Opinion

European financing for the European refugee crisis

Protecting the EU's external borders is a shared task, which can be most effectively carried out if paid for with common funding. A tax on carbon combined with borrowing could fund refugee policy and also help the EU achieve its climate goals.

By: Date: May 11, 2016 Topic: European Macroeconomics & Governance

This op-ed was originally published in La RepubblicaEl Pais, and Naftemporiki. It will also appear in Frankfurter Allgemeine Zeitung, L’Opinion and Dienas Bizness.

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As countries are struggling to implement the EU-Turkey deal on refugees, the debate on how to finance EU migration policy is heating up. Italy has proposed issuing ’EU Migration Bonds’ to fund migration in EU countries, while Germany’s finance minister Wolfgang Schäuble has proposed that expenses related to migration, including enhanced European border controls, be financed with a commonly agreed tax on fuels.

Pooling resources to fund migration and border controls makes sense in an EU that has largely removed internal border checks. Protecting external borders is a shared task, which can be most effectively carried out if paid for with common funding. EU countries should also work with neighbouring countries to influence their policies, and cooperate on dealing with migrants.

This is what the EU has been doing in the deal with Turkey and is also discussing as regards Libya. Again, EU actions will be much more effective if different policies are closely coordinated between countries. Once the political and administrative capacity is in place, the EU’s external policies will also need their own source of funding.

The IMF has estimated the short-term fiscal costs of asylum seekers to be at an average of around 0.1% of GDP. However, some countries are spending significantly more. Added to the asylum costs are the costs of other policies, such as more effective policies outside the EU and funding Frontex, the EU’s external border control agency. Handling the refugee crisis and funding the response to it cannot be left to Greece, Italy and the other peripheral countries alone nor can Germany and Sweden accept and fund almost all refugees arriving. It must be a joint endeavour.

Common border controls and migration policy represent a permanent cost – as the Italian paper argues, migration flows towards the EU will likely continue. Permanent costs require permanent resources and cannot be funded by deficits. The idea to create a common tax to fund such costs is therefore welcome. Wolfgang Schäuble’s idea to use a petrol tax points in a sensible direction.

In fact, a tax on carbon at European level would also help achieve the EU’s climate goals agreed at the Paris summit. If Europe wants to take its commitments on climate policies seriously, it must re-activate the European Emission Trading System, but also raise taxes on greenhouse gas emissions that are not covered by the ETS. With about 1.5 million tons of oil consumed every day in the EU, a tax increase on oil could raise enough revenue to deal with the refugee crisis. Although the cost would be paid by the consumer, in the long run a properly functioning approach at the European level would save money.

Nevertheless, the Italian proposal rightly emphasizes the importance of borrowing. The costs of dealing with the refugee crisis will vary over time. Currently, there are significant one-off costs to build the necessary infrastructure, build-up Frontex, buy necessary equipment and so on. According to standard neoclassical economic theory, high costs that are temporary should be funded by borrowing, keeping the tax rate constant over time, to avoid inefficiencies and prevent wrong investment choices.

Both the Italian proposal and the German finance minister rightly point out that addressing the refugee crisis requires resources, and that a European approach to finding these resources is desirable. The German finance minister is right that tax resources are needed, and introducing a tax that contributes to achieving the climate goals makes sense. At the same time, it is useful to be able to complement tax revenues with borrowing in order to fund temporarily high expenditures.

To make this a workable proposition, it is important that the right legal and administrative framework is built. The EU treaties, in particular articles 191 and 192, allow for the creation of a tax to meaningfully achieve the EU’s environmental objectives. A carbon tax is internally recognized as the right tax to achieve the goal of preventing climate change. Since the EU would move into new territory with such a step, careful political and administrative planning is needed. But both climate change and migration policies are common public goods that need common resources to be most effective.

 

 


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