site.btaGermany Trade and lnvest: Croatia Joins Schengen Area, Bulgaria and Romania Will Have to Keep Waiting

Germany Trade and Invest, the federal development agency of Germany, has released an analysis on the enlargement of the Schengen area with the expected advantages for the economy of Germany, as well as that of aspiring members Bulgaria and Romania, among other things. The reintroduction of border controls by some Schengen members due to COVID and the migrant crisis has shrunk the German economy by billions of euros. Entry in Schengen will smooth the supply chains for Romania and Bulgaria, and add to their GDP but it is questionable whether accession would lead to more goods traffic for the two countries, due to the current state of their transport infrastructure.

Here are the highlights of the story, which is included in the latest issue of the newsletter of the German-Bulgarian Chamber of Industry and Commerce:

The EU Home Affairs Council decided on December 8, 2022, that Croatia may join the Schengen area. As of January 1, 2023, checks on persons at the internal land and sea borders between Croatia and the other member countries of the Schengen area will be lifted. Bulgaria and Romania, on the other hand, will have to continue waiting.

Earlier, the EU Commission had judged that all three states had demonstrated that they had met the necessary conditions, EU Home Affairs Commissioner Ylva Johansson said in Brussels on November 16, 2022. However, the Netherlands, Austria and Sweden opposed Bulgaria and Romania's Schengen accession in the EU Home Affairs Council vote.

This decision is not going down well with businessmen in Romania and Bulgaria. "We are disappointed with the vote and hope that a decision in favor of Schengen will be made soon," said the president of AHK Romania, Andreas Lier.

The Schengen Agreement includes 22 EU countries and the non-EU countries Switzerland, Iceland, Liechtenstein and Norway. The small states of Monaco, San Marino and the Vatican have open internal borders. They are therefore considered de facto members. With a population of around 420 million, this is the world's largest zone in which people can travel freely. It does not include Ireland and Cyprus.

The benefits of Schengen membership

Open internal borders facilitate the movement of people, capital and goods. Transport companies save waiting time. Customs controls are still possible in the individual member countries on a random or ad hoc basis. At the borders with Romania or Bulgaria, truck drivers have had to wait up to ten hours to cross the border. The accession of the Balkan states to the Schengen area could thus make supply chains smoother.

Croatia, Bulgaria and Romania's main supplier countries are Germany and Italy. 

Romania's Finance Minister Adrian Caciu calculates that open internal borders within the European Union could add 0.5 percentage points to Romania's annual GDP.

Open internal borders are important for the German economy

Open borders of Germany and Austria along the Balkan route are already significant for trade in goods.

Due to the migration crisis, Germany, Austria, Denmark, Sweden and Norway temporarily reintroduced border controls in 2015. Such controls on the Balkan route resulted in an annual EUR 9.6 billion lower trade in goods, according to a small 2016 Bundestag inquiry by the FDP. Assuming that Germany's intracontinental trade would be affected by a reintroduction of border controls on the Italy and Balkan routes as well, Germany's annual gross domestic product would be between EUR 1.9 billion to 4.6 billion lower.

Whether an expansion of the Schengen area would also lead to more goods traffic in Bulgaria and Romania, on the other hand, is questionable. Both countries need to massively expand their highway and rail infrastructure.

Why are the EU member states delaying the decision on Bulgaria and Romania?

The decision on a country's Schengen accession must be approved by the ministers responsible for justice and home affairs of all EU member states in the Justice and Home Affairs Council (JHA). According to the EU Commission, Bulgaria and Romania have already met all the criteria for admission to the Schengen area since 2011. Currently, however, the Netherlands, Austria and Sweden are speaking out against the accession of Bulgaria and Romania.

The Austrian and Dutch governments doubt whether Bulgaria and Romania can fully implement the Schengen directives. They point to rising migration figures, corruption and a poor record in the fight against organized crime.