The social development bank in Europe

Refugee crisis and unemployment: the CEB's contribution to strengthening social cohesion in Europe

Speech at the Übersee Club, Hamburg, 6 September 2017 (Original speech in German)

Dr Mirow, many thanks for your kind introduction,
Dr Klischan,
distinguished members of the Übersee Club,
ladies and gentlemen,

Thank you for the invitation to speak before you today. It is both a special honour and a joy for me to be here. A special honour because of the impressive and eventful history of the Übersee Club. A joy because it is an opportunity for me, hailing from Hamburg myself, to return to my home town after several decades of absence due to my work.

I would also like to thank you for coming here in such large numbers today. I assume that several of you were eagerly waiting for the end of the summer break so you could get back together with like-minded people in your club. But I also hope that you were interested in learning more about a Paris-based multilateral institution, which is still not as well known as its larger peer institutions like the World Bank or the European Investment Bank in Washington D.C., the European Investment Bank in Luxembourg or the European Bank for Reconstruction and Development in London, which was recently headed by you, Dr Mirow. Considering that you have come all the way here this evening despite the relatively dry terms in the title of my speech, for example “refugee crisis”, “unemployment” and “social cohesion”, then that only further increases my respect for you as a serious audience.

1. Who is standing here before you / What is the CEB?

The Council of Europe Development Bank – or the “CEB” as we call it – is the Council of Europe's financing instrument, and its mission is to strengthen social cohesion in its member countries. As I am sure you are aware, the Council of Europe essentially stands for the pursuit of the following three goals: to safeguard human rights, promote democracy and strengthen the rule of law. It is these values that underpin the exclusively social projects financed by the CEB in its 41 European member countries. This “social mandate” of the CEB is actually unique and goes back to the experiences and lessons learned from WW2. One of the concerns at the end of WW2 was to provide housing solutions for the refugees and displaced persons in the countries destroyed by war. In 1949, for example, more than 12 million people in Europe were registered as refugees, three-quarters of whom were Germans, and it quickly became clear that reintegrating these people would only be possible within the framework of European cooperation. This led to the establishment of the CEB as a multilateral financial institution in 1956, and there were eight member countries at the very start, including Germany, France, Italy, but also Turkey and Greece. 

The number of members then grew during the decades that followed, and many Central and Eastern European countries also joined the Council of Europe and the CEB, especially in the 1990s after the fall of the Iron Curtain. Today it has 41 members, namely all the EU member states except the UK and Austria, plus Norway, Switzerland, Iceland, Moldova, Georgia, Turkey and the countries of the Balkan region.

The CEB's mandate, which is to promote social cohesion in and between its member countries, has remained unchanged, and today the Bank's activities focus on financing social projects in the following three areas:

• combating unemployment and radicalisation through projects aimed at boosting sustainable growth and social cohesion
• integrating refugees, displaced persons and migrants
• developing measures to mitigate the impact of climate change.

In my speech, I would like to focus on the first two of the above areas, in other words, integrating refugees and combating unemployment and radicalisation.

First of all, to give you a better understanding of the CEB's work, a simplified way of looking at it is to imagine it as a traditional banking business. On the client side, we have countries or regional authorities who, partly via intermediary national financial institutions, receive loans from us to finance social projects. We also work with commercial banks, through which we finance projects aimed at job creation and preservation in small and medium-sized enterprises or fund microloans.

To refinance its loans, the CEB issues bonds on the international capital markets, which are predominately subscribed to by institutional investors (pension funds, central banks). Thanks to its excellent credit ratings, the Bank can borrow at very favourable terms on the markets, and is able to pass these funds on to its borrowers after applying only a modest margin to cover its costs.

Consequently, this financing is more favourable for borrowers than taking up loans on their own doorsteps. This has not only proved to be the case for Balkan countries where one might readily expect financing options to be more expensive, but also for countries commonly regarded as financially stronger, such as France or Germany. Since the Bank is a self-financing institution, we do not trouble our member countries with further demands for capital beyond their subscribed capital contributions.

The Bank is financially sound, has a solid loan portfolio and has no default or arrears on its loans. In banking terms, this means that borrowers respect its “preferred creditor status”, and the Bank also maintains a prudent financial strategy and an efficient risk management framework. These are all reasons why the CEB was unaffected by the financial crisis in 2008.

