Published in The National Business Review (Auckland). 30 October 2015

Last week, I telephoned a friend of mine who heads the economics research department of a major German company. As we talked through current affairs, I asked him if Chancellor Angela Merkel might be toppled by her own party over her handling of the refugee crisis.

“If she loses the forthcoming state elections in March next year,” I said, “it might get difficult for her to cling on to power.”

My friend’s response truly shocked me: “That is if she does not get shot before that time.”

Now, my friend is certainly not a firebrand and typically quite an optimist, which is why his alarmism stunned me all the more.

“You have no idea how much the uncontrolled influx of migrants is radicalising ordinary middle-class Germans,” he told me. “The situation is spinning out of control.”

The past few days delivered plenty of evidence for his thesis. Since Mrs Merkel’s government effectively opened its borders to refugees, a chain reaction of events has set in that not only threatens her (political) survival.

It also led the European Union into the worst crisis of its history, which is already eclipsing everything we have witnessed over the years of debt and monetary crisis. Finally, the long-term political, social and economic implications for Germany could be disastrous.

If you are not religiously following the news from Europe, you would indeed be unaware of how dramatic the refugee crisis has become. And you may not realise how much that big moat around our islands is insulating us from experiencing similar problems here.

It is a scenario that has often been sketched but usually thought to be a dystopic view of the future. It is a Europe that has become unable or unwilling to protect its borders and allows an uncontrolled flow of migrants. These, it needs to be spelt out, are not all genuine war refugees.

Official statistics show that from January to September of this year, Syrians accounted for only a quarter of those applying for asylum in Germany. The remainder came from countries such as Serbia, Kosovo and Albania. A large proportion of those Syrians do not come directly but from refugee camps in Turkey.

Ms Merkel’s spontaneous, uncoordinated invitation to those Syrians stuck along the route through the Balkans was interpreted as a general opening of Germany’s borders. It was a strong signal she sent – and one that she was unable to qualify later.

As a result, Germany is now receiving around 10,000 asylum seekers a day. The numbers are so large that even registering people properly has now become impossible.

Could cost €10 billion

Initially, there was a degree of optimism that among those seeking refuge in Germany might be young, skilled and motivated potential workers. For a country that is looking into a demographic abyss this was seen as a good news story. Ageing Germany does indeed need some rejuvenation.

However, the profile of migrants does not justify such hope. It is estimated that about 20% of them are illiterate – and practically none speak any German. Even the German Federal Labour Minister recently admitted that only one in 10 of them will be easily integrated into the workforce. Conversely, this means that 90% will, at least for an initial period, be dependent on welfare.

The bill of the refugee crisis will thus be huge. How high precisely is anyone’s guess. Marcel Fratzscher, president of the DIW think tank in Berlin, believes it is going to cost €10 billion this year. But it could also be €20-30 billion, according Clemens Fuest, head of the Centre for European Economic Research ZEW. And even that figure might well be too low since Mr Fuest based it on just 800,000 refugees a year. More recent estimates now see that number at almost twice that level.

‘We will cope’

The economic costs of the crisis are substantial; the political costs might be even higher. The EU has never been more divided than in this crisis.

At least in the euro crisis, there was some common ground between EU members. In principle, they all realised what needed to be done and the differences were in degrees of austerity and reform.

In the refugee crisis, however, there is not even such a common denominator. Instead it is open conflict between the EU’s member countries. Hardly anyone wants to voluntarily accept more refugees – perhaps with the exception of Mrs Merkel, who stubbornly proclaims that the constitutional right to claim asylum knows no upper limit.

A telling event happened at the beginning of this week at the German-Austrian border. Without even informing the German authorities, the Austrian government transported 70 busloads of refugees to the border, pointed them in the direction of Germany and basically left them there.

If that is the spirit of European integration, the EU might actually cease to exist. They are still holding emergency summits in Brussels, of course, but these do not produce any binding outcomes. In the end, it is every country against every other country.

As if Europe did not have enough problems to deal with before the refugee crisis, it is now faced with an even greater challenge: To deal with millions of underqualified migrants; to keep some kind of policy coordination going between Europe’s capitals; to address the cultural problems of integrating people from different ethnic and religious backgrounds; and to convince the domestic population that all of this may somehow be worth it – or at least that there is a moral justification to embark on this project.

Ms Merkel’s response to all of these challenges has so far been a vague “We will cope.” She has never asked whether her people really want to cope. And this oversight is backfiring on her.

Her personal popularity is plummeting like a stone and her party has lost six percentage points in the polls over the past couple of months.

As someone who has been following German politics for a while, I remember some pretty extraordinary events. But not even German unification 25 years ago brought such an existential crisis on the country as Frau Merkel’s lone decision. Unless she finds an exit strategy from the chaos she has caused, and unless she finds it soon, this will not end well.