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24th Sep 2018

Magazine

Losing Schengen would hurt EU businesses

  • Since last September, eight Schengen countries out of the 26, including Germany and Austria, have introduced border checks. (Photo: EUobserver)

I still remember the gut-wrenching tension of our approach to the border between our native Hungary and Austria. While all our papers were fine, the excitement of crossing from a post-communist country into "free" Europe loomed over our car for hours.

Then, when Hungary joined the EU and the passport-free Schengen area, the frontier, the officers and the nervousness disappeared. The jitters were replaced by an overwhelming feeling of freedom, that we all belonged to a Europe without borders.

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  • Controls at the Danish-Swedish border were introduced on 4 January to reduce the flow of asylum seekers from mainland Europe, ending 60 years of passport-free travel between Nordic states. (Photo: EUobserver)

But those psychological barriers, and the actual border checks, are coming back. The migration crisis has put unprecedented pressure on EU politicians to control the flow of asylum seekers within the Schengen zone.

Lorries queuing for hours for border checks to be carried out between Belgium and France was unimaginable spectacle only a year ago.

But now the reinstatement of border checks in eight countries within the Schengen area is raising increasing concern that the surging costs of trading goods may threaten jobs and destroy passport-free travel.

The economic price is already being felt, and every EU citizen will pay a price.

The EU Commission estimates losing Schengen altogether could cost as much as an €18 billion drop in the EU's annual GDP.

A race against time

Countries fed up with the lack of coordinated EU response have started to introduce various degrees of border checks inside the Schengen zone to stem the flow of migrants travelling unchecked over European borders.

Since last September, eight Schengen countries out of the 26, including Germany and Austria, have introduced border checks.

The measures heightened fears that one of the cornerstones of European integration, the free travel of goods and citizens, might unravel.

"Saving Schengen is a race against time and we are determined to win that race. Without effective control on our external borders, the Schengen rules will not survive," EU Council chief Donald Tusk warned last November.

Europe trades mostly via trucks or train

The economic price would be felt all over the EU. Europe's trade is mostly done by trucks and trains that are now being stopped at some borders for checks. Reintroducing border controls would effect an estimated EU 57 million journeys a year across Europe's frontiers for international road freight transport operations.

"We are very concerned about continued border controls," Stuart Colley at the Brussels office of the International Road Union (IRU), an industry association for road transport, told EUobserver.

"Many of the businesses in the sector are small or medium sized, family owned businesses, and there is a real potential that some of them will be put out of work because of the rising costs," Colley said, pointing to penalties for late arrivals of goods, damage to goods and extra security costs associated with keeping migrants away from trucks.

IRU's Austrian member reported delays of between one and two hours at border crossings into Germany, just as Austria announced new border controls at its Italian and Hungarian frontiers.

According to IRU's estimates, the extra cost for companies is €55-€65 per hour, per vehicle at border crossings where checks are now installed.

In total, the estimated increase in costs yearly due to border controls for the road transport sector stand at €5 billion.

Direct costs for the EU economy

But it is not just the road sector that will feel the pain. Sustained border controls will cost to European economies, various studies have warned.

The EU Commission has estimated that full re-establishment of border controls within the Schengen area would have a direct costs for the EU economy annually between €5 and €18 billion (0.05-0.13 percent of GDP).

The EU's executive reiterated that the free exchange of goods within the EU now accounts for more than €2.8 trillion in value and 1,700 million tonnes in volume.

The costs for member states would be uneven.

The commission points out that member states such as Poland, the Netherlands or Germany would face more than €500 million of additional costs for the road transport of traded goods, while others such as Spain or the Czech Republic would see their businesses paying more than €200 million in additional costs.

This would ultimately damage competition within the EU, putting jobs, investment and tourism in jeopardy, interrupt supply chains, while administration costs for countries would go up.

It would also harm tourism. At least 13 million nights tourists spend in Europe could be lost with permanent checks, according to the commission's estimates, with a total cost of €1.2 billion.

At least €5 per citizen

The Commission also said there are 1.7 million workers in the EU crossing a border every day to go to their jobs, and border controls would cost them between €1.3 and €5.2 billion in total yearly costs.

A study by the German IFO think-tank estimated in a report in April that systematic controls at Schengen borders would lower the economic output of the 27 EU countries by 0.19 percent to 0.47 percent on a yearly basis. (Croatia was not involved in the calculations due to lack of data.)

That would equal €27 billion to €66 billion, or €53 to €130 for every European citizen.

It is difficult yet to determine the costs associated with the temporary border controls since their reintroduction, as not enough time has passed to gather data.

Managing migration comes with a price

But the Munich-based IFO think tank also calculated that since the border closures started, for the EU27 the economic impact on the GDP is between €9 billion and €15.4 billion.

"The calculations also took into account that not all the borders are controlled, and some of the checks are asymmetric, meaning there are controls going in, but not on the way out of a country," the IFO's Jasmin Groeschl told EUobserver.

However, the think tank argues that it is still less than the cost of managing the migration crisis. In Germany, housing, food and healthcare for the 1.1 million asylum seekers would cost the state €21 billion, IFO estimates.

In a separate study, the French government estimated that the EU could face up to €100 billion in long-term costs, 0.8 percent of the Schengen area's GDP would be reduced over the next decade, if the border checks remain in place.

The open borders no longer a given

Permanent border controls would decrease trade between Schengen countries by 10 to 20 percent, the study says, the equivalent of a 3 percent tax on trade.

Another study by the German Bertelsmann Foundation said the overall GDP losses in the EU could be €470 billion (calculated for 24 out of the bloc's 28 states), under the assumption that the price of imported goods would rise 1 percent.

If the checks remain and prices go up by 3 percent over the next 10 years, the EU's losses could rise as high as €1.4 trillion, according to the Bertelsmann Foundation.

While EU leaders talk about saving Schengen and passport-free travel, developments on the ground show that member states are bracing themselves for checks to remain in place.

The open borders Europeans took for granted are no longer a given.

This story was originally published in EUobserver's 2016 Business in Europe Magazine.

Click here to read previous editions of our Business in Europe magazine.

Would the euro really be in danger without Schengen?

EU Commission president Juncker and chancellor Merkel say there is a direct link between the euro and Schengen, but the single market would not necessarily falter with the reintroduction of border controls.

EU to hold emergency Schengen talks

EU officials are meeting with ministers from Denmark, Germany and Sweden in Brussels in an effort to better coordinate recent border control moves.

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