The European economy is set to lose around €100 billion (£76 billion, $109 billion) if officials decide to re-establish border controls within the Schengen Area.
That’s according to the French government’s economic planning agency France Strategie, which released its warning this morning in a note entitled “Policy Brief – The Economic Cost of Rolling Back Schengen.”
The Schengen area was set up in 1995 to abolish Europe’s internal borders and now enables passport-free travel across 26 countries: 22 of the EU’s 28 countries, plus non-EU Norway, Switzerland, Iceland and Liechtenstein.
Basically, if you are a national from one of the EU countries, you are able to go to any other region within this zone without having to obtain a visa. It is based on the Freedom of Movement Act.
However, due to Europe experiencing the worst refugee crisis since World War II, politicians across the 28 nation bloc and starting to row back migrant quotas because the immigration crisis is exacerbating net migration. More than one million migrants fleeing conflicts and poverty in the Middle East and beyond sought shelter in Europe in 2015 and many more are expected to come during 2016.
For example, German chancellor Angela Merkel has had to u-turn on her initial “open door policy” on letting an unlimited amount of refugees after the country alone took in 1.1 million asylum seekers last year.
Germany, as well as other countries, are urging EU officials to reinstall strict border controls but the French government is warning about how much this would cost the bloc (emphasis ours):
In the near term, there will be a negative impact for short-stay tourists, cross-border workers, tourists from outside Schengen visiting several countries in the Area and freight carriers.
Depending on the frequency of the controls, the direct cost for the French economy would be between one and two billion euros, excluding the fiscal cost of implementing the measures. Half of these costs would stem from a reduction in the number of tourists, 38% from the impact on cross-border workers and 12% from the cost to freight transport.
In the longer run, widespread permanent border controls would decrease trade between Schengen countries by a factor 10% to 20%. This is equivalent to a 3% ad valorem tax on trade, leading to a loss for France of half a percentage point of GDP, or more than 10 billion euros. This does not include the impact on foreign investment and labour mobility.
Overall, the Schengen Area’s GDP would be reduced by 0.8 points, equivalent to more than 100 billion euros. An additional impact on labour mobility, foreign investment and financial flows can be anticipated but is difficult to quantify.
There is no unified official EU reinstatement of strict border controls within the Schengen Zone just yet but individual governments are starting to crack down on their borders themselves.
In January, Denmark imposed temporary identity checks on its border with Germany following a similar move by Sweden that same week.