The refugee shock: Potential impact on Greece

Text of a talk to an audience of international investors, 3rd December 2015

The refugee crisis is one of those big historic events that are very hard to evaluate as they are happening. We are appalled by the humanitarian tragedy, the uprooted families, the drowning children; but it is very hard to know what the long-term impact will be on our society or on the lives of those refugees and migrants who survive and settle in Europe.

In cases like this, history alone cannot tell us what will happen, because the context is unique and complex. And there is no analytical model that we can use to forecast the whole phenomenon; we can use analytical thinking on some aspects of the process, but only on aspects. The whole involves politics, and economics, and culture, and institutions. It involves local communities, and nation states, and international relations. And it involves the next 3 months as well as the next 30 years.

In the end we can only make an educated guess how the whole will play out.

I will try to contribute to this, as a someone who has been observing the Greek economy from the bottom up, as well as the mentalities and the institutions that shape economic behaviour.

A.    Transient, Trapped, Settled

Let us distinguish three different states of migration to Greece: the transient, the trapped, and the settled

Transient: Local impact, negative but manageable

Transient refers to those who come to Greece from Turkey, and move on to another country within a few days or a few months, at most. This flow has been huge this year. 730 thousand arrived from the beginning of 2015 until end-November, to the shores of Lesbos, Kos, Samos and a few other islands. Most are fleeing from war and conflict. Over 50% are from Syria, 30% from Afghanistan, 10% from Iraq.

The vast majority do not see Greece as a country where they can settle down and build a life. Over half a million were entitled to apply for asylum, but only 11 thousand actually applied in Greece; that is less than 2%. All others prefer to be granted asylum in Germany, or some other EU member where they hope they have better chances to live decently.

So, more than 90% of the 700 thousand have moved on. No one knows exactly how many are still in the country, but they are not that many. And the flows have taken with them also some economic migrants that have been here for years. If these numbers keep flowing through Greece, but not staying, there will not be a big impact on our economy and on society as a whole.

There is a great impact in specific locations, and most of all on the islands, where they arrive. There is first and foremost a psychological shock. The human stories that are told by those who meet and feed and shelter the refugees can wrench your heart with sorrow for the deaths and the suffering. And they can fill your heart with hope for the resilience and the spirit of camaraderie between strangers.

One very interesting theme in the experience of Lesbos has been the shift in attitude towards the refugees within the space of a few months. Initially, there was hostility for the intruders, and there was also some exploitation as locals would charge exorbitant prices for a bottle of water or a blanket. But, as some locals became heroes by suffering and sacrificing to help the refugees, and as volunteers poured in from all over Europe to help, and as the stories of suffering and persecution in Syria became prominent, the mood changed.

Solidarity became stronger than resentment. Lesbos is creating its own history as a sanctuary, and is becoming globally recognized. Perhaps that will be part of the collective consciousness of the people of Lesbos in the next 2 or 3 decades, as part of a proud local identity

Trapped: Fear and Ghetto

But: The impact of migration can be very different if for some reason movement from Greece to the north is stopped, and hundreds of thousands pile up, not wanting to settle, and not able to go.

Then, we are very likely to witness widespread change in the life of many districts, as poor migrants squeeze in ten to a room, or in the periphery of cities, where they build shanty towns. If they have no aspiration to build a life, if they feel transient, but cannot move, that is when despair and resentment grows, when crime can become a way of life, when locals become afraid, move away, if they can, and neighbourhoods are destroyed.

I am afraid that Greece cannot do very much on its own to avoid this scenario.

My understanding (and I may be wrong) is that, if you have a sea border, it is much more difficult to keep desperate refugees out than in the case of land borders. Unless, that is, you are prepared to sink boats and let people drown. If we are not going to do that, and we should not do it, then this asymmetric geography (sea coming in, land going out) puts Greece in a very tough spot.

It relies fully on what its neighbouring countries decide to do. Will Turkey put a brake on the flow of refugees to our islands? Will our northern neighbours close their borders? This will depend on complex geopolitics, and I cannot make predictions about that.

I just note the trapped migrants could be our big problem, much more than the transient, or those who try to settle here.

Settled: Part of the community, or communities

Once people try to settle in the country, there are different issues to address.

Will they find jobs? Will they be a drain on our social services? Will they become part of the community? Will they isolate themselves? How will they co-exist with native Greeks?

B.    History

Recent history can give us some pointers.

When the communist block collapsed 25 years ago, hundreds of thousands of Albanians moved to Greece, followed by many others from Georgia, Romania, Moldova and Bulgaria. Later, in the decade starting in 2000 we had a large inflow of economic migrants from Pakistan, Bangladesh and parts of Africa The immigrant population reached one million at some stage, in a country of ten million natives.

