The EU's €110bn problem: slow death of Schengen risks new crisis for Europe's battered economies

The collapse of the Schengen system of open borders risks plunging Europe into fresh economic turmoil, Hungary’s foreign minister has warned.

Europe’s escalating migration crisis- which saw over a million people pour into the continent last year - has led to the re-introduction of temporary border controls in the EU for the first time time in two decades, threatening to reverse one of Brussels’ landmark integration projects.

A full blown dismantling of the borderless zone - where people and trade can move without restriction between 26 countries - would cause “unforeseeable damage” to continent’s beleaguered economies, Peter Szijjarto, Hungary’s foreign minister has said.

“If the Schengen zone is going to be demolished or destroyed, then it will cause such serious economic damage that I don’t know how Europe is going to handle it", Mr Szijjarto told The Telegraph.

His warning comes amid fears that abolishing Europe's open borders would wipe €110bn off the EU's economies in 10 years.

Around 0.8pc of the EU’s total economic output would be lost within a decade if Schengen were fully dismantled, according to Strategie, a think-tank funded by the French government.

Falls in tourism would make up nearly half of the lost output, as the return of internal border checks would disrupt the widespread practice of short-term travel in the continent.

Permanent borders would also impose a 3pc tax on trade and lead to a 10pc-20pc decline in trade until 2026, said Strategie.

France, Germany, Austria, Sweden, Denmark, and Slovenia have all introduced temporary border checks to deal with the unprecedented migrant and refugee flows which have descended on Europe since last summer.

EU leaders will gather next month to decide whether to suspend the Schengen agreement - first reached three decades ago - replacing it with a two-year emergency system of border controls as nations buckle under the pressure of the migrant crisis.

A further 1.3 million people are expected to arrive on the continent this year, according to the International Monetary Fund.

Goods worth €2.8 trillion travelled within the Schengen area last year and risk losing transport companies €3bn a year in revenues should permanent border restrictions return.

Around 1.7 million EU citizens also earn their salary in a different country to where they live, and face commuter disruption and border waiting times.

Last week, Pierre Moscovici, European Commissioner for economic affairs, called the move to roll back borderless Europe a “political and economic mistake”. The Commission has warned reversing Schengen would "have a disruptive impact on economic growth" in years to come.

Hungary’s Mr Szijjarto called on Brussels to preserve the passport-free area at all costs in a bid to stop Europe’s terminal economic decline in the global race of regional powers.

“The US is very strong, China has extensive economic policy, Arab states are getting stronger, and we Europeans are deeply into our own problems”, said Mr Szijjarto.

Hungary has been a ferocious critic of the EU’s handling of the migrant crisis, which has seen the biggest movement of people on its shores since the Second World War.

The right-wing government of prime minister Viktor Orban has drawn opprobrium for building a 25-mile razor wire fence along its southern border to deter refugee flows from Syria, Afghanistan and North Africa.

But Mr Szijjarto said his government was doing its “utmost” to keep Schengen alive by complying with its duty to protect the EU’s external border against the rest of the world.

“The Schengen zone is based on two elements: the first is that there is no controls within; and secondly, that we protect ourselves externally,” he said.

“If you break the second consensus, the first can be broken very easily.”

He warned that Europe's southern border was "defenceless" against migrant inflows, criticising Greece for its failure to set up hotspots to register the hundreds of thousands of people that have arrived on its shores.

Supported by Germany, Hungary has called on Brussels to step up its aid for Macedonia - which is not a member of the EU - creating a new de facto Schengen frontier, excluding Greece.

"If Greece does not comply with Schengen regulations, then we need another defence", said Mr Szijjarto.

"We expect a non-EU member state to defend the Schengen zone. But crisis times brings about crazy situations."

Now in its 21st year, the Schengen Agreement is at the heart of the EU's vision of a economically integrated continent. But its demise could also put new strains on Brussels other landmark federalist project - the euro.

Jean Claude-Juncker, president of the European Commission, has said restricting cross-border movement would undermine the sanctity of monetary union.

"Without Schengen, the euro makes no sense", Mr Juncker said last month.

"What is the point of having a single currency for the continent if you can’t travel freely across the continent?"