Ifo Viewpoint No. 145: New Migration

Hans-Werner Sinn
Munich, 3 May 2013

Germany is currently experiencing a massive wave of immigration that is reminiscent of the time after the Fall of the Iron Curtain. In 2012 a net total of around 410,000 people came to Germany (after subtracting the number of emigrants). This was around the same number as in 1993 and a good 50 per cent more than in 2011. Germany was an emigrant country just a short time ago. Now people are coming here in their droves.

There are various reasons for this, the main one being the diversion of capital flows in the wake of the economic crisis. German savings capital is no longer rushing into other European countries, but is looking for a safe home port, while a crisis-stricken mood continues to prevail in southern Europe. People are now following the capital. Today’s immigrants come from Spain, Greece, Portugal, Italy and Ireland.

Another cause of immigration is the introduction of freedom of movement for employees from most eastern European EU countries in 2011. The migratory pressure that had built up was released after the doors opened. In 2014 the doors will also open to workers from Bulgaria and Rumania, which should increase the number of immigrants even further.

Migration provides the German economy with urgently needed manpower. Many immigrants and especially those from Poland, the Czech Republic, Slovakia and Slovenia are well qualified and willing to integrate. Migration is a win-win situation for all concerned: migrants earn higher wages than they would at home and German companies benefit because the new foreign workers increase productivity far more than they cost to employ.

Migration looks quite different when it comes to the welfare state, as migrants do not earn the benefits that they claim. The money for this is taken from tax receipts and from the overall funds available to other claimants.

The German Council of Municipalities has now sounded the alarm bell. Many cities are no longer in control of the burgeoning social benefits for immigrants. The situation in some cities in the Ruhr area, which were already heavily burdened, is threatening to run out of control. If we are to believe reports in the “Spiegel”, entire Rumanian villages are now migrating to Berlin-Neukölln.

These individuals are often Roma people – the same individuals who were driven out of France a few years ago by the then President Nicolas Sarkozy. The Council of Municipalities openly addresses the precarious situation of the Roma in their home countries and in Germany, and the same can be said of the Sinti. Around 4.5 million Roma and Sinti currently live in Hungary, the Czech Republic, Slovakia, Rumania and Bulgaria.

The possibility of immigrating to Germany was created back in 2004 with the EU’s Free Movement Directive. Individuals that do not want to work have been able to travel freely since that time, but must provide for themselves for the first five years and pay their own health insurance. After five years they automatically receive a permanent right of residence and are entitled to all of the social benefits financed by taxes that can be claimed by Germans.

A 60 year-old Rumanian who migrates to Germany, for example, is no longer deemed fit for work at the age of 65 and is entitled to benefits that ensure a subsistence minimum if s/he retains a residence in Germany. On average, such individuals receive 382 euros of welfare benefit per month, 360 euros of accommodation and heating allowances, as well as free health insurance worth around 300 euros; or a total of 1,050 euros per month. This amount does not include benefits in kind for a refrigerator and a washing machine. An individual’s average income as a semi-pensioner in Germany is almost two to three times as high as the average wage in Rumania or Bulgaria – regardless of whether s/he has previously paid any contributions or taxes in Germany.

This type of migration will inevitably erode the German welfare state, because the latter does the have money to support it on the one hand, and because the Länder will try to make themselves less attractive to poverty-stricken migrants on the other. The EU idea of inclusion of the needy according to the country of residence principle is not compatible with the continued existence of the old-style welfare state.

Only the home country principle can work. In other works, anyone who receives social benefits from an EU country should be entitled to spend that money in the EU country of their choice, be it Mallorca or the Canary Islands. However, that individual should not have the right to demand assistance from his/her host country, but must instead request support from his/her home country, which is bound by the EU welfare state imperative. Alternative rules should only apply in cases of regulated immigration from non-EU countries.

If we had the home country principle in the EU, then poverty-driven migration in the welfare state would not occur. It is high time to amend the EU Free Movement Directive.

Hans-Werner Sinn
Professor of Economics and Public Finance, University of Munich, 
President of the Ifo Institute

Published under the title “Neue Wanderung”, Wirtschaftswoche, No. 10, 4 March 2013, p. 44.