Business

Will EU border controls really threaten the euro?

A police officer surveys cars and trucks queuing to cross the Austria-Germany border at the southern German city of Kiefersfelden, 3 Nov 2015 Image copyright Getty Images
Image caption Car and lorries queue as they wait to cross the Austria-Germany border

The village of Schengen sits on the banks of the Moselle river in Luxembourg, close to the point where its frontier meets those of France and Germany. It is an unassuming place - but it gives its name to one of the most radical treaties in the history of the European Union.

The Schengen Agreement, drawn up in 1985, laid the foundations for gradually abolishing internal borders across the EU.

Today, the Schengen area includes 26 countries - including Norway and Switzerland which aren't in the EU - although Britain is not part of it. Until very recently it was possible for European citizens to pass from one side of the continent to the other without being stopped at any frontier.

For many of Europe's leaders, the Schengen area embodies one of the EU's most treasured principles - the free movement of people. Alongside the euro - the European Union's single currency - it has become a potent symbol of the "European project".

Ideology aside, it's also fair to say that Schengen has been something of a day to day hit with the European public - including myself.

I've taken high-speed trains from Paris to Brussels, or from Paris to Cologne without even noticing the borders I've crossed.

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Image caption Schengen and the euro: EC President Jean-Claude Juncker says one doesn't make sense without the other

The days when trains would stop at frontiers and polite but stern customs officers would stalk the corridors, seem like quaint memories from a bygone age.

Likewise when driving, national borders have become little more than signposts, emblazoned with the European flag. Britain's own passport and customs controls at St Pancras station and the port of Dover seem all the more irritating by comparison.

Economic implications

Schengen, for all the criticisms levelled at it over the years, for making smuggling far too easy and encouraging illegal immigration, simply takes a lot of the pain out of international travel.

However, the freedom it gives is now under threat.

Germany, Sweden, Austria, Hungary and Slovakia have all restored some frontier controls in response to the migrant crisis. France, meanwhile, introduced random checks at border posts in the aftermath of the Paris attacks. At a meeting last week ministers discussed plans to allow border controls to be reinstated for up to two years if necessary.

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Image caption The numbers of migrants and refugees reaching Europe has led to the reintroduction of border controls

There is now a growing fear that emergency controls like these, introduced during times of crisis, could end up becoming permanent once again.

Jean-Claude Juncker, the president of the European Commission, has already admitted that the Schengen agreement is "partly comatose". He has also warned that if Schengen were to fail, the euro itself could follow.

All of this has serious implications for the European economy.

If borders were to return, there would certainly be an impact on international commerce. Since the EU's single market was fully established in the mid-1990s, trade between European countries has grown dramatically - from €800bn to €2.8tn (£2tn; $3tn).

Business delays

Businesses have become accustomed to operating without frontiers.

"Our companies now operate in a huge value chain, and production is often split between countries", says Guntram Wolff, director of the Brussels-based research organisation Breugel.

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Image caption EU-based businesses have become used to operating without frontiers

"The more inefficient the logistics chain becomes, the higher the cost for businesses".

The problem is that border controls create delays - which can range from a few minutes to several hours. This can be a serious problem for hauliers. Industry sources suggest that the cost for such delays is around €55 (£39; $59) an hour, per vehicle.

In addition, for companies carrying perishable goods, excessive delays can mean the loss of whole consignments.

According to the International Road Transport Union (IRU), re-establishing border controls between Germany and Austria alone would cost the industry around €100m (£72m; $109m) a year.

"Increased waiting times at internal borders would increase journey times for road freight and passenger transport services and inevitably result in significantly increased costs," says Michael Nielsen, the IRU's representative in Brussels.

"With the industry being dominated by small and medium sized enterprises, many operating on very small profit margins, any increased costs would be passed on to end consumers as well as challenge the survivability of many transport companies."

Costly but not impossible

Also likely to lose out would be the EU's estimated 1.7 million cross-border commuters. Since frontier controls were removed, it has become increasingly common for people in border regions to live in one country and work in another.

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Image caption Increased waiting times at internal EU borders would mean significantly higher costs, says the International Road Transport Union

Many workers in Luxembourg, a major financial centre, actually live in France, Germany and Belgium, for example. For them, border controls would become a daily irritation.

Other regular business travellers - those driving or using Europe's high speed train networks to travel to meetings in neighbouring states - would also have to allow more time for their journeys.

There is also the cost of implementing the new bureaucracy, and creating the infrastructure to go with it. On many of Europe's major highways the old, pre-Schengen border posts still exist.

But on newer roads, this is not the case - so new facilities would have to be built, and manned.

According to Vasileos Douzenis of consultants Europe Economics, that could prove politically indigestible. "Especially in an era of austerity, such a development can create frictions within a government," he says.

So abandoning Schengen would certainly come at a substantial economic cost. However, it is fair to say it would not be insurmountable, in a region with a combined GDP of $18.5tn (£12.2tn).

But the damage to the region's prestige would be much more serious.

"The European Union existed before Schengen and it can exist after Schengen," says Breugel's Guntram Wolff.

"But it would be a serious blow to the narrative of integration, Schengen is a powerful symbol. The EU is a place where we don't have border controls and we pay in a common currency.

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Image caption The refugee crisis has led to protests from some, like France's far-right National Front (FN), for Schengen to be abandoned

"To lose Schengen would undermine the rationale for the EU in everyday consideration."

This is why Jean-Claude Juncker has connected the future of Schengen to the future of the euro. The one, he says, simply doesn't make sense without the other.

And if the euro were to disappear, would the EU still make sense? The single currency is, after all, the single most tangible expression of economic and political union.

So the stakes are high. EU governments have already decided to tighten up controls at the Schengen Area's external frontiers, a move seen by many as the price of maintaining freedom of movement within Europe.

But if those efforts fail, and internal borders become the norm once again, then the European Union itself could be left facing an existential crisis.

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