THE DESTABILIZING POTENTIAL OF EUROPE S MIGRANT CRISIS BY ANWITI BAHUGUNA, PH.D GLOBAL PERSPECTIVES

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1 THE DESTABILIZING POTENTIAL OF EUROPE S MIGRANT CRISIS BY ANWITI BAHUGUNA, PH.D GLOBAL PERSPECTIVES

THE DESTABILIZING POTENTIAL OF EUROPE S MIGRANT CRISIS Europe s worsening migrant crisis could lead to political turmoil not only in Germany, but also across the eurozone.

2 THE DESTABILIZING POTENTIAL OF EUROPE S MIGRANT CRISIS Europe s worsening migrant crisis could lead to political turmoil not only in Germany, but also across the eurozone. The civil war in Syria has displaced nearly seven million people, many of whom are now making their way through the Balkans into Germany. While Europe has always been a destination for refugees and economic migrants from Africa, Asia and the Middle East, inflows have historically been limited to fewer than 100,000 per year. The current influx of migrants is expected to exceed one million people, bringing formidable integration challenges. ANWITI BAHUGUNA, PH.D. Senior Portfolio Manager, Global Asset Allocation Team Anwiti is responsible for asset allocation research and portfolio management of the asset allocation funds and separately managed accounts.

3 Applications per month Unprecedented flow of migrants threatens to destabilize the eurozone 160, , , ,000 80,000 60,000 40,000 20, EU asylum applications Source: Absolute Strategy Research, 11/ Projected applications* August ,749 July ,543 June ,205 * Based on available data through July and August Where data was unavailable, the previous month s rate of change was used Merkel s domestic troubles Germany faces a demographic time bomb, as its dependency ratio (the ratio of non-working-age population to the working-age population) is projected to rise to unsustainable levels. The right mix of working age migrants, if trained and assimilated, could have positive effects on the economy. However, the fiscal spending required to accommodate more than a million migrants in Germany is estimated at 0.3% 0.6% of gross domestic product not an easy task for a country focused on balanced budgets German Chancellor Angela Merkel, who provided stability and pragmatism during the debt crises, now faces major domestic challenges as her position on welcoming the refugees is largely at odds with the rest of the country. We would point out the significant risks to the region should Merkel not survive the German political dynamics. There are no obvious candidates who could step in and provide similar leadership in Merkel s departure. Implications beyond Germany s borders The refugee issue extends beyond Germany and threatens to raise the risks of another eurozone crisis. Merkel s pro-immigration stance faces stiff opposition from other European Union (EU) members, particularly eastern European countries. In response, Germany is threatening to limit EU funding for countries refusing to accept migrants. In the south, the fiscal burden of accommodating migrants is reenergizing the anti-austerity debates in Greece, Portugal and Spain. It has refocused the Brexit discussion (Britain s impending vote on leaving the EU) and put into question the free movement of labor across borders within the Schengen zone of Europe. Monitoring a delicate situation Investors are expecting another sunny year in 2016 for eurozone risk assets. The eurozone economy has been recovering steadily from the depths of the crisis in and European Central Bank (ECB) policies have kept the currency down, supporting exports, and the region has benefited from cheaper commodity prices. The migration issues have raised the risks of another eurozone crisis. Currently, the markets are not overly concerned and expect the ECB policies to be supportive of risk assets; however, delicate handling of the migration will be crucial so as not to hamper the modest recovery underway. The unprecedented flow of migrants and refugees is a significant development that needs to be carefully monitored as a potentially destabilizing shock to the eurozone.

4 Asset allocation and/or diversification does not assure a profit or protect against loss. International investing involves certain risks and volatility due to potential political, economic or currency instabilities and different financial and accounting standards. Risks are enhanced for emerging market issuers. Investing involves risk including the risk of loss of principal. The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate. Securities referenced should not be construed as a recommendation to buy or sell.

5 About Columbia Threadneedle Investments Columbia Threadneedle Investments is a leading global asset management group that provides a broad range of actively managed investment strategies and solutions for individual, institutional and corporate clients around the world. With more than 2,000 people, including over 450 investment professionals based in North America, Europe and Asia, we manage $471 billion* of assets across developed and emerging market equities, fixed income, asset allocation solutions and alternatives. We are the 13th largest manager of long-term mutual fund assets in the U.S.** and the 4th largest manager of retail funds in the U.K.*** Our priority is the investment success of our clients. We aim to deliver the investment outcomes they expect through an investment approach that is team-based, performance-driven and risk-aware. Our culture is dynamic and interactive. By sharing our insights across asset classes and geographies, we generate richer perspectives on global, regional and local investment landscapes. The ability to exchange and debate investment ideas in a collaborative environment enriches our teams investment processes. More importantly, it results in better informed investment decisions for our clients. To find out more, call or visit columbiathreadneedle.com/us * In U.S. dollars as of September 30, Source: Ameriprise Q3 Earnings Release. Includes all assets managed by entities in the Columbia and Threadneedle groups of companies. Contact us for more current data. ** Source: ICI as of September 30, 2015 for Columbia Management Investment Advisers, LLC. *** Source: Investment Association as of September 2015 for Threadneedle. Securities products offered through Columbia Management Investment Distributors, Inc., member FINRA. Advisory services provided by Columbia Management Investment Advisers, LLC. Columbia Threadneedle Investments (Columbia Threadneedle) is the global brand name of the Columbia and Threadneedle group of companies. Columbia Management Investment Distributors, Inc., 225 Franklin Street, Boston, MA Columbia Management Investment Advisers, LLC. All rights reserved. 11W2 (01/16)

CIO Markets Report. Key Observations Implications Markets Charts. Stephen Sexauer, CIO. CIO Markets Report

CIO Markets Report. Key Observations Implications Markets Charts. Stephen Sexauer, CIO. CIO Markets Report Key Observations Implications Markets Charts Key Observations and Implications 1. 2017 Eurozone Votes Loom. There are three key Eurozone elections in 2017: The Netherlands, France, and Germany. Table 1