While Europe's economy and capital markets have been spared any major shocks in the past year, and in fact European GDP has been on a surprisingly resilient uptrend in recent quarters led higher by the relentless German export-growth dynamo (courtesy of the very, very low Deutsche Mark and a lot of broke Greeks), an old and recurring problem has re-emerged, one which threatens the stability and cohesion of the European Union itself: the latest surge of refugees which, arriving mostly from North Africa in recent months, has made Italy its primary landfall target resulting in a surge in migrant arrivals on Italian shores. However, with the rest of Europe largely shutting its borders to this refugee influx forcing Rome to deal with what many in Italy see as an unwelcome presence, a distinct sense of bad-will has been floating around Europe in recent months as Rome's pleas for more solidarity from its European peers have been stubbornly ignored. Meanwhile, Italy has accepted nearly 100,000 refugees in the first six months of the year and the number is rapidly rising.
Now, a new report issued by Goldman Sachs will likely pour even more gasoline on the fire, as it finds that just as Rome alleges, "Italy has the lowest capacity to absorb migrants among the major EU economies. This is measured using three indicators of integration: (1) economic integration; (2) social integration; and (3) policy effectiveness."
While hardly new for regular readers, this is how Goldman lays out the problem:
migrant flows into Europe are changing and countries differ in their capacity to integrate new arrivals. An increasing proportion of migrants crossing the Mediterranean Sea come from sub-Saharan Africa rather than fleeing conflict in the Middle East. Increasingly, the destination countries are Italy and Spain, with reduced flows through Greece and the western Balkans towards Germany, largely as a result of the EU-Turkey agreement and the imposition of stricter border controls.
As a result of this constant migrant flow, successful integration is naturally a key objective for policymakers, who hope that the influx will boost output growth in the long run while seeking ways to mitigate the short-run costs caused by disruption to the labour market and wider society.
Here, Goldman's analysts take a broad view of the integration process and provide an initial comparison of countries’ capacity for immigration: "We focus on Italy throughout, which has become the main destination country of trans-Mediterranean migrant flows and faces a general election next May." Goldman also adds that successful integration matters for the bank's macroeconomic outlook two reasons.
First, the bulk of migrant flows into the EU this year have been in the central Mediterranean, oriented towards Italy. Second, the country already faces economic and political pressures from its struggling public finances and the rise of populism ahead of next year’s election.
And yet, what Goldman finds is that the nation that has been "tasked" with accepting the vast majority of migrants in 2017 is the one that is most unsuited to do just that. Here are the summary findings:
- Economic integration, measured by relative immigrant-native unemployment rates, appears particularly low in Italy, Greece, Spain and Hungary. These countries suffer from high unemployment across the population but immigrants bear a disproportionate amount of the burden. In contrast, the UK has the lowest immigrant-native unemployment gap.
- Social integration, roughly estimated using information on public attitudes towards immigration, is weakest in the countries most affected by the migration crisis. While the crisis shows signs of easing for countries such as Greece, it is intensifying in Italy.
- Policy effectiveness, measured by independent research by the MIPEX organisation, is lowest in Greece and Hungary.
Some additional details, first on economic integration:
Economic integration can be measured by assimilation to the labour market. Exhibit 3 shows the immigrant-native gap in unemployment rate for 1st and 2nd generation migrants across several EU countries. The immigrant-native gap in unemployment provides an initial and general measure of economic integration, with full integration implied by no gap at all. Looking at the change in this gap across generations provides a dynamic measure of the integration process: a smaller gap for the children of migrants relative to their parents implies integration over generations. In this way, Exhibit 3 illustrates two ways to analyse economic integration across countries:
- By considering the bars in levels, one can compare the level n of integration across countries (by generation).
- By considering the difference between generations, once can compare the rate of integration across countries.
Spain and Greece show the lowest levels of economic integration, implied by the widest immigrant-native gaps. Italy and Hungary show the lowest rates of economic integration, with 2nd generation migrants faring even worse than their parents on average. These four countries also have the highest unemployment rates among the population as a whole. The point to be made is that within these countries, unemployment disproportionately affects the immigrant population and there is a clear lack of catch-up by the 2nd generation.
Ok, so Italy is hardly the place to park refugees if one hopes to see them integrated economically. What about socially? Here is the answer:
Social integration can be estimated by the public’s attitude towards immigration. Social cohesion is hard to measure but can be estimated from certain kinds of information produced by surveys. Existing research focuses on two indicators: the discrimination against migrants and the host country’s degree of acceptance of immigration. We choose to consider the latter. Exhibit 4 shows public sentiment in the EU toward new immigrants, based on the Eurobarometer 2017.
Prima facie, Hungary appears the most socially hostile to migrants, with Italy and Greece also expressing robust anti-immigration sentiment. In all countries, negative attitudes have been provoked by the migration crisis. Yet while migrant flows to Hungary and Greece have slowed, in Italy they are picking up. According to the Italian interior ministry, migration figures in Italy are on track to exceed the annual record of 181,000 immigrants set in 2016 and widespread violence in Libya has driven the number of asylum seekers crossing the central Mediterranean to surge by 44% compared with the same period last year
So far, Italy - along with Hungary - appears to be the most inhospitable nation in Europe when it comes to two key core verticals: economical and social. How about the inverse: which European nations have the most effective policies, an indicator of a government's ability to promote integration. Goldman's answer:
The Migration Integration Policy Index (MIPEX) is an indicator produced by the Migration Policy Group and the Barcelona Centre for International Affairs. It uses a range of policy areas to evaluate and compare how governments are promoting integration. Exhibit 5 shows the overall score MIPEX has given each country. Greece and Hungary have the least effective policies for integrating migrants. In 2013, Greece passed legislation obstructing the right of immigrants to vote at the national level, while a repeal of birth-right citizenship laws has left many children born in Greece without equal rights. Italy performs moderately well against this indicator and MIPEX recognises that it has made the first steps towards legal integration and equal rights. However, the challenge of achieving this in practice remains; although most long-term migrants have found jobs, they are often below their level of qualification.
Which brings us to Goldman's conclusion on which European nation is best suited to accept the thousands of daily migrant arrivals: in short - it's not Italy, or as Goldman puts it "Overall, Italy has the lowest capacity to absorb migrants compared with the major EU economies."
From the indicators used, Italy appears the least economically and socially integrated, despite performing marginally better than the EU average according to the MIPEX score for policy effectiveness. Our findings are highly significant in light of this year’s surge in trans-Mediterranean migration to Italy and the country’s vulnerable public finances. Moreover, Italy’s handling of the migration crisis will be a central issue when the country goes to the polls in the general election next May, particularly as a driving force behind support for populist opposition parties.
And while Goldman reiterates the long-held conventional credo that "the influx of migrants to Italy has the potential to bring economic benefits in the long run and offers a means to counter the country’s demographic problems (Italy’s population shrunk for the second year running in 2017)" it admits that "realising these benefits is conditional on successful economic and social integration" something which most likely will not happen as Goldman's "analysis casts doubts over Italy’s capacity to achieve this and suggests the ‘perfect storm’ is brewing."