When I think back to the 90s, I remember how fearful everybody was by the influx of Albanians. Their appearance and language was disturbing; they seemed backward, and crude and possibly violent. There was an upsurge in crime, especially burglaries, and this was blamed on immigrants – often correctly.

But in hindsight, I think it is clear that the positives have been much stronger than the negatives

Valuable workers: caregivers, builders, farm workers

Immigrants provided cheap and plentiful labour for farms. Small Greek farmers who had never dreamt they could employ anybody, could now cultivate labour intensive products such as strawberries, tomatoes and grapes at much bigger quantities. Albanians became skilled builders, and contributed to the construction boom. And the women from East Europe took over the task of caring for the elderly not only for wealthy families, but also the lower middle-class.

Strange neighbours, often feared

Immigrants were usually welcome as workers, but often they were not welcome as neighbours. In Aghios Panteleimonas of Athens thousands moved in in the space of a few months in 2008, the locals were appalled and terrified, and the neo-nazi Golden Dawn party became popular as it promised to evict them by force.

In central Athens, Pakistani shops may provide colour, but for Greeks who walk in some streets, there is that strange feeling of being surrounded by ‘weird foreigners, who may even be petty criminals’.

In rural areas, often the foreign farmworkers are treated with cruelty and contempt.

On the other hand, immigrant children in schools are usually well accepted, make friends, and they integrate well in the neighbourhood. And those who have some sort of steady job, even if it is informal, become recognized members of the local community.

Economic gains (broad) vs social costs (local)

So, a fair summary of what happened in 25 years since 1990 is that the economy as a whole gained a lot from our immigrants, both legal and undocumented, and that most of those who stayed were rather well integrated into broader society.

But, at certain times and in certain areas, immigrants did disrupt the sense of neighbourhood, there was an increase in criminality, and as a result, there was political backlash. So some locals suffered while most gained.

I have no doubt that on balance we have been fortunate as a society to have had this inflow. But that was in the past, at a time of rising incomes, of moderate unemployment and of a sense of prosperity.

C.    Economic context

This time, we have a depressed economy, very high unemployment, and a sense of misery. In this context, can refugees who settle in Greece help the economy, or will they just add to its troubles?

Post-recession phase: maximum fluidity

Let me summarize the state of the economy at this stage, in my opinion (which is perhaps a minority opinion).

There was a painful macroeconomic adjustment, but that is completed. The huge balance of payments deficit and the primary fiscal deficit, have turned into surpluses. In 2014 GDP growth resumed and employment started rising. This upturn was not just a cyclical correction to a very big depression.

It was the result of many businesses adapting to new conditions brought about by the crisis and by the adjustment programs: much lower labour costs, more flexible labour markets, some removal of bureaucratic barriers, and a shift of focus from domestic demand to export markets.

I recognize that we have a government that is not pro-business, and that has trouble with implementing reforms, let alone dealing with emergencies. But much of the private sector is ready to grow, regardless.

The pattern of growth will be different this time; not driven by services for the domestic consumer, or around the state, but driven by exports or by import substitution, of many kinds: farm produce, light manufacturing, tourism, professional services, and even disruptive technologies.

As a personal note, let me say that my business at the Openfund is to invest in technology start-ups that aim to become global companies. Over four years we have seen a tremendous growth in this ecosystem. More and better entrepreneurs are designing new products and new business models. Our fund is one of the best performing seed funds in Europe; and all this has happened during our great depression.

So we are at a time of structural change, where some sectors that were flourishing during the previous boom will remain depressed, while others that had trouble attracting investment and talent during the previous boom, will now be growing.

An accommodating labour market?

What does this mean for the job prospects of new immigrants?

For one thing, it means that as new businesses expand, they will be looking for new employees. Even if total employment remains constant, there will be more mobility of labour among sectors, and this is where outsiders have an equal chance with those who used to be employed, the insiders.

Second, some of the sectors that are set to grow require manual labour that Greeks do not want to provide, even when they are unemployed. Farm work is the main example, but there will also be more small manufactures with hard jobs, that always had trouble recruiting Greeks.

Third, the Greek economy is dominated by very very small business and by self-employment. It is easy to set up a small shop or workshop, and make a living from the community around you; much more so than in the rest of Europe. So, some immigrants will find ways to be the local barber, tailor, or merchant, not only for their own ethnic community, but for the neighbourhood as well.

Fourth, one sector that is not going to be funded by public money in the coming years is social services; and especially care for the sick, the elderly, and for young children. So there will be demand for privately hired, low cost caregivers, and this demand will increase as incomes in other sectors increase.

