Monday, October 26, 2020

EU challenges: Brexit, immigration and stagnation. Lessons learned from the Villa Mondragone International Economic Seminar

Francesco Salustri

The 2016 Villa Mondragone International Economic Seminar devoted one single session to the main challenges that the EU is called to address in the coming decades: EU integration after the Brexit vote, the ongoing migration crisis, and the stagnant economic growth.

The recent inflow of refugees to Europe is determined by multiple shocks. Despite the fact that refugees are often poor, the main motivation behind their decision to migrate is their high vulnerability in their country of origin. As highlighted by Economic theory, the cause of the migratory flows is given by the gap between living conditions in the countries of origin – affected by shocks – and those in the host countries (e.g. salary, well-being, and conflicts).

Host countries and humanitarian organisations such as UNHCR call for a different institutional and financial framework in order to cope with the needs of refugees in the short and medium term. In particular, medium term policies for refugees’ assistance must be seen as an integral part of growth and development policies. Indeed, these policies should not differ from the standard growth policies. Examples of these policies are investing in education and health, performing the labour demand—supply matching, allowing firms to access to more financial instruments, and boosting the regional economy. These are the policies often applied to developing countries affected by shocks, and they can also be applied to the European migration crisis which does not seem to be a short-term phenomenon.

The other challenge that the EU must address is the Brexit vote. While Brexit involves a wide range of consequences, its economic implications are the most relevant in the Brexit debate. The EU is still the main destination market for exports from the UK, with around 45 percent of goods exported and around 38 percent of services exported, even though these percentages have recently decreased. The massive UK—EU imports and exports show that Brexit economic implications cannot be neglected. Also, the EU trade relations with other countries will be affected as many trade agreements might be re-negotiated. Leaving the EU also implies that the UK will leave any further opportunities to be integrated in the Eurozone, and disadvantages linked to this missed opportunity weight more than any possible advantage related to the Brexit decision.

In this scenario, the strategic role of the EU is crucial. The EU and all its members must realise that cooperation is the only way to cope with the recent crises (economic, financial, institutional, and social), and that we cannot address one single crisis without addressing all the others.



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