Thursday

8th Dec 2016

Would the euro really be in danger without Schengen?

  • "Dismantling Schengen would not have an impact on the functioning of the single market" (Photo: wfbakker2)

The hundreds of thousands of refugees and migrants pouring into the EU have put the bloc’s open borders, the passport-free Schengen zone under almost unbearable pressure with more and more countries introducing temporary border controls.

EU leaders have warned that dismantling the Schengen system would ultimately lead to the death of the single market, and shake the common currency, the euro.

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However, economists say there is no direct link between the two, and that the dismantling of Schengen would not disrupt the single currency, or the single market.

“There is no practical or economic link between Schengen and the euro,” Daniel Gros, director of the Brussels-based Centre for European Policy Studies, told EUobserver.

Also, “the euro area looks now pretty solid with its banking union,” Gros said, referring to a series of deals that make supervision and management of the eurozone banks mostly a common affair on the European level.

"We’ll lose more than Schengen'

EU Commission president Jean-Claude Juncker, in a dark warning last week, said that the reintroduction of borders in Europe would destroy the euro and the bloc’s single market.

“Without Schengen and the free movement of workers, of citizens, the euro makes no sense. There is an intimate link between Schengen and the euro. What is the point of having a single currency for the continent if you can’t travel freely across the continent?,” he said at a press conference.

Juncker warned that “if anybody wants to kill off Schengen, then ultimately what they are going to do is do away with the single market as well, which will lead to unemployment no longer being under control.”

“If the spirit of Schengen leaves us ... we’ll lose more than the Schengen agreement. A single currency doesn’t make sense if Schengen fails,” Juncker told MEPs last November.

German chancellor Angela Merkel, who is facing growing political pressure from her closest allies at home to close the borders and introduce a cap on number of migrants her country takes in, also warned earlier this month that open borders and the eurozone were “directly linked”.

“Nobody should pretend that you can have a common currency without being able to cross borders reasonably easily,” Merkel said at the time, adding that if countries were to close their borders again, the single market would “suffer massively”.

“There is no link between the common currency and how much you have to wait at the border to cross,” Zsolt Darvas, a senior fellow at Bruegel, an independent Brussels-based economics think tank told this website.

“Within the single market the dismantling of Schengen could raise transaction costs and transportation costs, but since there is no talk of introducing tariffs or other duties, it would not have an impact on the functioning of the single market,” Darvas added.

“The single currency means common banknotes, common monetary policy, common central bank facilities for banks, common bank supervisory mechanism, which have nothing to do with borders,” Darvas highlighted.

He recalled that the single market functioned with Britain and Romania too, which are not in the in the 26-member Schengen area.

The Schengen agreement was laid down in 1985 and started being implemented in 1995, far before the introduction of the single currency in 2002.

Costs of non-Schengen

Even if the euro would remain intact, there are costs associated with the possibility of the reintroduction of border checks.

“There would be extra costs associated with the reintroduction of border controls in transportation,” Darvas pointed out.

Juncker said Wednesday at a press conference that border checks in Europe would cost €3 billion euros a year in lost business.

Trade in goods among the 28 EU member states is worth €2,800 billion, according to figures from Reuters, so the €3 billion is a relatively small sum.

According to an EU official, Juncker got that number from various sources, for instance think tanks. The commission has no official data on this, and for now it is not planning to carry out an impact assessment.

Anton Boerner, head of the BGA trade federation, recently told the German daily Tagesspiegel, that about 70 percent of German foreign trade takes place within Europe, particularly with countries of the eurozone and estimated that the cost for international road transport would increase alone by about €3 billion.

Merkel and Juncker’s comments probably have more to do with combating nationalistic and populist arguments in the migration debate, in which ever more are calling for the reintroduction of border controls. The dismantling of Schengen, one of the most cherished policies of the 28-member bloc would have unpredictable political consequences.

“There might be a political link between the two [Schengen and the euro] as an unravelling of Schengen would indicate a lack of political will to work together,” Gros said.

No euro crisis after Italian vote, says EU

The Italian PM's resignation after a failed constitutional referendum has not changed the situation, the Eurogroup president has said. Financial markets have remained stable.

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