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The Moral Hazard of Open Borders on Sovereign Creditworthiness

June 18, 2012

No, we are not right-wing anti-immigration nuts.  But from a sovereign credit perspective, open borders are dangerous for sovereign creditworthiness of weak countries.  Highly skilled personnel from Greece and Ireland are emigrating to other countries.  This reduces the chance of these countries ever being able to repay their debt.  Spanish engineers are now moving to German companies in Germany.  But what Germany gains with one hand (skilled technical labor force for free), it will lose with the other hand (reduced chance of Spain being able to repay back bailout money).  Without skilled labour, local companies will not be competitive and hence not very profitable.   They will not be able to generate adequate corporate and individual income taxes for their countries, thus weakening their sovereign credit profile. 

In fact, for skilled labour, open borders means that they can participate in debt financed binges in many countries and move on when the party comes to an end.  They enjoy privileges without responsibilities.  They would have directly and indirectly participated in the binge.  But when the bill collector arrives at the door, they move on.  Sovereign credit analysts need to factor in the moral hazard of open borders for their analysis.


From → Credit Analysis

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