Migrant Crisis

Germany Weighs the Costs of Asylum

refugees munich reuters
At Munich's main station more and more refugees arrive in Germany.
  • Why it matters

    Why it matters

    If the German government can faster process the growing number of people fleeing war, it will be able to integrate asylum seekers into the economy.

  • Facts

    Facts

    • Deutsche Bank estimates it could cost €7.2 billion per year to accommodate 800,000 refugees this year.
    • The German government is projecting a budget surplus of €22 billion, and federal coffers are expected to get €5 billion more in tax revenue than in 2014.
    • The German finance minister has said he is prepared to cover the costs of integrating the refugees as soon as the government devises a plan.
  • Audio

    Audio

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The German government is grappling with the sudden, immense costs of housing hundreds of thousands of refugees, many of whom are arriving each day from Syria, Iraq, the Balkans and Africa.

Scenes of desperation from Budapest to Berlin show refugees camping in tents in town centers, crowding into trains and sleeping in parks. The German government is expecting 800,000 immigrants to arrive this year; others say it could even be as many as 1 million.

But far from the temporary shelters and emergency intake centers, the German government and financial experts are taking a sober look at the costs they now face to house, feed and integrate so many unexpected arrivals.

In one estimate, done this week by Deutsche Bank Research, the costs of caring for the 800,000 people could be as much as €7.2 billion a year. The German government seems prepared to cover the costs.

Europe’s largest economy is expected to generate a €22 billion budget surplus this year, and Wolfgang Schäuble, the finance minister, has said he is prepared to devote some of the nation’s €5 billion in additional tax revenue toward housing the newcomers, once government experts agree on a plan.

But getting a handle on the situation is not easy as more and more people pour each day into Germany, boosting the potential costs to German taxpayers.

Last week, Thomas de Mazière, the German interior minister, revised upward the government’s official estimate of the number of refugees expected to reach the country this year to 800,000 from 400,000.

But on Sunday, Volker Bouffier, the premier of the German state of Hesse, said he expected 1 million refugees to come to Germany in 2015.

Dietmar Woidke, the state premier in Brandenburg, said he was keeping all possibilities in mind.

“I’m not excluding anything, not even a million,“ he said. “That’s why at a state level we’re preparing on the generous side for significantly more people than has been predicted.“

Germany has already decided to let people fleeing war in Syria stay in the country, dispensing with the Dublin protocols requiring refugees to register in the first E.U. country they arrive in.

According to estimates, 30 percent to 40 percent of refugees from Syria are children, which means that many new schools will be needed to accommodate 100,000 students, most of whom don’t speak German.

Germany’s government bureaucracy is straining to accommodate the flood of arrivals and Chancellor Angela Merkel on Monday publicly called on Germans to show tolerance towards refugees and flexibility in integrating them.

But beyond the humanity and generosity, the question of costs is coming to the fore.

According to Deutsche Bank Research, Germany’s states are adjusting their budgets upwards in anticipation of the extra costs. Analysts noted that Bavaria, one of Germany’s wealthiest states, had already allocated €500 million more in its 2015 budget and an extra €900 million for 2016.

Other states are also making allowances in their budgets for reception, accommodation and to create jobs for workers needed to process refugees.

The municipalities and states are also calling for more money and improved management of processes.

Mr. Woidke, the Brandenburg state premier, suggested the federal government should cover the costs of housing and try to speed up the processing of refugees.

“The best solution would be for the government to cover everything from the first intake of refugees up until the decision about whether asylum is granted – and also deportation, in the case that an application for asylum is rejected,” he said.

This would mean municipalities would only have to house refugees with the proven status of asylum seekers.

The estimated cost per asylum seeker differs by Germany’s 16 federal states and by the way they calculate their costs.

“It depends on what you’re looking at. First, there are accommodation expenses and costs of living. Second, costs are incurred to learn the language. Finally, it will cost money to integrate them into the labor market and teach them the skills for a job,” said Karl Brenke, an economist at the German Institute for Economic Research in Berlin, or DIW.

Last year, Germany processed 200,000 asylum applications, Mr. Brenke said. This year, the country could see two and half times as much. The costs will surely rise, as more asylums requests are accepted, he said.

“Costs will then almost triple from last year,” Mr. Brenke said.

It remains to be seen whether the Interior Ministry’s estimate of 800,000 refugees this year would actually be reached, because it would require a very strong rise in the number of applications, compared to less than 300,000 in the first half year, Mr. Brenke said.

