The refugee crisis will test a strained European economy

Almost everyone who crossed the Danube on the open-air ferry from Ukraine and landed in the frozen Romanian port town of Isaccea one recent morning had a rolling bag and a tentative plan. A woman planned to join her husband in Istanbul. Another was heading to Munich, where her company is headquartered. Others met brothers, cousins, in-laws and friends in Paris or Sofia, Madrid or Amsterdam.

And then they hoped to return to Ukraine.

“I have to come back,” said Lisa Slavachevskaya, who traveled with her 10-year-old son and 5-year-old daughter from Odessa. “My husband, my mother and my grandmother are there.” She said she planned to return home in a month.

Whether such rapid reversals are possible is one of many uncertainties hanging over Europe’s fastest-growing refugee crisis since World War II. However the disaster in Ukraine ends, the cost of helping the millions of Ukrainians fleeing Russian bombs will be enormous. According to some first estimates, the bill for accommodation, transport, food and treatment of the flow of humanity would amount to $30 billion in the first year alone.

“This is a humanitarian and medical emergency in the coming weeks,” said Giovanni Peri, director of the Global Migration Center at the University of California, Davis.

What happens over the next few months will determine whether Europe will face the additional costs of massive relocation that has the potential to reshape the economic landscape.

European economies are still recovering from the pandemic and facing stubborn shortages in the supply chain and high inflation. Costly as it may be to provide short-term assistance to families temporarily displaced by war, in the long term the expense of integrating millions of people would be far greater and put immense pressure on housing systems, d education and health care. While a giant influx of workers, especially skilled workers, is likely to increase a country’s output over time, it could intensify competition in the labor market. Nearly 13 million people were unemployed in the European Union in January.

“It is uncertainty that now dominates the economic calculus,” Peri said.

More … than three million refugees fled Ukraine in less than three weeks, according to the UN’s International Organization for Migration, and millions more are likely to follow as war rages on.

Officials, migration experts and economists say it is too early to tell whether most displaced Ukrainians will end up staying.

It is a stark contrast to 2015, when 1.3 million migrants from the Middle East and North Africa fled to Europe after years of war and terror, seeking asylum because they feared persecution. Returning was not an option.

So far, according to officials, relatively few people have applied for such protection. Of the 431,000 Ukrainians who entered Romania, for example, only 3,800 applied for asylum. Indeed, many grimaced at the label “refugee”.

“I don’t consider myself a refugee,” Evgeniy Serheev, a lawyer, said through an interpreter as he waited to cross in the city of Siret, in the northeast of Romania. But with his wife, three children and their bags crammed into one of the hundreds of cars heading for the border, he admitted he looked the part.

The humanitarian and moral urgency is compelling at first glance; the economic argument may be more difficult to make. However, most research shows in the long term that working refugees can help economies grow, increase a country’s productive capacity, pay taxes, and generate more business for groceries, hair salons and clothing and electronics stores. This is what happened in Germany after 2015 when it hosted more than a million refugees, most of them from Syria.

“From an economic point of view, it was a net positive,” said Ángel Talavera, head of European economics at Oxford Economics.

But countries face significant upfront costs.

Last week, the European Union made a commitment 500 million euros, or 550 million dollars, in humanitarian aid, but he will have to put more. “European governments are going to blow the budget,” said Claus Vistesen, chief eurozone economist for Pantheon Macroeconomics. This latest grab comes on top of an extraordinary amount of government spending over the past two years to combat the coronavirus pandemic.

The sudden need for more housing, fuel, food, health services and more will exacerbate supply shortages. “Inflation is going to go up, up, up,” Vissen said.

In the eurozone, inflation is 5.8%, and Vistesen said he expected it to reach 7% this year given soaring energy prices. They have increased by almost a third since last year. For the European Central Bank, he added, this will make the delicate task of balancing the risk of inflation with the risk of recession all the more difficult.

For those living and working in Europe, this will mean less purchasing power in the short term. If wages do not increase, they will be poorer.

So far, Ukrainians, who have strong family, cultural and religious ties to other European countries, have mostly received care packages and offers of free accommodation, transport and food.

At the Siret border, volunteers rushed to Ukrainian families trudging along the road with offers of cups of hot tea and €5 mobile phone SIM cards. Organizations, businesses and individuals competed to find a location closest to the checkpoint to be the first to donate chicken soup, skewers, blankets, toothbrushes, stuffed animals and hats.

The Bucharest government has so far allocated $49 million to cover the costs. Prime Minister Nicolae Ciuca said he expected the European Union to reimburse much of it.

The EU granted Ukrainians immediate permission to stay for up to three years, find jobs and go to school – access that migrants from other parts of the world could only dream of. And some countries, including Romania and Poland, have agreed to allow refugees access to the same health and social services as their own citizens.

Yet past experience of refugee crises shows that such goodwill often erodes as an influx depletes public finances and social services like education and health care.

There has been an outpouring of sympathy and contributions, but the burden of welcoming refugees is grossly unbalanced. Poland alone received around 1.7 million Ukrainians and Warsaw’s population grew by 15%.

“We are overwhelmed”, Rafal Trzaskowski, the mayor of the city, said in an interview. “We can’t improvise anymore”

Clemence Landers, policy officer at the Center for Global Development, said a handful of countries were taking on what should be an international responsibility and needed financial help to do so.

Global institutions like the World Bank are an important source of cheap loans, especially for the poorest European countries, which host the most Ukrainians, argued Ms Landers, co-author of an analysis of the costs of the refugee crisis.

International financial support can help mitigate the political and social reaction which often follows the refugee crisis, she added.

While many Ukrainian refugees end up staying longer than expected, there is reason to believe that they can be integrated into the economy fairly quickly. Many have a network of friends and family. Their level of education is not that different from some of the host countries. (In Ukraine, the average number of years of education was 11.3 in 2017, according to the The United Nations.) And they have a record of employment.

Mr Peri, from the University of California, said Ukrainian immigrants already in Europe were working in hotels and restaurants and as home health aides for the elderly and people with disabilities, jobs that are hard to fill in some places.

Despite the growing devastation inflicted by the Russians on Ukraine, few of those interviewed at the border were ready to start envisioning a long future away from home.

Iryna Karpenko, who was driving through Siret with her three children, two sisters-in-law and her father-in-law in a blue Toyota van, said they were heading for Bulgaria. They had budgeted around €1,500 ($1,644) per person for a month’s stay. In Ukraine, she says, “we have homes, husbands and jobs there.”

When asked what they planned to do once they crossed the border, Ms Karpenko was about to reply when her sister-in-law Karina Bohatynska got up from the back seat: “Go home. “