Payback Time in Schengen Land

FRANKFURT – The long-held dream of a borderless Europe, which became reality in the mid-1990s, is fading fast. Italy is blocking a European Union decision to bribe Turkey to keep refugees from crossing over into Greece on their way to Germany, Sweden, or other northern European countries. In response, German Finance Minister Wolfgang Schäuble has called for solidarity, warning that otherwise the border guards might soon be back at their posts, beginning with the German-Austrian frontier.

To be sure, the dissolution of the Schengen Agreement, which instituted passport-free travel within most of the EU starting in 1995, need not mark the end of the European project, at least not in principle. Economically, border controls act just like taxes; they distort activity, by increasing transaction costs and reducing cross-border flows of goods and services. Without them – and, more important, with a single currency – a market is more effective.

That does not mean, of course, that the single market cannot work with border controls or multiple currencies. It simply means that such “renationalization” would carry enormous costs, in the form of substantially reduced productivity and significantly lower output.

Given these costs, European Commission President Jean-Claude Juncker has rightly stressed that “killing” Schengen would undermine the EU’s foundational goal of “ever closer union” – an objective to which, admittedly, several EU members have signed up only reluctantly. The United Kingdom is the most vocal skeptic, but Poland, Hungary, Slovakia, and pretty much the rest of Eastern Europe have never been enthusiastic about shifting their focus from national prerogatives. The refugee crisis has thrown this discord into sharp relief.