Tighter Euro­pean bor­der con­trols will take an enor­mous eco­nomic toll

▶▶Bor­der-free move­ment in Europe hits a road­block ▶▶“That’s why the trucks go non­stop”

Bloomberg Businessweek (Asia) - - CONTENTS -

Peer­ing through his rain-lashed wind­shield, Zoltan Unc­zorg al­ter­nates edg­ily be­tween the brake and gas pedal of his 18-wheeler truck. “It’s very tir­ing,” the stur­dily built Hun­gar­ian says as he crawls along in a line of ve­hi­cles ap­proach­ing the Aus­tria-Ger­many bor­der.

Af­ter more than eight hours on the road car­ry­ing fan parts from Tapolca, Hun­gary, Unc­zorg has no pa­tience for de­lays. And this day is bet­ter than usual. He’s had to deal with waits of about four hours at this check­point, set up in Septem­ber to block mi­grants from en­ter­ing Ger­many on the A3 high­way. It’s a route he plies daily for elec­tric-mo­tor maker EBM-Papst. “The worst was last sum­mer, when mi­grants were walk­ing on the high­way head­ing for Ger­many,” he says. “It was too dan­ger­ous to drive quickly. You could hit them by ac­ci­dent.”

The de­lays Unc­zorg must en­dure stem from the ero­sion of a sys­tem that took 30 years to evolve and has al­lowed bor­der­less travel across 26 coun­tries. Restor­ing wide­spread bor­der con­trols would be a blow for the most vis­i­ble achieve­ment in the 60-year quest for a united Europe, con­ceived in the rub­ble of World War II: the era­sure of na­tional bound­aries.

Free move­ment is a given in what’s called the Schen­gen Area, named for the Lux­em­bourg town where the 1985 treaty dis­man­tling bor­der con­trols was signed. Now, Aus­tria, France, Ger­many, and Swe­den have rein­tro­duced some bor­der check­points in re­sponse to Europe’s big­gest refugee cri­sis since the war. About 1 mil­lion mi­grants ar­rived in Greece and Italy in 2015, and many have moved north. In ad­di­tion to stem­ming the flow of peo­ple, the check­points are meant to de­ter ter­ror­ist at­tacks and to de­flate the growth of anti-im­mi­gra­tion move­ments.

The eco­nomic cost of aban­don­ing Schen­gen would be mas­sive. A per­ma­nent re­turn to bor­der con­trols could cost the Euro­pean econ­omy €470 bil­lion ($532 bil­lion) in gross do­mes­tic prod­uct growth over the next 10 years, ac­cord­ing to the Ber­tels­mann Foun­da­tion, a Ger­man think tank. That’s like los­ing a com­pany al­most the size of BMW ev­ery year for a decade.

The open borders power an econ­omy of more than 400 mil­lion peo­ple. Com­pa­nies in Ger­many’s in­dus­trial heart­land rely on elab­o­rate, just-in-time sup­ply chains that take ad­van­tage of lower costs in Hun­gary and Poland. French su­per­mar­kets are sup­plied with fresh pro­duce that speeds from Por­tu­gal and Spain. And transna­tional com­mutes have be­come com­mon­place be­cause Euro­peans can choose to, say, live in Bel­gium and work in France.

For many in the EU, pass­port­free travel is part of be­ing Euro­pean.

Per­ma­nent con­trols would de­stroy the busi­ness model of Ger­man in­dus­try, says Rainer Hunds­dör­fer, chief ex­ec­u­tive of­fi­cer of EBM-Papst. It’s es­sen­tial to move parts quickly from one fac­tory to an­other (page 24). “That’s why the trucks go non­stop,” he says. “They come here, they un­load, they load, and off they go.” Based in Mulfin­gen in cen­tral Ger­many, his com­pany has fac­to­ries in the Czech Repub­lic, Hun­gary, and Slo­vakia. The parts Unc­zorg is car­ry­ing orig­i­nated in Tapolca and Celldömölk, Hun­gary, and trav­eled more than 800 kilo­me­ters (500 miles) be­fore be­ing off­loaded in Mulfin­gen for fur­ther man­u­fac­tur­ing. Whether con­trols are here to stay de­pends on mi­grant flows. Ger­man Fed­eral Min­is­ter of the In­te­rior Thomas de Maiz­ière said ear­lier in April that his country may end pass­port mon­i­tor­ing on the Aus­trian bor­der by May 12 if the num­ber of refugees try­ing to cross re­mains low. But Aus­tria is con­sid­er­ing new checks on the Bren­ner Pass route, a cru­cial high­way link with north­ern Italy. Thou­sands of mi­grants are ex­pected to cross the Mediter­ranean to Italy alone, es­pe­cially from Libya, in com­ing months, Ital­ian of­fi­cials say. On April 13, Euro­pean Union Pres­i­dent Don­ald Tusk told the Euro­pean Par­lia­ment in Stras­bourg, France, that the EU would be “un­able to pre­vent po­lit­i­cal catas­tro­phes” if it failed to stem ir­reg­u­lar mi­gra­tion or re­store au­thor­ity over mi­gra­tion pol­icy. “Here I mean the col­lapse of Schen­gen, loss of con­trol over our ex­ter­nal borders with all its im­pli­ca­tions for our se­cu­rity, po­lit­i­cal chaos in the EU, a wide­spread feel­ing of in­se­cu­rity, and ul­ti­mately the tri­umph of pop­ulism and ex­trem­ism,” he said.

At the Aus­tria-Ger­many check­point where Unc­zorg is stuck, a line of trucks stretches back some 6 kilo­me­ters, ex­haust fumes mix­ing with the stench of ma­nure spread on nearby fields. Un­der a big white can­vas tent, four po­lice of­fi­cers search a large gray van. Two are armed with ma­chine guns in ad­di­tion to their ser­vice pis­tols, un­der or­ders is­sued fol­low­ing the ter­ror at­tacks in Brus­sels. “You have no idea how many ways I’ve seen the smug­glers hide peo­ple,” says Karsten Eber­hardt, a Ger­man po­lice com­mis­sioner. “If you carve out a hol­low space un­der the seat and put a board in front, you can hide a pretty large per­son.”

Michala Mar­cussen, chief econ­o­mist at So­ciété Générale in Paris, says the po­lit­i­cal cost of Schen­gen’s col­lapse would be as dra­matic as the eco­nomic fall­out. “We’ve just been through the euro cri­sis and re­build­ing in­sti­tu­tions,” she says. “It’s bet­ter to fix Schen­gen, as it shows the

ca­pac­ity to do things. That would give peo­ple con­fi­dence we could deal with shocks in the fu­ture.” John Fol­lain, Carolynn Look, and Matthew Camp­bell, with Si­mon Kennedy and Jones Hay­den

The bot­tom line Bor­der-free move­ment, which has done more than any other ini­tia­tive to unify Europe, is be­ing con­strained by the refugee cri­sis.


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