Fortress Europe: Trade Costs of Re-Establishing Border Controls

"Welcome to the EU!" [not]. Yes, Hungary is part of the Schengen area...for now.

With lurid scare stories about the endless flows of migrants emanating from the Middle East--especially jihadist/terrorist-affiliated elements--Europe's days as a largely border control-free area are supposedly limited. It's a long story, but do note that not all countries in the EU are part of the Schengen area which has abolished passport and border controls. Examples include Ireland and the UK. (There are newer accession countries like Croatia that are expected to join the Schengen area in the future.) Conversely, there are Schengen area members not in the EU like Norway and Switzerland.

At any rate, increasing hostility to migrants may not only result in the re-establishment of border controls among Schengen area members, but also increase the transaction costs for doing trade as collateral damage. First, we begin with the politicization of migration:

This tightening of borders is part of an urgent struggle to preserve freedom of movement for citizens between European countries. That freedom was ushered in by the 1985 Schengen agreement, whose relaxing of intra-European border controls has become part of both European identity, and, with the Euro itself, a pillar of European economic integration.

But public anxiety linking this year’s influx of Syrian refugees with last week’s attacks are putting Schengen under unprecedented pressure. Far-right voices, including that of French politician Marine Le Pen, are calling with increased passion for the reversal of the agreement. Even before the attacks, several nations had temporarily suspended portions of Schengen to better deal with the refugee crisis. Meanwhile, even as he issued a stark declaration of war against ISIS, French President François Hollande emphasized the importance of controlling access at Europe’s outer borders, rather than those between member states.

Next, we move to the potentially crippling economic costs of each nation trying to enact its own version of "Fortress Europe":

Because, however awful the human cost of last week’s attacks, the economic impacts of restricting trade lanes would be at least as far-reaching. According to the procurement agency Beroe, 75% of E.U. freight trade moves by road. Checking immigration documents for truckers, potentially at multiple borders per day, would be extremely costly.

Even before Friday’s meeting, there was already evidence of the effects of tighter border security on European trade. Refugees attempting to reach Britain aboard trucks and trains at the French port of Calais through the early parts of 2015 caused accidents and delays costing the British freight industry more than one million euros daily. When Germany and Austria set up temporary border controls in September, massive traffic jams were reported. According to a spokesperson for the Dutch transportation industry in September, a one-hour delay at each national border would cost Dutch shippers alone more than 600 million euros annually.

But the indirect costs of tightened borders would be even greater. In a 2014 study, researchers found that a 1% increase in migration between two Schengen signatory nations resulted in a nearly equal increase in interstate trade. Curtailing that trade would have a particular impact on Europe’s automotive and agricultural sectors, which rely on speedy delivery.

With European economic growth still being moribund at best--especially post-global financial crisis--the continent hardly looks set to benefit from further de-integration.

UPDATE: Plans are being mooted by current EU rotating chair Luxembourg to temporarily suspend the Schengen area by allowing the re-imposition of border controls:

EU ministers will on Friday discuss suspending the Schengen passport-free travel zone for two years, on the basis that the migrant crisis has exposed “serious deficiencies” at the Greek border that endanger the overall area. This resort to the most drastic emergency measure available in Schengen’s rule book underlines how the 20 year-old integration project has been gravely threatened by the political pressures of at least 1.2m irregular migrants entering the bloc this year.

The option of invoking “Article 26” is proposed in a leaked discussion paper for EU home affairs ministers prepared by Luxembourg, which holds the rotating presidency of the EU. If ministers support the proposal the European Commission would be able to recommend closing one or more internal borders within Schengen for up to two years. In effect, this would see the temporary border checks introduced this summer between countries such as Austria and Germany become a long-term fixture, fracturing the passport-free zone.