Can the EU Survive The Syrian Refugee Crisis?

Europe, still here

It’s been a tough few years for the Eurozone. Between the ongoing debt problems and the pervasive deflation Europe has seemed to be on the ropes consistently since 2008. Somehow the Union has continued to survive, despite being constantly assailed by financial crises, rejected constitutions and now referendums on future membership.

What all these problems represent is the failed integration of the European people into a “European people”. Despite years of effort Germans are still Germans, French are still French, and Brits are still Brits. In fact, far from creating an integrated whole where a common identity is shared across the continent, many countries face challenges about their own integrity. The Scottish nearly became a country separate from Great Britain, in Spain a Catalonian independence party recently won big, and don’t get me started on the issue in Belgium. What this all means is that national self interest still trumps European self interest, and so while Greek problems affect everyone they remain primarily Greece’s problems in the eyes of many.

Boat People

Meanwhile interest in being part of the EU is on the wane, with Britain scheduled to have a referendum on its future involvement leading a general trend about Euroscepticism. In Holland a whopping 83% of voters want greater say about transfers of power to the EU. On December 3rd, Denmark will be voting about changing its “opt-out” status into “opt-in”, but the anti-euro sentiment is growing and while a pro-EU yes side seems to be winning, it isn’t winning by much.

Other countries that had sidestepped EU membership are decidedly more firm about not joining. Norway’s initial membership was ultimately rejected by a small majority in the 1970s, today pro-EU support in Norway is only around 20%. In Iceland, a country that has had a pending request to join the Union for some years let its membership request lapse this year, citing that its future is better served outside the EU.

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Into this mess is the migrant crisis, which while currently focused on the Syrian refugee situation has been a much longer issue including the abundant number of people risking life and limb crossing the Mediterranean from North Africa. But despite how moving the plight of the refugees has been, including the sad picture of a little boy drowned on a beach in Turkey, the German response of “no upper limit” for refugees seems to have already hit it’s upper limit. The President of Germany, Joachim Gauck, has said “Our reception capacity is limited even when it has not yet been worked out where limits lie,” a sentiment that has been echoed by other German politicians and an increasing number of Germans themselves.

https://youtu.be/RvOnXh3NN9w

With 10,000 refugees arriving daily into Germany and still boatloads more coming into the south coast, Europe is finding itself stretched to the limits about how to deal with such an influx of migrants. The scale of the human suffering that is prompting these moves makes it often impolite to discuss the nuts and bolts of taking so many people at one time, and objections raised by critics are quickly shouted down as racist. But with more than 800,000 refugees this year expected by Germany there are calls to fairly distribute the asylum seekers across Europe, a call meeting mixed to negative responses by many nations.

Much of the focus on Europe’s woes has been about financial matters, but the EU has aimed to be more than a financial union, it has sought a social union as well. And while Europe’s financial problems are well understood and the response to those problems have been unified, the social integration is far from even. Germany may have taken a stand for enlightened moral behavior in accepting so many people, but they notably don’t speak for many other nations, neither rich like Britain (a promise of 20,000 over the next five years) or poor like Greece who had 50,000 people arrive in July alone.

And despite whatever successes the EU bestows upon member states, a future European Union may be a looser European Union in the end, in itself a promise of more instability for the future of Europe.

Russia’s Trade War Shows Europe to be The Better Economy

Putin-SmirkSince I first wrote about the Ukraine much has happened. Russia has been unmasked as a bizarre cartoon villain seemingly hellbent on destabilizing the Ukrainian government, assisting “rebels” and being indirectly responsible for the murder of a plane full of people. All of which came to a head last week when it appeared that Russia might have just started a war with the Ukraine (still somewhat indeterminate).

Russia’s moves with the Ukraine may have more to do with challenging the West, and some of the other recent militaristic actions show that may be its real intent. Russia announced in July that it would be reopening both an arctic naval base and a listening post in Cuba built back in the 1960s. Combined with many heavy handed tactics at home including essentially banning homosexuality, Putin is making a brazen attempt to assert its regional dominance and stem the growth of Europe’s influence in the most aggressive way it can. To some extent this seems to be working with his own population, but it isn’t making him popular globally.

Europe’s response to Russia has been to hurt it with economic sanctions, which since the Ukrainian situation first began have been escalating in severity. Two weeks ago Russia responded in kind. How? By banning food imports from sanctioning nations.

If you don’t know much about the Russian or European economies this may seem like potent response from one of the BRIC countries and major global economies. But Europe is a big economy, and agricultural exports don’t make up a significant part of GDP, with the same being true for the United States. And while sanctions targeted at farms can be politically dangerous (farmers are typically a well organized and vocal lobby) the most interesting thing about these sanctions is what it tells us about the Russian and European economies respectively.

First, Russia imports a great deal of food, mostly from Denmark, Germany, the United States and Canada. So sanctions imposed by Russia are really going to hurt the Russians as food prices begin to rise and new food suppliers (expected to be from Latin America) have to ship food farther. But more interesting is the sanctions Russia chose not to impose. Europe is heavily dependant on oil & gas for its energy needs. So why not really make Europe feel the pinch and create an energy crisis? Because Russia needs oil revenue.

16% of Russia’s GDP is made up from the oil and gas sector. Beyond that oil and gas make up more than half of Russia’s tax revenues and 70% of it’s exports. In other words Russia can’t stop selling its oil without creating an economic crisis at home every bit as severe as in Europe. Banning imports of food and raising the cost of living may not be the ideal outcome from sanctions you impose, but it is mild in comparison to creating a full on catastrophe.

By comparison Europe starts to look very good, and it’s a reason that investors shouldn’t be quick to write off Europe and all its recent economic troubles. It’s a large and dynamic economy, filled with multi-national companies that do business the world over. It is backed by stable democracies and a relatively prosperous citizenry. By comparison Russia is a very narrow economy, dependent on one sector for its economic strength run by a (in all but name) dictator with an incredibly poor populace. A few years ago it was quite trendy in the business news to write off Europe as a top heavy financial mess, and while I wouldn’t want to dismiss Europe’s problems (some of which are quite serious) it’s important to have some perspective about how economies can rebound and which ones have the flexibility to recover.