Finally, and cutting across all those areas, is the very erratic enforcement of social security legislation in large parts of the labour market, and the widespread tax evasion by small businesses. These mean that there are not many barriers to employing low cost migrants, or to setting up informal service businesses.

For these reasons, it is likely that migrants will add significantly to economic output, even at a time when unemployment among Greeks is very high. One can even argue that those businesses that the migrants will enable, by their labour, will boost GDP and domestic demand, and so provide indirectly more jobs for locals.

Low benefits/High pensions/Aging population

One common objection against immigrants in advanced economies is that they use up social benefits more than they contribute in taxes; so they add to the troubles of the welfare state. This may be true in some countries — though the studies I have seen suggest that it is not true

In Greece, however, we have a peculiar welfare state. It spends very little on benefits; for example, only one out of ten unemployed get any sort of unemployment benefit; so migrants do not have a chance of claiming those

However, we do spend a very high proportion of GDP on pensions – the highest in the EU, even after all the cuts. And we do have an aging population; the ratio of citizens above 65 to those of working age is also among the highest in the EU, and climbing

Immigrants do not claim pensions, but they can contribute to the funding of pensions, if they pay taxes and social security. I would argue that even if they work informally, as I said earlier, they contribute towards increased GDP, and so to an increased capacity for society to support the elderly. So for the next 20 years, until some of them begin to retire, they will be net contributors to our welfare state

Verdict: migrants’ impact will be probably positive

Overall then, my verdict is that migrants who settle in Greece will probably have a positive impact on the economy, under certain conditions

D.    Social context

One of those conditions is that they will have the chance to look for jobs, or to set up their own job. But that may take months, or a couple of years How will the people in the cities and in villages react to the presence of migrants, until they become part of the local economy?

And, on a long-term basis, how will the Syrians or Afghanis coexist with Greeks?

Will they assimilate, or will they have their own closed communities? And if they do live separately, will that breed fear and hate?

I think all that depends on several factors

Zeitgeist: hope or despair?

It depends on the general mood of the country, but in a rather complex way.

In happy times, we may be more tolerant of strangers, and less afraid that they will steal our jobs; but also, less attuned to the misery of others, less inclined to empathize, and more inclined to ignore their suffering.

In times of depression, anger or hate can explode, and can be directed to foreigners of all types; but also, in many cases a sense of common humanity arises, and acts of solidarity multiply.

We have witnessed all these reactions in Greece, both in the good times and the bad times. So, I cannot say what will prevail this time

Culture: republican or multi-cultural?

In the longer term, much will depend on the institutions of the receiving country.

What role does religion play in everyday life? How do schools promote uniformity or diversity?

This is a broad subject, and I am no expert, but I do note one thing: Greek public schools have been remarkably successful in integrating students from very diverse backgrounds into a common national identity. This was true during the nation-building phase of our country, but also in the past 25 years, as migrant’s children went to schools around the country. So this is one, slight, basis for optimism.

Space: dispersion or concentration?

Finally, much will depend on where the migrants settle, and in what numbers. If many thousand flock into one city district within a few months, they will not find jobs, they cannot be assimilated, there will be racial tension, and everybody loses.

That is why it is important to direct the settlers to many areas, in small groups. I will refer here to a proposal by Solidarity Now, an NGO which is trying to deal with this crisis:

Call for all municipalities around the country to host between 5 and 30 families each, i.e. between 30 and 200 people. We have 325 municipalities, so this would give a total of 30 to 60 thousand people. Get ministries, NGOs and local authorities to do the following:

  • locate accommodation (empty flats, etc)
  • organize training of the immigrants by volunteers
  • issue work permits
  • assign a mentor for each family, e.g. “a local woman that becomes the reference person for the mother of the family, a local child that becomes the guardian angel of the new child in school, a local teacher or social worker that helps the family overall.”
  • provide pocket money for the families for their first year of stay.

If the numbers that come to each location are small, this is a perfectly feasible plan.

If, on the other hand, one city district has to deal with 20 thousand migrants in the space of six months, this is not manageable.

So the verdict about the social impact is that it depends on geography, numbers and timing.

E.     The bottom line

So, to sum up.

I believe that it is perfectly feasible to receive and settle 50 thousand refugees in Greece, as we have agreed with our EU partners, or even many more, over a longer time. horizon. These people can make a positive contribution to our economy and they can be integrated, so that their children and our children can grow up together, and create together (as in this Polyphonica choir [picture]).

But we must do everything we can to avoid hundreds of thousands being trapped here, without trying to settle. How we can achieve this, I do not know. I can see no other way than international cooperation, directed by the EU, but I can also see how things can go very wrong.

So these are the dangers and the opportunities.

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