Greece's Economy Is Getting Crushed Between Austerity And The Refugee Crisis

The most common arrival point for refugees entering Europe is a country in dire economic straits.

04/02/2016 9:46 AM AEDT | Updated 06/02/2016 4:40 AM AEDT
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Syrian refugees arrive in Piraeus in passenger ships from Athens chartered by the Greek government. Greece is the main arrival point for refugees entering Europe by sea. 

The refugee crisis is testing the limits of Greece’s flagging economy, jeopardizing its ability to handle a flow of refugees that shows no signs of slowing. 

Added to the existing strains of austerity, the renewed economic pressure from the crisis is stoking fears within the Greek government that a new wave of anti-refugee xenophobia could take hold unless the European Union and Turkey significantly step up to help manage the crisis.

A report by Yannis Stournaras, the governor of the Bank of Greece, confirms as much. The report, presented to the European Central Bank’s general council on Dec. 17, compiles existing research on the economic effects of the refugee flows to demonstrate the risks the crisis poses for Greece. 

“The continuation/worsening of the [refugee] crisis adds a downside risk factor to the Greek economy’s outlook,” Stournaras argued. That the message came from Stournaras, a finance minister from 2012 to 2014 under the previous center-right government, strengthens the claims. 

The increased public spending to absorb the thousands of refugees arriving on Greece’s shores every day will amount to 0.3 percent of GDP this year, or 600 million euros, Stournaras says in the report, citing government estimates.

These expenses will force difficult tradeoffs since they occur "at a time of strict fiscal retrenchment," the report notes.

The report also observes that the massive influx of asylum seekers, the majority of whom are Syrian, has been particularly disruptive to the tourism industry on Greece’s islands and to international trade, which relies on unfettered access to Greek sea lanes.

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Asylum seekers arrive on a Greek coast guard ship at the port of Lesbos island on Jan. 31, 2016.

The vast majority of refugees that arrive in Greece continue onward to wealthier European nations, in particular Germany and Sweden, which have until recently been relatively welcoming.

But with a growing number of neighboring nations closing their borders to asylum seekers coming through Greece it is likely many more refugees will remain in the country, which means the government will also incur expenses to ensure refugees’ semi-permanent housing, food and health care, according to Stournaras' report.

Ironically, wealthier destination countries for asylum seekers, such as Germany, have the greatest potential to benefit economically from the arrival of refugees, the report states, since they have labor shortages in high-skilled sectors that might be filled by new arrivals.

Greece, the main transit point for refugees reaching Europe’s shores, is among the countries least economically equipped to deal with the influx. (Some 84 percent of asylum seekers who reached Europe by sea in 2015, and 92 percent this year, have come through Greece, according to the United Nations.)

The Greek economy is still reeling from a financial crisis and massive austerity measures required by three international bailouts since 2010. Its unemployment rate of nearly 25 percent is the highest in the European Union, and its economy is 25 percent smaller than it was in 2009 size -- reducing Greek incomes by a comparable proportion.

The refugee crisis' varied economic effects on different European countries illustrates existing disparities in the Eurozone, said Angelos Chryssogelos, an expert in European politics at the London School of Economics.

"It is similar to talking about an increase in net exports in the eurozone: it does not reflect equal gains in all European countries," he said, noting that Germany often has the largest share of export growth. 

Greek Patience Wears Thin

Without a more comprehensive solution from the European Union, the Greek government fears that the unabated flow of refugees and its impact on the economy risks boosting xenophobic elements in the country, said a senior government official.  

The Greek government has not adopted the heavy-handed tactics of other European nations, such as Hungary, which has detained refugees in camps and prevented their departure to other destinations in Europe, or Denmark and Switzerland, which are seizing refugees' assets to cover the costs of upkeep. Nor has the massive influx of refugees prompted Greek citizens to rally behind xenophobic political movements, as they have in France, Denmark, Finland and Sweden.

But the official cautioned that the European Union's apparent failure to provide an effective policy solution to the crisis and individual nations' finger-pointing at Greece is testing the Greek public's generosity. If the situation continues unabated, the official ventured, it risks boosting xenophobic forces like Greece's neo-Nazi Golden Dawn party. 

"There is always the danger of the rise of the extreme right if we keep being pushed from the flows of refugees and at the same time we experience harsh treatment from our partners," the official said. "We have to understand that the Greek society has suffered a lot and is still suffering."

A humanitarian worker on the island of Lesbos, a major arrival point for asylum seekers, shared related concerns. The worker said that the local population has welcomed the refugees with open arms. But they have begun to resent an international community that has expended vast resources on aiding the refugees while ignoring Greece's own economic plight, which the refugee crisis has compounded.

"The Greeks have shown tremendous hospitality to refugees and humanitarian workers on the island, but they do feel that they are abandoned by Europe and are being penalized for what they do," said the worker, who asked to remain anonymous because they were not authorized to speak by their employer.

Two residents of Lesbos have been nominated for the Nobel Peace prize for their efforts to help refugees, alongside actor Susan Sarandon, who documented her aid work there this winter. The Greek academics and members of the Hellenic Olympic Committee, who made the nomination, said that the two Greek nominees represent “the behavior and attitude of Greece, organizations and volunteers toward the huge refugee crisis.”

Concerns about the exhaustion of public goodwill come as other European Union members levy withering criticism and threats of punishment at Greece.

