CEE most exposed to potential Schengen suspension suggests analysis

By bne IntelliNews March 2, 2016

Central Europe and the Baltics are most exposed to any potential suspension of the borderless Shengen zone, analysts at Morgan Stanley claim.

The influx of migrants to Europe has put Schengen at risk. EU officials have threatened the free-travel zone could end if Turkey does not take measures to reduce the number of migrants entering the EU via Greece. Brussels and Ankara will hold a summit on the crisis on March 7.

CEE states have led the opposition in the EU to helping relieve the pressure on frontline states, but they stand to lose most from the effects of the reintroduction of borders on trade, transport and tourism, the report finds. Hungary, which has done most to block Brussels' efforts to spread the pressure across the bloc, is the most vulnerable.

"The main risk associated with the suspension of Schengen would be a reduction of intra-European trade, causing the benefits of the single market, e.g. product specialisation, economies of scale, and institutional competition, to be reversed," the analysis shows, according to Portfolio.hu.

Hungary's deep integration into European trade and tourism links is the key to its exposure. The country's degree of openness to international goods trade is the second largest in the bloc. It would also suffer from a hit to tourism and cross border commuters.

Slovakia, whose economy relies mostly on car and electronics production, has the biggest degree of openness to international trade. However, the country's relative lack of tourism trade reduces its vulnerability; it is ranked as the sixth most affected country. Bratislava is another fierce opponent of EU efforts to spread the impact of the migrant crisis.

While Croatia's exposure to international goods trade is not deep, it is rated the second-most exposed due to its heavy reliance on overseas tourists. The country, is not, however, in the Schengen zone currently.

Estonia ranked third in the Morgan Stanley analysis due to its high openness to international trade and impact on tourism. The Czech Republic would be the 10th most impacted state, while Poland ranked 19th.

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