CITI: Refugees are more likely to ‘break Europe’ than the Greek crisis

Europe had a pretty tough year with the Greek crisis, the potential Brexit, the boisterous Russia, and the turmoil in Syria.

But of all of Europe’s problems, Citi analysts think that the most debilitating one is the refugee crisis.

“Nowhere is the convergence of geopolitical and socio-economic risks more visible than in the refugee crisis that hit Europe in 2015. In the short term, refugees have the greater potential to ‘break Europe’ than the Greek crisis or the standoff with Russia over Ukraine,” argues Citi Research’s Tina Fordham.

That’s because the refugee crisis has resulted in “political instability of the EU system and a massive rise in Vox Populi risks because of an increase in populism, xenophobia, and political fragmentation in European societies,” argues Fordham.

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(Citi defines “Vox Populi” risks as “shifting and more volatile public opinion that poses ongoing, fast-moving risks to the business and investment environment.”)

Notably, we’re already seeing these “Vox Populi” risks in the EU.

For starters, populist parties and far-right parties (like Germany’s Alternative and France’s National Front led by Marine le Pen) have gained speed.

Moreover, analysts are starting worry about political fragmentation and disagreement between the EU states on how to handle crises.

And finally, perhaps the biggest risk that comes from the refugee crisis is the potential “Merkel-exit.

Although some Europeans (both Germans and non-Germans) would be very happy to see Merkel out of the office due to her unpopular decision to let refugees into the country, her exit would mark a big shift in Europe’s trajectory.

Most importantly, “it would leave Europe with less ability to respond collectively to any crisis (expected or otherwise),” argued Eurasia Group’s Ian Bremmer and Cliff Kupchan — which is significant given that Merkel has long acted as the de facto European leader.

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In short, things are looking pretty tense right now — and the problems aren’t going away anytime soon.

“In 2016, this extremely harmful dynamic will continue play out. The trek of migrants towards Europe has not (structurally) ebbed…, unified European solutions are unlikely to come about soon, and EU political leaders will continue to be torn between the complex realities of the problem and the increasingly louder demands for quick, simplistic fixes in their home countries,” concluded Fordham.

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