Foreign workers have become a central force in the Eurozone economy, according to European Central Bank (ECB) President Christine Lagarde.
Speaking at the Federal Reserve symposium in Jackson Hole, Wyoming, she described their role as decisive in keeping growth steady while easing inflationary pressures.
Migrant labor sustains economic output
Lagarde explained that although foreign workers made up only about 9% of the Eurozone labor force in 2022, they accounted for half of its growth over the last three years. She noted that without this contribution, job markets would be tighter and output lower.
Germany, the region’s largest economy, would have seen gross domestic product fall by roughly 6% compared with 2019 levels if not for foreign workers, she said. Spain also relied heavily on immigration to maintain its momentum after the pandemic.
The numbers illustrate how migration offset the effects of shorter working hours and falling real wages. In many industries, especially services and manufacturing, migrant labor helped firms adapt quickly to shifts in demand.
Impact on inflation and employment
Lagarde linked the influx of foreign workers to lower inflation across the Eurozone.
By enlarging the labor pool, immigration allowed firms to expand production without sharp wage increases. This helped prevent the kind of slowdown that usually follows higher interest rates.
At the same time, older workers have remained in jobs longer, contributing to employment stability. Lagarde said that without the combined effect of immigration and older workers, unemployment in euro-using countries would be about 6.6% instead of the current 6.3%.
This resilience marked a shift from earlier cycles when rising borrowing costs often stalled growth.
Demographics and political pressure
The European Union’s population climbed to a record 450.4 million in 2024 as net migration offset natural population decline for the fourth consecutive year.
However, the economic benefits have not silenced political opposition. In Germany, the government has suspended family reunification and resettlement programs to counter voter support for the far-right Alternative for Germany party.
Similar tensions are visible in other EU members, where skepticism about migration has become a major campaign issue.
Lagarde warned that while migration could ease labor shortages caused by aging populations, “political economy pressures may increasingly limit inflows.”
Outlook for the Eurozone
Lagarde’s remarks come at a time when European policymakers are trying to manage slowing growth while keeping inflation under control. Her speech highlighted how much of that balance has depended on immigration since the pandemic.
The ECB president stressed that migration was not just filling gaps in low-wage sectors but also supporting broader economic stability. Yet she left open the question of whether governments will maintain policies that allow this support to continue.
Travel rules intersect with labor needs
Lagarde’s comments come at a time when Europe is preparing new entry rules for visitors.
From late 2026, travelers from 59 visa-exempt countries will need to apply for the European Travel Information and Authorization System (ETIAS) before entering 30 European states. The authorization will be valid for up to three years and will allow short stays of up to 90 days within any 180-day period.
For short-term visitors, the change means more paperwork but not necessarily greater difficulty. Most applications are expected to be approved quickly.
For migrants, Lagarde’s recognition of their role in the economy reinforces the idea that Europe’s labor market still needs them, even as debates over entry and settlement rules continue.
Governments weigh labor against politics
The economic benefits Lagarde described do not erase the political challenges. Countries that saw strong recoveries, such as Germany and Spain, face pressure to maintain labor inflows while responding to voters who want stricter migration rules.
Germany has already suspended family reunification and some resettlement measures.
This tension is likely to produce mixed results across Europe. Some governments will expand programs that attract needed workers, while others may continue to scale back certain categories of migration.
Lagarde’s warning that “political economy pressures” could limit inflows suggests that policy decisions will depend as much on electoral politics as on economic data.
Immigration’s role in Europe’s economy
Foreign workers have become a steady driver of the Eurozone economy, helping to keep growth on track and inflation in check. Lagarde’s remarks point to a simple fact: Europe’s labor has relied heavily on migration to meet demand in recent years.
As governments weigh political pressures against economic needs, the balance they strike will determine how resilient the Eurozone economy remains in the years ahead.