Much of our activity today focuses on countries with greater needs in terms of public infrastructure development. Yet we are also active in wealthier countries, where there are often social inequalities between regions or amongst social groups within the same community.

We view this type of social disparity as equally harmful to the fabric of European societies, so we work to increase social convergence not only between countries but also between smaller entities, such as regions and municipalities. In Germany, we have expanded our activities significantly over the last two years and, for example, today we are involved in financing social housing, nurseries and schools in Lower Saxony, Berlin, Brandenburg, Rhineland-Palatinate and Hesse.

We help European economies to grow and spread benefits more evenly, thereby combating marginalisation and exclusion, which are among the root causes of social tensions, radicalisation and extremism. The catastrophic results of these dangerous phenomena in Europe are, sadly, known to us all too well.

Ultimately, therefore, we help to make societies more inclusive, democratic and secure, which is why our motto is “Building a better Europe”.

So let me turn to this evening's subject: the refugee crisis, unemployment and radicalisation.

2. Challenges facing Europe due to refugees and migration

To some extent, these issues are closely linked, and are currently the subject of intense debate in Germany – more than in virtually any other European country – not least due to the forthcoming German Bundestag elections. Some view the refugees and migrants as an opportunity to alleviate the problems associated with demographic change, for instance the ageing of the German population, whereas others issue populist warnings about cultures being undermined and the risk of radicalisation. The fact that migration has existed throughout the history of humankind is often overlooked here. After all, without the “Great Migrations” all over the Mediterranean during ancient times, the migratory movements of Germanic and Slavic tribes in Europe or the “Great Atlantic Migration” towards North America, the economic and cultural development of these regions would probably have taken a completely different course.

Some people like to think that Europe is being inundated by non-Europeans who have taken over our societies, but this view overlooks the fact that migratory movements within Europe have also been taking place, and are still going on. I need only mention here the frequently discussed “Polish plumbers”, geriatric nurses from the Czech Republic or Slovakia, and doctors and nurses from Serbia or Bulgaria.

These people are all driven by the desire to build a new and better future for themselves and their families in the prosperous countries of Europe. Let me give you a few figures: since the mid-1990s, around 2 million principally well-educated people have emigrated from Bulgaria, while Romania lost approximately 3 1/2 million people between 2000 and 2015, shrinking its population by around 17 per cent. Many people have also emigrated from the successor states of the former Yugoslavia: according to official figures, approximately 60,000 Serbians left their homeland in 2015, and the figure for 2016 is expected to be similarly high. 

The World Economic Forum recently published four very interesting maps of migration in Europe, which are based on UN studies. These maps show the percentage of the foreign-born population in each European country and the origin of that population, e.g. Italian people represent the highest percentage of the foreign-born population in Belgium, the largest proportion of immigrants to Ireland are from the UK, and Germans make up the biggest immigrant population group in Switzerland, Austria and Denmark.

What concerns or even frightens many people in Europe today is the fact that so many refugees are arriving in Europe within such a short period of time. On the one hand, these refugee flows are due to the conflict situations in, primarily, Afghanistan and Iraq, but what also drives these people is the human desire for economic security and advancement.

Since it is generally the less well-educated people and the elderly population that tend to stay in their homelands, this population movement is having a considerable impact on the economic and social prospects of the affected countries. Their governments lack the tax revenues to make urgently required investments in public infrastructure (schools, hospitals), commercial banks are afraid to lend to start-ups and small enterprises due to the absence of standard bank collateral, and there is no private foreign investment.  As a result, we are seeing a fragmentation of social cohesion, for example in the Balkan states, coupled with associated risks of radicalisation and growing nationalism amongst the remaining population.

So, what can be done? As I said earlier, helping to resolve the problems of refugees and displaced persons has been a core mission of the Bank since 1956, which is why we have had a specific responsibility to help the people affected by large population movements in Europe at various times during Europe's history, namely: 

• in the years following WW2
• in the period after the fall of the Iron Curtain
• during and after the wars in the former Yugoslavia
• and, more recently, during the inflow of migrants and refugees from the Middle East and North Africa, 

an inflow which is still ongoing despite the decrease in numbers recorded so far this year compared with 2016. According to the International Organization for Migration (IOM), around 120,000 migrants have already entered Europe by sea in 2017 (compared with 270,000 arrivals around the same time last year). Almost 83 per cent of these arrived in Italy, and the remainder was split between Greece, Spain and Cyprus.

