There have been two important reforms announced, one in the EU and other in the IMF, that many investors may have missed due to the carnage in the markets. 

While the economic challenges that Europe faces remain potent, the refugee problem appears more pressing. Tomorrow the flash January PMIs from the eurozone are expected to slip a little, but the composite will likely remain near the multi-year high matched in December. This suggests growth is steady. 

The EU prides itself on its rules-based regime. One of the rules that makes it difficult to deal with the flood of refugees and asylum-seekers calls for the country of initial entry is responsible. Given where the refugees are fleeing, Italy and Greece are often the first country of entry but are ill-positioned to cope with expenses. Greece’s travails are well appreciated.  Italy, which has kept its budget deficit at 3% of GDP or lower for the past three years, is under pressure from the EU to reduce its debt levels. Reports suggest that last year 850k asylum seekers flocked to Greece, and another 200k went to Italy. 

Refugees are to be registered (largely a photographed and fingerprinted) and the point of embarkation is to provide the welfare. However, given the poor conditions in Greece and Italy, and better conditions elsewhere, the system has been gamed. Many refugees are reluctant to be registered in Greece and Italy. Local officials often see this in their interest as well. 

Migrants registered in one country and found in another EU country can be sent back to the first country. Since 2003, for example, reports suggest that the UK has sent 12,000 asylum-seekers back to the country of initial entry to the EU.  However, many countries do not appear to bother as it can be time-consuming and costly. One study found that in 2013, only 16k of a 76k requests acted upon.