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Germany could spend up to 25 bln euros on migrant intake -banks

17 September 2015, 11:07

London - Germany's lead in housing hundreds of thousands of migrants heading to Europe from a war-torn Middle East could cost its Treasury tens of billions of euros over the next two years, according to some early private estimates.

The Japanese investment bank Mizuho was one of the first to put a number on it on Wednesday, saying that accepting up to 1 million refugees a year over the next two years could cost Berlin 25 billion euros ($28.25 billion).

That is derived from a basic calculation of 12,500 euros per migrant, according to Peter Chatwell, senior rates strategist at Mizuho. Part of the extra spending may have to be met by extra borrowing, he told Reuters.

"There will be a fiscal burden in the first two years at least. 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."

Over half a dozen banks contacted by Reuters broadly agreed with Mizuho's calculations.

"It seems like a reasonable starting point but it's a very complex issue," said Investec chief economist Philip Shaw.

The short-term expense of taking in migrants could be offset by a longer-term boost to growth from the rise in population, much of which could be skilled and relatively cheap labour.

While some banks said they planned to publish their own calculations in the coming days, others were wary of putting their own number on it with the refugee crisis becoming a sensitive political issue in places like Germany.

Support for the Alternative for Germany (AfD), a right-wing opposition party that backs a tough line on immigration, has risen to its highest level in nearly four months, a poll showed on Tuesday.

The German government says it has earmarked 6 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 refugee-related costs are factored in.

Finance Minister Wolfgang Schaeuble said last week the government did not intend to fund any of its extra refugee and migrant spending through extra borrowing. But even if it does, it would 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 in an email.

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- Reuters


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