The cost to Germany of taking the lead in Europe's migrant crisis, by accepting up to 1 million refugees a year over the next two years, may reach 25 billion euros, according to research published Wednesday. That is derived from a basic calculation of 12,500 euros per migrant, said Peter Chatwell, senior rates strategist at Japanese investment bank Mizuho. Part of the extra spending may have to be met by extra borrowing, he said. "There will be a fiscal burden in the first two years at least," Chatwell said. "The government won't go into deficit, but it will require looser fiscal policy and therefore more issuance of debt than would otherwise be the case." The short-term expense will be offset by the longer-term boost to growth from the rise in population, much of which could be skilled and relatively cheap labour, Chatwell said. Earlier this month, the German government said it has earmarked six billion euros to deal with the refugee and migrant influx. Germany's budget surplus stood at 21.1 billion euros, or 1.4 percent of gross domestic product, in the first half of 2015. Economists at Commerzbank expect this to rise to around 30 billion euros next year, before the refugee-related costs are factored in. Finance Minister Wolfgang Schaueble said last week the government does not intend to fund any of its extra refugee and migrant spending through extra borrowing. But even if it does, it will be able to do so easily. Federal borrowing costs are currently negative all the way out to eight years maturity, meaning investors are effectively paying for the privilege of lending to Berlin. The yield on two-year government bonds, for example, is -0.23 percent. "Some of this funding will need to be met by the issuance of short-end paper, in particular by two-year bonds. Negative rates would make it an easier sell politically," Chatwell and his colleague Antoine Bouvet said. Germany's 2016 borrowing plans include an increase in the amount of short-term Bubills issuance to 57.9 billion euros from 35.5 billion this year, possibly in anticipation of the expected costs of the refugee crisis, Chatwell and Bouvet said. Credit ratings agency Standard & Poor's said Tuesday that the costs to Germany and other countries from taking in refugees from Syria and elsewhere will be "fairly modest" and there should be no immediate impact on their sovereign credit ratings. In fact, the new arrivals could bolster economic growth in countries that grant them asylum and they could ease economic challenges posed by ageing populations, it said.