It is interesting to note in light of recent developments, especially the EU-Turkey agreement, that the migratory routes and the number of persons crossing borders at each entry point have shifted. In 2017, Spain has experienced a three-fold increase in the number of refugees entering its territory, while arrivals in Greece – the main gateway into the EU in the past – have decreased tremendously of late, by more than 80 per cent. Italy is now the main entry point into Europe.

Syria, Afghanistan, Iraq, Eritrea, Nigeria, and Pakistan are still the top countries of origin here, in other words, countries whose people are fleeing war and persecution in search of a safe environment for themselves and their families. Their quest for a decent life is not without risks, however. The latest count for Mediterranean Sea fatalities is 2,500 so far this year, but it is feared that the actual figure is even higher.

So, regardless of its political and social ramifications, we are dealing with an issue that has a major humanitarian dimension.

When the refugee issue reached crisis proportions back in 2015, the CEB was the first international financial institution to respond by taking rapid and concrete action. 

First, we responded to the emergency situation by establishing a dedicated grant facility, the Migrant and Refugee Fund (MRF). Endowed with CEB funds as well as with grants from our member states and other donors, the Bank used this to provide emergency assistance to the countries on the so-called Western Balkan route – which were most affected by the inflow of refugees – enabling them to buy food, shelter, medical care and clothing for the refugees. So far, the MRF has already provided over €18 million for refugee projects, and further projects are in the pipeline. I am delighted to say that Germany was not only one of the first countries to donate to the MRF, but it has also topped up its contribution since then.

Emergency assistance is only a small part of our work in this regard. We are aware that the refugee crisis is placing severe economic and political strains on our member countries, so we are doing everything we can to support them through our loan instruments.  However, the integration of refugees is not without controversy, as some European countries are categorically refusing to take in refugees and are calling for EU funds to reinforce their borders.

The social integration of migrants

Studies show that, if properly managed, migration can have significant benefits for the country of destination. This positive impact concerns mainly the demography and the labour market, both of which are vital for economic growth.

A combination of high life expectancy on the one hand and falling birth rates on the other is posing great challenges for Europe in particular, and Germany is one of the countries at the top of this list. The United Nations predicts that population ageing will be the norm in Europe by 2050, and that virtually all European countries will see their populations decline. Some countries, including Italy, Bulgaria and Estonia, could lose as much as one-quarter to one-third of their current populations, and the potential support ratio (i.e. the number of persons of working age [15-64 years] per older person) will fall from 5 to 2 in many cases.

Migration can help to alleviate demographic pressure in this regard and, for that to happen, it is estimated that a continuation of the immigration levels observed in the 1990s would suffice in the European Union. UN studies indicate that Italy and Germany would need the largest number of immigrants to maintain the current level of their working-age populations, while Italy would require 6,500 migrants per million inhabitants annually and Germany 6,000, i.e. around half a million people would have to emigrate to Germany every year. 

Then there are the obvious benefits for the labour market: an active, young, skilled population means greater availability of labour. For all this to happen, however, the rapid and successful integration of migrants is essential.

Experiences in other countries show that it is vital for refugees to have the right to work, as it enables them to support themselves, contribute to their host states and maintain their dignity. According to OECD data, one in three immigrants in OECD countries holds a university degree – three times more than native-born persons – and about half of recent immigrants are in some sort of employment. Yet one in five immigrant workers are living in poverty as opposed to only one in ten native-born workers, so it is becoming clear that there are particular obstacles affecting migrants when it comes to integration into our societies.

So, simply having a job is not enough on its own. A successful integration process requires combined, targeted action in a number of different areas, such as housing, health, education and professional training or re-training in addition to employment and job creation. The fundamental requirements in all these cases are language training, professional training and re-training, because even highly qualified migrants find it much harder than native-born persons to contribute and make proper use of their qualifications. This means that there are often obstacles to how foreign qualifications translate in a new environment, with obvious consequences for access to the job market.

