As border controls return across Europe, questions arise of costs to business
LONDON – Queues, bottlenecks and security checks — their return in Europe could have a sizeable economic impact if they become entrenched in the wake of the attacks in Paris and the unprecedented flow of refugees from conflict zones like Syria.
The European Union's top official is even warning that a permanent return of border checks could seriously hobble Europe's single currency, the euro.
Though the ditching of border checks across large swathes of Europe over the past couple of decades has prompted concerns over immigration levels in some countries, they have also enriched Europeans by facilitating trade and tourism. Thanks to the so-called Schengen Agreement, more than 400 million Europeans can travel hassle-free between 26 countries when conducting business or for spontaneous weekend jaunts.
The controls that have recently been put up by the likes of France, Germany and Hungary, among others, apply to people rather than to goods moving around Europe's single market. Still, there will be economic costs.
Dane Davis, a Wall Street analyst who last year co-authored a study into the economic effects of the Schengen area, warned that a permanent return of borders in Europe would be highly costly.
"The end of Schengen agreement would lead to reduced trade," he said. "The effect will be in the millions (for individual countries) but when you add up the net effect for Europe as a whole, it will run into the billions."
Some of the impacts will be direct, such as traffic queues at borders that can cost companies money. That's a particular concern for Europe, which still depends on roads to transport around 50 percent of its goods against a negligible 0.1 percent by air.
This week, after reinforced checks on the France-Belgium border to deal with the security threats that also saw Brussels in effective lockdown for four days, traffic jams were up to one hour long at rush hours — just one indication of the potential difficulties ahead.
"Delays will invariably incur costs," said Tina Hindsbo, a spokeswoman for Denmark's DSV, one of Europe's leading road freight operators.
Britain's Road Haulage Association has also warned that tougher checks when crossing the Channel between Britain and France could drive many businesses to the wall. Though the U.K. isn't part of the Schengen free-travel area, transportation has been disrupted in recent months as large numbers of migrants have tried to smuggle themselves aboard trucks and trains bound for Britain.
Research from Moody's Analytics shows that countries like Germany, the Netherlands and France, which rely heavily on internal EU trade, will face higher costs, but that proportionally the impact will be greater in smaller countries in central and eastern Europe, such as Slovakia and Hungary, where intra-EU trade represents a higher level of their GDP.
Slovakia's exports to other EU members equated to around 70 percent of annual economic output in 2014, compared with little more than 20 percent for Germany, according to Moody's Analytics.
"A breakup of the Schengen zone would cripple the EU's single market and throw its long-term viability into doubt," said Anna Zabrodzka, a Prague-based economist for Moody's Analytics. Zabrodzka said the attacks in Paris mean that the imposition of border controls may not be as temporary as previously thought and that the "economic costs have risen."
There could be other effects that are more difficult to quantify. If the labor market becomes less mobile, for example, that's likely to be a detriment to both jobseekers and businesses. And many European countries are seeing their workforce age, meaning limits to immigration could pinch future economic potential.
The re-imposition of passport checks and border guards is not new in the Schengen era. It's actually allowed temporarily for national security reasons. France brought them back after London suffered attacks on its public transport in July 2005 that killed 52 people, while Portugal and Germany did so as part of their security measures for hosting football's European Championship in 2004 and the World Cup in 2006.
But they were temporary measures, so had little impact economically.
Now, all indications are that some changes will become permanent — not ideal for a region that's struggled to grow economically for years.
The return of border controls across the 26 countries, mostly from the European Union, that make up the Schengen area, would also be a setback for proponents of an "ever-closer union."
Jean-Claude Juncker, the head of the European Commission, acknowledges that the Schengen area is facing acute difficulties and urged those who believe in the concept of a unified Europe to fight for one of the "main pillars" behind the European project.
"The Schengen system is partially comatose," he told European lawmakers Wednesday. "If the spirit of Schengen leaves our territories and our hearts, we would lose more than Schengen. A single currency doesn't make sense if Schengen falls."
Change is afoot. The Commission has been asked to make some changes by early next year. The main one is on the outside borders, so that Europeans — as well as all foreigners — have their travel documents checked against a security database. At the moment the ID of Europeans isn't scanned, just checked visually by a border official.
Four EU countries, including Bulgaria, Croatia, Cyprus and Romania, are waiting to join Schengen.
The question is, what exactly will they be joining?
Lorne Cook in Brussels contributed to this report.