SOURCE: ZERO HEDGE

As a result of incorporating the Schengen Agreement (initially signed in 1985 between just five countries) into the Treaty of Amsterdam (signed in 1997, effective in 1999), Europeans and European businesses enjoy border-less travel in most countries that are part of the European Union.

Or, at least they did.

In an effort to slow Syrian, Afghan, and Iraqi migrants traveling to Europe, many countries are now implementing border controls, a decision that could prove to have significant negative consequences for Europe’s economy.

As Bloomberg notes, the open border economy supports more than 400 million people, with 24 million business trips, and 57 million cross-border freight transfers happening every single year. Research by the Bertelsmann Foundation asserts that a permanent return to border controls could cost $530 billion of GDP growth from the European economy over the next decade.

The complexity introduced by creating a bottleneck at the border is what drives the above number. People have gotten used to living in one country and commuting to another for work, and companies have built their business models around having multiple plants in different countries, and using just-in-time supply chain arrangements that require cross border travel on a daily basis. Delays caused by the new checkpoints and stricter travel requirements have real costs for businesses and individuals alike.

Bloomberg has more on this dynamic.

Firms in Germany’s industrial heartland rely on elaborate, just-in-time supply chains that take advantage of lower costs in Hungary and Poland. French supermarket chains are supplied with fresh produce that speeds north from Spain and Portugal. And trans-national commutes have become commonplace since Europeans can easily choose to, say, live in Belgium and work in France.

Permanent controls would destroy the business model of German industry, says Rainer Hundsdoerfer, chairman of EBM-Papst.

“You get the products you need for assembly here in Germany just in time,” he said by phone. “That’s why the trucks go nonstop. They come here, they unload, they load, and off they go. The cost isn’t the only prime issue” in reinstating border checks. “It’s that we couldn’t even do it.”

Nor could anyone else, he adds: “Nothing in German industry, regardless of whether it’s automotives or appliances or ventilators, could exist without the extended workbenches in eastern Europe.” Based in Mulfingen in central Germany, Hundsdoerfer’s company has been making electric motors and fans since it was founded in 1963, and has factories in countries including Hungary, Slovakia and the Czech Republic.

German auto-parts manufacturer Continental AG, for instance, has 15 to 20 trucks running across Europe on a typical day. Their longest trips take about 1 1/2 to 2 days and cross multiple borders. If full customs and immigration checks were restored, leading to average waits of four hours at each frontier, that could mean another 160 hours of extra journey time a day across 20 trucks, said supply-chain head Juergen Braunstetter: “Over a year, you can imagine the cost.”

Here is the area that the Schengen Agreement covers, and the member states that participate.

 

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