Last week we looked at how the crisis in Greece has progressed (click here to read the blog) (click here to view the video) with links to view our thoughts as the crisis unfolded (Greece’s Debt Crisis from September 2011 and Greece’s Debt Crisis – Update from October 2011).
This week we look at how the unanticipated migrant problem in Europe is pushing Greece closer to the precipice in relation to its Eurozone (EZ) membership. The European refugee or migrant crisis has arisen due to the large number of refugees seeking asylum in Europe. Most of the migrants come from the Middle East, Africa, South Asia, and the Western Balkans, and so far this year, the International Organization for Migration estimates more than 750,000 have crossed the borders. The primary route of travel begins in Turkey, and from there, drift–many on hand-built boats–to Italy or Greece via the Greek Isles. The world became aware of the crisis in April when five boats sank charting this course. This year, over 3,400 people have died in the Mediterranean.
Source: Wikimedia Commons
With Macedonia closing its border, many refugees may be getting stuck in Greece, and with so much of Greece surrounded by water, the government has been unable and unwilling to stop the inflow of migrants into its country. The media has reported EU threats to suspend Greece from the Schengen Zone if it cannot control its borders. (The Schengen agreement allows for the free movement of people across borders of member states.) Greece, while denying any official threats, contends the crisis is a European issue, not a Greek issue, and should be handled at the European level.
The socialist SYRIZA party, ruling Greece, has taken a humanitarian attitude toward immigrants and has made Greece more hospitable to refugees. As a result, the cost for care has increased. The government is seeking relief from the austerity its creditors have foisted upon them; but needless to say, its creditors are unwilling to pay for Greece’s lack of border controls and instead are demanding better management of its borders – hence the threat to remove Greece from the Schengen Zone. Removing Greece, however, would further isolate it from its European neighbors.
Within Greece, caring for more refugees could create anti-immigration sentiment pretty quickly. The government has only a slim majority in parliament as is. Anti-immigrant fervor could push Greece toward more political radicalism which could devolve into less cooperation with other EZ members. In addition, refugees seeking a safe home and work could become agitated in a country that cannot offer jobs. The consequence is more instability in a country that is unstable to start. We will watch attentively to see how this plays out and how it affects Greece, Europe, and global markets.
Washington Trust Bank believes that the information used in this study was obtained from reliable sources, but we do not guarantee its accuracy. Neither the information nor any opinion expressed constitutes a solicitation for business or a recommendation of the purchaseor sale of securities or commodities.
Rick Cloutier, PhD, CFA is the Chief Investment Strategist for Washington Trust Bank with over 25 years of portfolio management and investment experience. He is responsible for directing the portfolio management, research, and trading activities for the bank’s multi-asset class strategies. He is also responsible for overseeing the client portfolio manager team and portfolio analytics team. Rick has written numerous articles for Investopedia and wrote a weekly column for the Fall River Herald News in Massachusetts. His research has appeared in numerous journals, including the Journal of Investment Management and Financial Innovations, the Journal of Business Management and Economics, and the International Journal of Revenue Management. He provided a nightly commentary on WALE radio and authored the novel Caveat Emptor. Rick earned his BS from URI, MBA from Boston University and PhD from SMC University.