Financial inclusion is another important prerequisite for the integration of migrants. Many newly arrived persons, particularly those with an uncertain residential status such as asylum-seekers but also plenty of others such as migrant women, have difficulty accessing formal financial services. This cannot help but have a negative effect on their integration into the new environment, regardless of the duration of their stay in the host country.

Let us take a look at Germany, the European country that has received the greatest number of refugees since the outbreak of the recent crisis, with an estimated 1.2 million persons arriving in 2015 and 2016 alone. Germany has taken a number of measures to facilitate early labour market entry for asylum-seekers, making access to jobs possible after three months provided that certain conditions are met. It has also stepped up its integration efforts enormously, for example in terms of providing language and civic training for refugees. An OECD study on labour market integration of refugees in Germany concludes that “this, coupled with positive labour market conditions, provides a favourable context to promote labour market integration.”

So, with regard to migration, integration is the main challenge. On the one hand, the international community should, of course, step up its efforts to address the root causes of mass migration in the countries of origin, wherever possible. But when it comes to the migrants and refugees that do arrive in Europe, governments could also do a lot more through appropriate social policies to create an environment that views and treats these people as an opportunity for cultural, social and financial enrichment rather than as a threat to society.

This requires substantial investment in public infrastructure, housing, health, education and job creation, and is an ongoing process, not a situation for which there is a quick fix.

International financial institutions have an important role to play in this, and I am pleased to say that the CEB has mobilised a considerable volume of funds to help its members manage migration. Last year alone, we increased our loans by 50 per cent – the majority of the additional committed projects benefiting migrants, refugees and displaced persons – and will boost our lending activities again in the current year. We are committing our full range of loan instruments to supporting the social integration of migrants and refugees in all the countries concerned, including Germany.

For example, the Bank recently approved a €300 million loan to Investitionsbank des Landes Brandenburg (ILB) to finance social housing projects for vulnerable population groups, including migrants and refugees and their families, persons with disabilities, and the elderly. This loan will also be used for the construction of new rental housing and the modernisation of existing facilities in regions of Brandenburg identified as “priority zones”, including the refurbishment of schools, local roads and public transportation.

The CEB recognises the importance of decent and affordable housing, and we also know that energy efficiency improvements in housing play a significant part in meeting environmental and climate goals. We therefore believe that access to affordable housing is crucial when it comes to eliminating social disparities and advancing social integration, which is why social housing projects for low-income persons are one of our priority areas of financing in all our member countries. 

Working with national promotional institutions also means that we can benefit from their knowledge of the national and local specificities in the country concerned, allowing us to maximise both the impact and the scope of our operations (leverage being the key word here). In Germany, for example, we are working with state development banks in North Rhine-Westphalia, Lower Saxony, Rhineland-Palatinate and Berlin (social housing construction).

3. Challenges posed by unemployment in Europe

Alongside the refugee crisis, combating unemployment is the second main sector in which the CEB is actively involved.

Conditions on the German labour market are comparatively good at present, but what is the situation in the EU? According to the European Commission, over 21 million persons are unemployed in the EU alone, with unemployment rates in some countries climbing up to 23 per cent and above.

Youth unemployment is a particular cause for concern, with a rate of 20 per cent in the EU overall and as high as 45 to 47 per cent in some individual EU countries. Youth unemployment rates are consistently much higher than general unemployment rates in all European countries too.

In 2016, almost one in three young people across the European Union was neither in employment nor in education or training. The situation also appears to be deteriorating, with the number of young people neither in employment nor in education or training increasing in many EU countries. Bearing in mind that there are some 90 million people aged 15-29 years living in the EU, these figures concern almost one-fifth of the entire EU population.

In its most recent employment outlook report, the OECD warns that “a low-skilled youth population disconnected from both employment and learning risks being permanently left behind in the labour market”. This is why it is so important to address issues such as limited access to training and the job market, unequal opportunities, and youth and long-term unemployment in a comprehensive manner.

The CEB is therefore giving top priority to projects aimed at job creation and preservation, as well as education and training.

By providing financing for small and medium-sized businesses through local commercial banks or leasing companies, we are boosting employment in our member countries. In the past few years, we have been extremely active in SME financing in Turkey, Hungary, the Netherlands, the Czech Republic, the Slovak Republic, and Poland, to name but a few. We also work with microloan institutions to help people who are looking to start or expand a small business but have difficulty accessing bank loans because of their background, gender, age or lack of collateral.

