Standard&poor’S: Refugee Crisis Unlikely To Affect Sovereign Ratings

- International ratings company Standard & Poor’s released a report on the impact of surge of refugees in European Union to sovereign ratings, declaring that traits of the crisis were unlikely to weaken EU economies and budgets enough to lower ratings.

Within the report entitled “The Surge of Refugees in the EU: Boon or Burden for Sovereign Ratings?”, although serious impacts over the sovereign ratings were considered a weak possibility, Standard & Poor’s urges that this wouldn’t lessen the challenges aging European societies could face in coming decades.

“Asylum granted migrants to swiftly enter labor market”

In this regard, the report approaches the case of German government that is to set aside €6 billion of extra spending on refugees in 2016, to administer shelter, subsistence and education, including language courses, some 2 percent of overall spending, or 0.2 percent of GDP.

Nevertheless, the overall direct cost and additional public spending appear to be fairly modest, according to the company. Also, the rise in costs is unlikely to be permanent since asylum requests would be either rejected or accepted, and those who are accepted would enter the labour market in a short while. Therefore, the report does not forecast any sovereign rating consequences.

Having referred to World Bank data, the report defends that Syrian population is well educated, seeing that around one-third of the adult population has been enrolled in tertiary education, both women and men, and is younger than the European population.

Thus, their participation to the labor market in Germany would have mild positive impact on growth, especially in those countries where unemployment is low such as Germany. The report also suggests the migrants’ language skills would also improve helping them climbing the ladder toward better numerated jobs.

On the other hand, the influx of refugees is likely to cause future pension and healthcare problems as the domestic population keep aging, according to the ratings company.

“EU’s governance problems a key factor for sovereign ratings”

According to the report, the biggest uncertainty for sovereign ratings involves Europe's capability in question, to assure cooperative solutions to this continental challenge, regarding “the decision-making in the face of European crises has often proved elusive in the recent past”. Therefore, the EU’s “governance problems” are a key factor for ratings sovereigns, says the report.

In this perspective, the ratings service company reminds that “the effectiveness, stability, and predictability of European policymaking and political institutions have not been strong despite the severity of deepening financial crisis in the Eurozone".

Therefore, if mishandled, EU’s approach to the refugee influx could lead to raising populism and xenophobia among parties and candidates, diverting attention from budgetary and structural reform.

If a populist backlash sparks, this could complicate the sovereigns’ cohesive efforts when financial crises re-emerge in one or several member states, urges Standard & Poor’s.