Romania and Bulgaria Join Schengen Area
But Also — ECB Cuts Rates, Germany's Growth
Hello! Today is December 18, and here is your last newsletter of the year. And what a year it’s been!
As usual, feel free to share this newsletter with friends and colleagues, and follow us on Twitter and LinkedIn.
Please give us some feedback at contact@whatsupeu.co — we love hearing from readers and potential advertisers.
Best,
Augustin
The Briefing
After more than a decade in the waiting room, Bulgaria and Romania will soon become full members of the Schengen area. The world’s largest free movement area is looking increasingly fragile, however. Several European countries have reintroduced border checks to address voters’ concerns about migration.
AUSTRIA RELENTS • On 12 December, the Council unanimously decided to lift internal land border controls with Romania and Bulgaria as of 1 January 2025.
Bulgaria and Romania will now become full members of the Schengen area, which will cover 25 other EU Member States as well as Iceland, Liechtenstein, Norway, and Switzerland.
The accession treaties of Bulgaria and Romania, which joined the EU in 2007, conditioned entry into the Schengen area upon the fulfilment of certain technical requirements.
In 2011, the Commission deemed that these requirements had been met. Until now, however, the Council (i.e. governments) had refused to follow the Commission’s advice, with some Member States expressing concerns about corruption and illegal migration.
In the end, it was Austria’s decision to lift its veto in the Council which made the difference. The Austrian Interior Minister Gerhard Karner noted in late November that additional efforts by Bulgaria and Romania had led to a massive reduction in illegal crossings at Austria’s eastern border with Hungary.
WELCOME NEWS • The Council has sent a welcome political signal to Bulgaria and Romania. The politics of both countries are in a parlous state.
Bulgaria has been in political crisis for the past three years, with the last seven elections failing to produce a stable majority.
Romania recently held parliamentary and presidential elections which saw shock gains for far-right candidates. The major pro-EU parties have retained a slender majority in parliament by forming an unwieldy coalition.
The first round of the presidential election was won by a pro-Russian conspiracy theorist but subsequently cancelled by Romania’s top constitutional court after security services released evidence of ‘aggressive Russian hybrid attacks’. A rerun will be held next year.
Although Bulgaria and Romania will become full members of the Schengen area on 1 January, the Commission foresees the introduction of checks at the land borders between Hungary and Romania and between Bulgaria and Romania for ‘at least’ six months to ‘prevent any serious threat to public policy and internal security.’
It therefore looks likely that truckers and cross-border workers will have to endure lengthy border queues for a little while longer.
CASCADE CONTROLS • In recent years, an increasing number of Member States have taken actions that violate the principle of free movement within the Schengen area, against the backdrop of the Covid-19 pandemic and as an attempt to combat illegal migration.
Eight Schengen Member States implemented border controls this year, including Germany, Austria, Denmark, France, Italy, Norway, Slovenia, and Sweden.
Germany, which faced significant criticism for reinstating border controls in September, announced on Thursday that it would extend them for an additional month.
The Schengen Code reform adopted in February allows for temporary controls — which are meant to be justified by a serious security threat to the state in question — to be extended up to two years, with a possible one-year renewal.
This provision highlights the rigidity of the EU-27 on migration matters.
In October, the European Council asked the Commission to urgently submit legislative proposals to accelerate the return of irregular migrants to their countries of origin.
Implicitly, this request from the EU-27 — still unmet by the Commission — demonstrates their lack of confidence in the Asylum and Migration Pact adopted in May, which was supposed to serve as a flexible solution to the EU's migration challenges.
OFFSHORING • The only real consensus is for the need to outsource the management of asylum applications as much as possible. Among the third countries handling this management are the Maghreb states and, above all, Turkey, with which an agreement was signed in 2016 and renewed in 2021.
Italy is attempting to send migrants arriving on its territory to Albania so their asylum requests can be processed there, but it faces judicial hurdles.