The European Commission, a governing body for the 28 EU nations, issued Greece an ultimatum on Tuesday to comply with a series of recommendations for registering asylum seekers within its borders and securing its maritime border. If Greece fails to comply within three months, according to ABC News, EU nations could institute border controls for up to two years -- effectively excluding Greece from the 26-nation Schengen zone, which allows for passport-free travel between participating European nations. The move would likely strand Greece with the thousands of refugees arriving on its shores as neighboring nations accelerate efforts to close their borders to asylum seekers leaving Greece for settlement elsewhere.

The Commission's action follows weeks of bitter accusations by officials from member nations that Greece has failed to adequately patrol its maritime borders in order to prevent asylum seekers from entering Europe. These European officials also contend that the aid they gave Greece has not been properly used to manage the refugee crisis.

The European Commission has given Greece 27.8 million euros in emergency funding and is providing an additional 474 million euros in assistance from 2014 to 2020 to "facilitate reception, returns, and relocation in Greece," according to a Commission report in late January.

Tove Ernst, a spokeswoman for the European Commission, denied that the Commission has not acknowledged efforts by Greek individuals or the government to deal with the crisis. At the same time, Ernst indicated that the Commission believes Greece must improve its approach.

"We are not isolating or stigmatizing the Greeks, but helping them to respect their obligations by helping them to correct the deficiencies," Ernst said.

This state -- a bankrupt state -- is trying to develop a mechanism to manage the largest refugee crisis in the past few decades. Costas Eleftheriou, University of Athens

A Greek diplomat involved in discussions with European officials on the refugee crisis acknowledged Greek mistakes in the past, but said the Commission's action represents a "very partial take on what the realities on the ground." 

"Right now the Commission's recommendations are being used as an effort by some in Brussels to scapegoat Greece for the situation with the refugee and migration policy," the diplomat said. "Some recommendations are reasonable, some have already been fulfilled, and some are in there to legitimate restrictions on borders and scapegoat Greece."

The Greek government announced this week that it has enlisted the military's help to expedite the completion of "hot spots," or reception centers, to speed up the intake and processing of refugees.

Meanwhile, it is calling on European nations to honor their own commitments to resettling asylum seekers, and asking the EU to pressure Turkey to limit the outflow of refugees from its territory. The EU agreed in November to give Turkey $3.2 billion in aid for the 2.2 million Syrian refugees who have moved there. In exchange, the EU asked Turkey to more actively prevent refugees from migrating to Europe by sea.

But despite the accord, thousands of mostly Syrian refugees from Turkey arrive every day on Greece’s shores, further straining the economy. 

The Greek diplomat notes that European officials often complain that Greece is not processing refugee resettlement applications fast enough, but they are no less slow in resettling the refugees once they have been processed. Of 700 applications Greek authorities have processed since September, only some 200 have been relocated, the diplomat said.

The nonprofit Human Rights Watch corroborates many of the Greek government's claims.

Human Rights Watch has faulted the Greek government for not doing enough to accommodate refugees, in particular not taking adequate action to officially register them. But the group acknowledges that Greece's economic struggles are partly to blame for this and reserves its harshest criticism for the European officials who would “warehouse” asylum seekers inside Greece’s borders or turn them away altogether. 

“Trapping asylum seekers in substandard conditions in Greece would be disastrous for these women, men and children, and is the exact opposite of the kind of sharing of responsibility that we need to see,” Human Rights Watch Greece specialist Eva Cossé said in a Jan. 28 statement. “It would also signal an utter lack of leadership by the EU in the continuing global refugee crisis.”

Cossé also noted that the EU has failed to deploy promised aid and border patrol personnel to Greece or to develop a new continent-wide system for processing the unprecedented influx.

“This state -- a bankrupt state -- is trying to develop a mechanism to manage the largest refugee crisis in the past few decades. This is absurd,” said Costas Eleftheriou, who specializes in Greek politics at the University of Athens. “They say these people are not managing hot spots and managing the crisis the right way,” he added, but everything Greece does should be looked at in the context of its desperate financial situation.

How Could This Affect Greece's Debt Reduction Talks?

The Greek government has not invoked the refugee crisis in negotiations over its debt reduction package with its institutional creditors, according to the government. 

But Eleftheriou, of the University of Athens, said it would be wise for Tsipras to bring up the crisis in debt reduction talks, though he was skeptical that it would have any impact.

“The European partners will not accept such kind of argumentation to connect the refugee crisis with the austerity program issue," he said. "I do not know if it is something that will add some arguments to the Greek side, because I believe they have tried to make this case before.” 

Chryssogelos, of the London School of Economics, suspects that Greece will try to leverage the refugee crisis for more amenable debt repayment terms.

“They are trying to get more exchanges on the economic front by being more reasonable on refugee and international issues,” he said.

They are trying to get more exchanges on the economic front by being more reasonable on refugee and international issues. Angelos Chryssogelos, London School of Economics

The International Monetary Fund, which is a major institutional lender to Greece and has reportedly taken a tough line in recent negotiations over Greece’s pension reforms, said it does not comment on ongoing negotiations with its borrowers as a matter of policy. The Fund instead referred HuffPost to an IMF report released on Jan. 20 that assesses the short-term and long-term economic effects of the refugee influx.

The report notes Greece’s role as a gateway nation for asylum-seeking refugees, concluding that Greece’s additional public spending amounted to 0.17 percent of its GDP in 2015 -- less than in many countries serving as final destinations for refugees. It does not examine, however, the impact of Greece’s refugee-related expenses in the context of its ongoing debt crisis.

"The study indicates that, with appropriate policies -- especially effective integration into the labor market -- the potential from refugees can be harnessed for the benefit of all,” IMF managing director Christine Lagarde said in a statement accompanying the report. “The circumstances facing each country are different and so should be the response but, ultimately, the refugee surge is a global challenge that must be met through global cooperation."

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