than passing them on to Germany. It still accepts Syrians with valid travel documents, and EU citizens. In addition to the thousands of refugees already in Germany, Munich saw 20,000 arrive by train before the border was closed – as many as Britain will now accept over the next five years.
Even without the controls, Germany expects at least 800,000 Syrians this year. That they represent a political challenge is already clear: Hungary’s Viktor Orban has declared a state of emergency to block more newcomers from Serbia. Many former Communist states are refusing the EU Commission’s call, prompted by Chancellor Angela Merkel, for a mandatory refugee quota arrangement. This implies that Germany may face hosting yet more refugees, a test to Merkel’s principled stance given opposition from the anti-migrant Pegida movement, Germany’s resurgent far-right, and even former allies in her own party.
Merkel has been at pains to sell the asylum seekers as an economic boost for Germany, a cure-all for its ageing population problem. Her integration policy will give all accepted refugees 600 hours of German language training and 60 hours of cultural orientation lessons. This costly initiative is supported by roughly 2/3 of Germans, as the welcoming banners of football fans and generous donations of citizens indicate. Security forces are doubtless aware that they must take care in monitoring for Isis extremists. They cannot be too heavy handed, lest paranoia alienates or even radicalises the otherwise peaceful majority.
To pre-empt socio-ethnic tensions and reassure ordinary Germans that their quality of life won’t be reduced by their openness, Merkel’s government should do what economists have been recommending for years: fix the current account surplus. Germany has traded at a surplus of over six percent for five years, and hit 7.9 percent this spring. This is a serious violation of eurozone rules that Jean-Claude Juncker cannot hope to correct without ruining the trust of his largest member. Simultaneously the Berlin government has reaped a gross budget surplus, all while infrastructure deteriorates, real wages stagnate and corporate profits accumulate uselessly.
Simon Tilford from the Centre for European Reform recommended a large investment programme, higher public sector wages, lower consumption taxes like VAT, and increased wealth taxes, back in March. He was echoed by Ambrose Evans-Pritchard – a cut in income tax for all low paid workers could complement or replace the public sector wage idea.
Until now, the German elite’s obsession with over-cautious budgeting has meant that following Tilford’s advice would be a politically impossible about-face. Now, with Merkel defending her asylum stance with both emotion and logic, fiscal and economic policy can fall into place. German infrastructure can be guaranteed for the next generation, and for the extra lives it now carries; funds could be directed to R&D for future industrial innovation; real wages can and must rise; and a balanced German import market could help eurozone and world economic recovery.