Anti-EU opposition

According to an EC report, the reintroduction of border controls within the Schengen area could reduce EU economic output by €500 billion to €1.4 trillion. In 2010, these arguments could still have shaped the debate. But today, it is the non-economic fears, political divisions, ethnic and religious anxieties that dominate the headlines. As a result, the support for Merkel and the EU's remaining integrationists is weakening across the region. As long as the migration crisis will linger, it fuels the rise of the anti-EU opposition across old party lines.

Chancellor Merkel has warned that border controls have potential to fragment the EU "into small states" that are not equipped to cope with a globalised world. Indeed, with its more than 500 million people, a truly integrated Europe could absorb even 2-3 million refugees. In the short term, that would cause a modest increase in GDP growth - particularly in main destination countries (Germany, Sweden, Austria) - and energise the region's stagnating economy and greying demographics. The medium-term growth effect would depend on the refugees' integration into the labor market.

However, in the absence of common institutions, the influx of immigrants into Europe is undermining the Schengen, disintegrating the EU, inflating differences among member states and boosting the support of euro-skeptical opposition parties from Heinz-Christian Strache's right-wing Freedom Party of Austria and Czech President Milos Zeman to Marine Le Pen's Front National in France and the increasingly xenophobic Alternative for Germany (AfD). Indecision virtually ensures mounting support for radicalisation and anti-EU views. In German regional elections, the AfD eroded the power of the Christian Democratic and Social Democratic coalition, while unleashing a debate within the former whether Merkel will be a liability in the 2017 federal elections. In Eastern Europe and Balkans, Schengen is already largely history as fences prevail among most states.

Yet, labeling all the opposition parties as "populist" or worse will not mitigate the reality of the issues they address, including unemployment, income inequality, and the fear of foreigners. If the moderate middle fails to lead out from economic stagnation, the not-so-moderate groups will always offer a way.

Geopolitical friction

In March 2014, Washington and Brussels initiated sanctions against Russia in response to developments in Crimea and Eastern Ukraine. Since then, the hope has been that sanctions and the Ukraine crisis would quash President Putin's politics and boost Ukraine's economy. In reality, Ukraine has been pushed to a default, while the sanctions have united Russians behind Putin whose popularity rating remains 83%.

Critics of the sanctions argue that the ultimate US/EU objective is not to encourage pro-market policies in Russia but to clip Russia's economic future in a new Cold War. Meanwhile, sanctions have deepened stagnation in Europe, and reduced the impact of euro economies' fiscal policies and the effectiveness of the ECB's quantitative easing (QE). The repercussions are reflected in diminished global growth.

The showdown with Russia and Ukraine is also a reflection of Europe's increasing assertiveness, which has been prominent particularly in the EU members' interventions amid the 'Arab Spring.' In the early 2000s, President George W. Bush's White House believed that the War in Iraq would achieve a virtuous domino effect in the region, supplanting "authoritarian tyrants" with "genuine democracies." In the early 2010s, France, Britain and the NATO seized the opportunity for regime change in Europe's southern periphery. It was these years of misguided policies in the Middle East and North Africa, coupled with the unwillingness to cooperate with Putin's Russia that amplified destabilisation across the region and the very refugee crisis that Brussels would now like to contain to its periphery (Greece, Turkey).