4. CEB activity in the Western Balkans

To give you an even more concrete idea of the challenges arising in regions where the refugee issue and unemployment are mutually reinforcing, I would now like to spend a few moments talking about the Western Balkan region in the last section of my speech. This region is one of the focal points of the CEB’s activity. It is a part of Europe that has been confronted with many challenges and has undergone dramatic changes.

Albania, Bosnia and Herzegovina, Kosovo, Montenegro, Serbia and “the former Yugoslav Republic of Macedonia” may be small countries – the six of them have a combined population of less than one-and-a-half times the population of Bavaria – but they have huge economic potential, and they need our support to fulfil this potential.

While all Western Balkan countries are striving for EU membership, their societies show signs of high propensity for radicalisation. Some of this may stem from underlying religious and cultural tensions, but social inequality and high unemployment rates also have a major part to play.

The entire region is facing either a demographic contraction or stagnation, driven by declining birth rates and high migration levels –  since 2010, in fact, the population of the Western Balkans has decreased by a quarter of a million persons. The average unemployment rate is over 20 per cent, and is as high as 26 per cent in some individual countries like Bosnia and Herzegovina, while youth unemployment, i.e. concerning people under the age of 25, is close to 50 per cent. Meanwhile, activity rates are highly suppressed because of low female participation in the labour market, which is due to religious and cultural factors, to traditional roles assigned to women in these societies, and to the limited availability of care facilities for families with children.

So, this region in particular is facing especially big challenges. While the prospect of EU membership provides strong incentives for reform, despite the EU's appeal having suffered here too, there are also high expectations in this region of rapid economic and social success. If these expectations are dashed, there is a fear that old nationalisms will resurface and, ultimately, only economic advances and better living conditions will prevent old conflicts from breaking out again on the European Union's doorstep.

This is why the CEB is supporting regional, supranational cooperation in order to improve investment conditions. We are doing this in close collaboration with the EIB, the EBRD and the European Commission, because we know that we will only be successful if we work together.

The CEB also manages the Regional Housing Programme (RHP). The programme provides decent housing for tens of thousands of people who were displaced by the wars leading to the breakup of the former Yugoslavia, and also promotes reconciliation through the close cooperation of the four partner countries: Bosnia and Herzegovina, Croatia, Montenegro and Serbia. The programme, which is sponsored by an international group of donors including the EU, the US and other European countries, has been delivering housing solutions for refugees and displaced persons from this region since 2015.

5. Concluding remarks

Ladies and gentlemen,

I have attempted to show you that migration, unemployment and radicalisation are linked, and that these problems and challenges also exist within Europe. If the political will is there, then today's label of “young / migrant / unemployed” can be transformed into the forward-looking combination of “trainable / fresh impetus / employee potential”.

For me, this appears to be the most suitable way of preventing the further radicalisation of vulnerable groups. For those who see no prospect of earning income or leading a decent life are only too likely to follow the so-called “pied pipers” who try to lure people with their theories – and, ultimately, it makes no difference whether these are from jihadist fringes targeting migrants or those spouting nationalistic and xenophobic messages to the native populations. 

Policymakers need to create the framework for matters such as rapid legal certainty regarding status issues, recognition of foreign educational qualifications, or access to education and training.

Business must provide places in education and training initiatives, and proactively too, as a long-term investment in the human capital of companies. In Germany, we have the highly acclaimed dual education system, so for coherent packages to be put together, close coordination is clearly required between the policymakers and authorities on the one hand, and the business structures (chambers of commerce, etc.) on the other.

Civil society should also play an active role in integration – in the form of neighbourhood assistance, for example, or by inviting and including the new arrivals in community life, their cultural and sports clubs, etc. at the local level.

While they are being trained, educated and integrated into society, the young people also need an affordable roof over their heads. This is a huge problem, particularly in economically strong and dynamic locations including Hamburg. Rapid solutions must be found here as well, for example in the form of supported residential communities or similar approaches.

So, let us view this most recent wave of immigration as an opportunity for the ageing and progressively less dynamic economies in Germany and Europe.

If the political parameters are set correctly, then the multilateral financial institutions can play their roles successfully – and in 1956, Europe created an institution that has the tools and expertise to help resolve these problems: the CEB.

Thank you for your interest.

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