Economic growth, not austerity or even European Central Bank intervention, is the key to a sustainable solution to the EU’s debt crisis. Encouraging immigration from the East will stimulate the EU's battered economy.
Brussels hoped that the new governments in Italy, Spain, and Greece would help calm investors’ frayed nerves. Their expectations were quickly dashed, as bond yields on Spanish debt rose to critical levels the day after the centre-right Popular Party won the biggest majority in Spain in three decades, and the Italian and Greek bond run have continued their sprint.
This is not surprising. Now that Italy and Spain have been dragged into the crisis, the problem has grown too large for these governments to manage themselves. Germany and Brussels have called for tough austerity measures in indebted countries, further exacerbating the slow down of the West’s economy, as unemployment continues to grow and fears of a double dip recession loom. But imposing structural reform and austerity is not a long-term solution to the crisis. Financial Times columnist Wolfgang Manchau goes as far as to call this strategy 'insane.'
Additionally, the countries cannot pay their way out of debt by borrowing more money, no matter if the lending is packaged in the form of Euro-zone bonds or a highly leveraged European Financial Stability Facility. On the other hand, traditional monetary solutions seem to be growing increasingly ineffective in the West. Even though monetary policy is loose in the U.S. and UK, quantitative easing and low interest rates have not been as successful at stimulating growth as hoped. Even if Brussels and Germany do change their stance and consent to printing more money, this measure may not be strong enough to stem the debt hole without damaging the EU’s economy.
Encouraging economic growth is the only sustainable way forward for the Euro-zone; but economic growth needs innovation, as well as capital flows. How can these countries encourage the flow of ideas and money?
One way is to import it from the East. EU countries need to loosen their immigration policy.
As the West slows down, Asian economies aren’t just growing at a break-neck pace, they’re heating up. In direct contrast to the West, central banks are raising interest rates as inflation gets out of control in both India and China. Moreover, these economies are characterized by a high savings rate and a young demographic. The younger generations in these countries have both the ability and willingness to spend.
And yet, immigration policy in the EU has grown rigid over the past decade, with Denmark’s and Sweden’s policy being hailed as almost draconian. The lending of work permits to foreigners in France continues to be controversial. Border controls make headlines in the UK almost daily currently as youth unemployment rises. The Tory government has vowed to cut immigration numbers in the UK to under 100,000 by 2015.
Promoting immigration will no doubt create competition for already scarce jobs. But, it will also create them. Research has shown that immigrants contribute to a country’s growth, not hinder it. For example, immigrants make up one-eigth of American’s population, but have founded one-fourth of the country’s technology and engineering firms. Additionally, as the West looks to the East to strengthen trade relations as well as money flows, employing immigrants from these countries is crucial, as both culture and language play an important role in business dealings.
Asian immigrants are the gateway to the East. If the EU hopes to stimulate growth to combat the crisis, it must open up further, both to foreign markets and foreigners.
Photo Credit: Jean & Nathalie