While outsourcing arrangements may help prevent a certain number of arrivals, they create dependency on these states and are insufficient in reducing migration pressures. Illegal immigration to the EU doubled between 2018 and 2023, from 137,000 people to 275,000.
The latest symptom: the suspension of Syrian asylum applications by several Member States, including France, following the collapse of Bashar al-Assad’s regime.
The French government is justifying this decision due to the uncertainty surrounding Syria’s situation - it is difficult to assess Syrian asylum seeker applications when the level of danger in their home country is not known.
However, other countries, like Austria, seem intent on capitalising upon the uncertainty of this situation to remove as many Syrians as possible from their territory.
Austria is therefore preparing a “return and deportation program” for Syrian asylum seekers. Meanwhile, Sweden's far-right has discussed revoking residency permits for Syrian refugees.
In Case You Missed It
BERLIN AND BERN • The Bundesbank has revised its economic forecasts downward: German growth is expected to reach only 0.2% in 2025.
The dependence of the German economy on exports could worsen the situation: if Donald Trump were to raise tariffs, Germany could be hit by a dip in GDP potentially reaching 0.5%.
In 2024, the German GDP had already declined by 0.2%.
Beyond the economic situation, the difficulties of the German economy are linked to structural problems, recently highlighted by the president of the Bundesbank, Joachim Nigel.
In 2025, the unemployment rate is expected to reach its highest level in a decade. In October, Volkswagen announced the closure of at least three factories in Germany, cutting tens of thousands of jobs.
Germany will enter 2025 without a federal budget as the economic slump has turned into a political crisis. In November, the coalition led by Olaf Scholz with the Greens and the Liberals collapsed following disagreements over the budget.
As expected, Olaf Scholz lost the confidence of the Bundestag yesterday. Early legislative elections will be held on February 23rd.
The CDU/CSU is leading in the polls (32.4%), followed by the AfD (18.1%) and the SPD (15.8%). An alliance between the CDU/CSU and the SPD or the Greens is the most likely outcome after the elections.
SANCTIONS • The Council has adopted a new package of sanctions against Russia, the fifteenth since the beginning of the war in Ukraine.
For the first time, seven Chinese entities are subject to actual sanctions — previous sanction packages only contained export restrictions against Chinese entities — including entry bans into European territory and asset freezes.
The sanctions also target 52 new ships of the "ghost fleet" used by Moscow to circumvent sanctions.
ECB • The European Central Bank (ECB) has lowered its key interest rates for the fourth time since June.
The three key interest rates — the deposit facility rate, the main refinancing operations rate, and the marginal lending facility rate — will be lowered by 25 basis points and will be reduced to 3.00%, 3.15%, and 3.40% respectively on December 18th.
The main key rate, the deposit facility rate, will thus reach its lowest level since March 2023.
The latest ECB estimates indicate that inflation should decrease more rapidly than expected: it is expected to reach 2.4% this year, 2.1% in 2025, and 1.9% in 2026.
ECB President Christine Lagarde stated that the trajectory was "clear," suggesting that further rate cuts are coming in the months ahead. However, she emphasized — as usual — that the pace of rate cuts would be determined in real-time, meeting by meeting.
One factor considered in the rate cuts is the level of growth in the eurozone. In this regard, the ECB has recently revised its projections downward: growth is expected to reach only 1.1% in 2025, 1.4% in 2026, and 1.3% in 2027.
What We’ve Been Reading
In the FT, Chris Giles lauds the economic performance of the so-called ‘periphery’ countries – Greece, Italy, Spain, Portugal, and Ireland – more than a decade after the sovereign debt crisis.
In a brief for Bruegel, Rebecca Christie argues that incentivizing citizens to invest in equities should be a priority for the EU.
This edition was prepared by Augustin Bourleaud, Mathieu Solal, Théotime Beau, Matteo Matuszewski, Lucie Ronchewski, Hana Rajabally, Rogier Prins and Maxence de La Rochère.