DIW is compiling new economic forecasts for this year, which would also include separate estimates of refugee costs.

Refugees awaiting their next transport guarded by police DPA.
Refugees awaiting their next transport guarded by police in Vienna. Source: DPA

 

 

According to Deutsche Bank research, the biggest cost is the lump sum per asylum-seeker transferred annually from federal states to the towns and cities that care for them. According to the Deutsche Landkreistag, or German Counties Association, this works out to an annual average of €6,700 per asylum-seeker, although costs differ between the states.

The amount does not include costs for accommodation and health care. According to the association, the amounts provided to the municipalities by the state of Thuringia, for example, cover more than 90 percent of the expenditures necessary. Using Thuringia’s figures, this would mean the annual costs per asylum-seeker would be €9,000.

Other costs come in addition to these figures; Deutsche Bank listed internal security and language courses, both currently covered by the federal government.

On the basis of €9,000 per asylum-seeker and 300,000 applicants that were initially expected at the start of the year, the government had budgeted €2.7 billion. With the new estimate of 800,000 refugees expected, this sum would rise to €7.2 billion, Deutsche Bank’s research noted.

The Streams of Refugees-01

 

Germany’s slow bureaucratic pace of processing refugees — the work done before ultimately deciding to integrate them or send them back home — raises the costs of their temporary accomodation.

On average, it takes 15 months in Germany to process an asylum seeker’s application for someone fleeing civil war in Syria, according to government figures.

Once an asylum application is granted, refugee are allocated to a government-run job center. Refugees can then begin to draw on Germany’s social security payments.

Andrea Nahles, the German employment minister, said yesterday that the country’s entry-level social benefits — called Hartz IV after the architect of the program, a VW board member and union leader, Peter Hartz — are likely to rise significantly along with the rising numbers of refugees.

“According to our calculations, we expect 240,000 to 460,000 additional people with a right to social security next year,” Ms. Nahles said.

Of these, 175,000 to 335,000 people would be capable of work, according to government estimates. By 2019, this number is expected to rise to 1 million.

The government is keen to integrate people into the job market and is working on pilot projects in several regions.

During the period that refugees wait for the status of their asylum application to be decided, job center employees will assess their qualifications and needs, from language courses to vocational training. This will lead to greater investment in education, which is likely to rise from the €1.5 billion in 2016 to €3.3 billion, and to €7 billion per year by 2019.

Mr. Schäuble, the finance minister, has appeared relaxed in the face of the human onslaught of refugees. Earlier this week, he said: “We’re in the lucky situation that we won’t have a shortage of money.”

He is keen for refugees to benefit from the additional €5 billion Germany is expected to gain this year, according to Bundesbank predictions.

The government has also emphasized that measures are already underway to speed up the processing of asylum seekers to ease the burden on the federal states. For every month saved in the process, federal states save €400 million per year, while the central government has to pay an additional €600 million.

Mr. Schäuble promised to release additional financing once it is clear which measures need to be paid for. Right now, measures are still under discussion by the interior ministry and the construction ministry.

The federal government has promised to deliver a “sustainable, structural and dynamic solution.” The extra costs are not expected to challenge Germany’s balanced budget.

“We still have an expanding job market, which is leading to higher income tax proceeds. We haven’t made the exact calculations, but I don’t think it is a risk,” economist Mr. Brenke said.

Germany’s economy is currently strong, and the country has an annual budget surplus of €22.2 billion, Deutsche Bank calculated.

Lothar Hessler, an HSBC analyst in Dusseldorf, said it is critical now for Germany to speed up refugees’ access to work. The faster this happens, the more beneficial effects are likely.

Mr. Hessler said many of the people coming to Germany could potentially help mitigate the effects of the country’s demographic decline.

Two-fifths of German women of child-bearing age currently have no children and the country is losing population.

Should Germany manage to integrate 1 million refugees, it would set a strong signal as countries in Europe seek solutions to the humanitarian crisis.

 

Allison Williams is deputy editor in chief of Handelsblatt Global Edition, Gilbert Kreijger writes about companies and markets, Chris Cermak covers finance. Handelsblatt editors Peter Thelen, Donata Riedel and Thomas Sigmund also contributed to this article. To contact the authors: williams@handelsblatt.com, kreijger@handelsblatt.com, cermak@handelsblatt.com, thelen@handelsblatt.com, riedel@handelsblatt.com and sigmund@handelsblatt.com

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