Aug 3rd 2016

Saving Freedom of Movement in Europe

by Hans-Werner Sinn

Hans-Werner Sinn, Professor Emeritus of Economics at the University of Munich, is a former president of the Ifo Institute for Economic Research and serves on the German economy ministry’s Advisory Council. He is the author of The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs. 

MUNICH – According to a YouGov opinion poll, conducted on the day of the referendum on the United Kingdom’s membership in the European Union, migration was the single most important issue for “Leave” supporters, second only to a general preference for independence itself. But those who consider Brexit voters xenophobic misunderstand the nature of the problem. Thanks to the Commonwealth, the UK is one of the most open-minded countries in the world. Accusing the British, of all people, of being xenophobic is absurd.

In reality, the referendum’s outcome reflects legitimate criticism of the EU’s design, which is largely based on open borders toward the outside world and a combination of freedom of movement and the so-called inclusion principle internally. The EU should use this British vote of no confidence as an opportunity to change its migration rules fundamentally.

Former UK Prime Minister David Cameron was right to request more concessions in restricting the free movement of EU citizens. And, in its own interest, the EU should now implement what Cameron demanded: delayed integration of migrant EU workers into host countries’ welfare systems. If the EU doesn’t eliminate the current welfare magnet, it will disintegrate, because the migration issue is the most important for citizens in much of the Union. Political parties that deny this are in for a nasty shock.

The fundamental problem is an intractable trilemma. It is impossible to meet all of the following EU goals: internal freedom of movement, a welfare state, and inclusion of migrants in host countries’ welfare systems.

Today, an EU citizen who moves to another EU country will be integrated into the social-welfare system very quickly. Those who are unable to work are fully entitled to tax-financed welfare benefits after five years at the latest. Earlier access is a matter of national law, and in some cases of jurisdiction.

In Germany, according to a decision by the Federal Social Court of Germany, EU citizens who seek employment but don’t find any are immediately entitled to Hartz IV (unemployment and welfare) benefits, free health insurance, and rent payments for housing classified as adequate. They are also entitled to child benefits for all children, even if the children still live in their home countries in the care of their grandparents. Those who are self-employed are immediately entitled to supplementary Hartz IV benefits, housing allowance, and the child benefit (which, for a family with five children, is €1,018 ($1,335) per month – far higher than the average net salary of a worker in Bulgaria or Romania.)

If unchanged, the rules of access to national welfare systems will erode the EU’s welfare states, because the most generous countries will increasingly bear the burden of poverty mitigation. The better-developed welfare states to which the poor flock may then find themselves in a ruinous deterrence competition, with local populations taking to the streets to defend “their” benefits.

This outcome can be prevented only by restricting either freedom of movement or the inclusion principle. So the EU must acknowledge the tradeoff between the welfare state’s quality, freedom of movement, and inclusion, and it must decide which can be sacrificed.

The best option would be to restrict the inclusion principle for EU migrants, because reducing the size and scope of the welfare state would fuel social instability. And restricting mobility would mean violating one of the EU’s fundamental freedoms.

Restricting the inclusion principle should not pose a problem, as all EU countries meet the requirements of the Acquis Communautaire (the body of EU law) and guarantee a minimum of social protection. Hence, in the case of unearned welfare benefits – tax- and contribution-financed benefits granted during the first years in the new country of residence – the inclusion principle should give way to the home country principle. In host countries, immigrants will be granted only benefits that have been earned in an insurance system with cost-related premiums.

Furthermore, the EU needs to close its external borders. Its labor market, infrastructure, legal system, and welfare benefits represent valuable club goods that cannot be made available for consumption by random economic migrants from all over the world. Those who believe that a liberal society requires open borders do not understand that the protection of property is a prerequisite for freedom.

Nevertheless, there is still the humanitarian imperative to grant asylum to the politically persecuted and include them in the welfare system. But separating those few people (just 0.7% of all processed requests in Germany) who fall into this category from economic migrants requires application systems and reception camps, if necessary, where decisions can be made outside the EU’s borders.

Those who focus only on the angry nationalist rhetoric heard in some corners of the UK’s Leave campaign miss the larger truth. Unless the EU abandons the inclusion principle, that rhetoric will grow louder – and more exits will become inevitable.




Copyright: Project Syndicate, 2016.
www.project-syndicate.org

 


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