Schengen on shaky ground… Five areas of business impact

By March 24, 2016Uncategorized

Europe

With the refugee crisis and major problems with extremism, EU countries are moving politically closer to anti-immigration and anti-unity agendas leaving the Schengen agreement on shaky ground.

Here are five areas that will be impacted by a long-term breakdown in the Schengen Zone:

Security: Border controls may not make Europe more secure.  While possibly keeping out would-be bad actors without EU passports, much of the terror threat emanates from citizens within its own borders.  Border closures may also push refugees further into the black market – jeopardizing their safety and increasing demand for human-traffickers throughout Europe (which will in turn increase scrutiny of cargo transported across borders = more delays, LONG delays).  With respect to migrants, build-up of refugees at closed bordersheightens the potential for security incidents at border crossings – already a frequent problem.  In an effort to address the border build-up, last weekend the EU and Turkey reached an agreement to send all refugees and migrants arriving via the Greek Islands back to Turkey, in exchange for monetary support for housing them.  To say its not going well is an understatement: Humanitarian organizations are boycotting the measure as an unrealistic solution that will substantially worsen the lot of refugees fleeing Syria.

Trade: Trade among members of the European Union has grown dramatically since the single market was established in the late 80’s – from €800bn in the early 90’s to €2.8 trillion in 2012, according to the European Commission.  Reinstatement of borders, even temporarily, decreases the volume of trade within EU member countries. Businesses incur substantial financial costs that, over time, may result in job losses and increased prices (with businesses passing increased costs on to consumers).  Additionally, as one of the largest trading blocks in the world, the EU has become an economic powerhouse. A break-up of Schengen could unravel the EU’s major trade agreements and progress on the Transpacific Trade Investment Partnership, should it substantially slow exports, imports and businesses’ ability to create and export product.

Logistics: In the last six months temporary border control measures were introduced by Germany, Denmark, Sweden, Austria, France, Hungary, Serbia and Slovakia. This has negatively impacted the transport of goods across borders, slowing supply and distribution channels and raising transportation costs for companies with cross-border supply chains. According to industry estimates, the cost for an hour delay on the border per vehicle is around €55 ($59). The consequences of border delays are even more critical for perishable goods and might include the loss of a whole cargo.  A strike in Calais last summer that led to the closure of the Channel Tunnel could be an indicator of the kind of supply chain disruption that could accompany substantial delays at European borders.

Labor Mobility: According to estimates, 1.7 million Europeans commute across borders daily for work, and trade in labor services has grown considerably with the free travel arrangement within the Schengen zone. Absence of border controls has increased the efficiency potential of labor markets, as Europeans take advantage of employment opportunities in areas and industries outside their home country.  With border controls in place, travel time to work is likely to increase for cross border commuters, and might eventually make working in a neighboring EU country impossible. For companies this wouldincrease recruitment costs and potentially limit access to skilled labor.

Loss of Business: EU experts estimate that the loss of tourism revenues would be substantial. This has already happened in some southern regions of Bavaria, Germany where the country introduced border controls on the Austrian border in September.  Tourism revenues here have dropped 40% since September.   Depending on the outcome of the current EU agreement with Turkey, this may also increase the number of migrants in camps, like Calais and those throughout Greece, where migrants are stuck at border crossings.  In addition to the human toll, this problem has economic ramifications for “host” cities.  In Calais, for example, the city has lost around 40% in trade and tourism revenue since the escalation of the migrant crisis last summer.

Death by 1000 Cuts

Because the EU knows its value, Schengen is unlikely to be officially cancelled anytime soon.  If the bloc does go down, it will be death by a thousand cuts, with each country erecting more border controls based on their own perception of their security and their ability to handle migrants and refugees, etc.  This could lead to a MORE uneven approach to security across countries andfewer mechanisms for oversight and accountability.  And, the bad guys will still probably find a way to slip through.  In the meantime, the EU will need to work hard to regain the public’s confidence in its ability to mitigate problems causing instability, insecurity, and lack of unity over the EU and Schengen.  After all, Europe remains an overwhelmingly safe place to live, visit, and do business.  Businesses, governments, and travelers should keep this front of mind in the coming weeks and months.  To not do so may lead to rash decisions that will only increase political, economic and security risks in the EU.

This post appeared in the Emergent Risk International monthly brief on March 24, 2016.  It is a collaborative piece written by Julia Mitusova and Meredith Wilson for Emergent Risk International.

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