Passports for Sale: Is it an EU problem?

Phedon Nicolaides, 17 December 2013

Here is a question on the perennial problem of the dividing line between EU and Member State competences. Should Member States be allowed to “sell” passports to third-country nationals? The Financial Times reported on 9 December 2013 that Malta’s plans to “sell” passports for EUR 650,000 were causing consternation in several European capitals.Malta did not really intend to sell passports. It was simply allowing foreigners to qualify for Maltese nationality provided they would make certain investments in the country. Member States do have requirements that make the right to citizenship conditional on a connection with the country. The typical connection is birth or some other form of blood relationship. Well, sizeable inward investment can be such a connection too. Perhaps an economic connection appears to be too calculating and not bestowed with the mysticism and patriotism of a blood relationship.

But although Malta’s plan may have gained publicity possibly because the price tag was very high, offering passports to certain groups of people without a blood relationship is not an unusual practice. European countries have granted citizenship to political refugees and top sports players, to name just two such groups. At any rate, other Member States do have similar schemes [the same FT article mentioned several countries].

One may object to the selling of passports on ethical grounds, but why should the rest of the EU care? The reason is simple. Granting the right to an EU passport creates externalities. Presumably third-country nationals do not aspire to spend the rest of their lives in Malta, irrespective of how pretty the island may be. They value Maltese passports for the right to travel, work and reside anywhere in the EU. Maltese passports are in demand precisely because Malta is an EU Member State. Most likely, it is London, Paris or Berlin that third-country national have in their sights. So, you may conclude, Malta pockets EUR 650,000 and some other Member State bears the costs. Not quite, at least in this case.

Persons who can afford to pay EUR 650,000 are unlikely to be a burden on the country in which they end up. On the contrary, they will buy property, pay taxes and put their children in expensive schools. It is more likely to be a win-win situation for all.

Therefore, the economic response to the Maltese plan is to welcome it. Everybody gains. Jurists and political scientists will ponder whether it is allowed under EU law [apparently, it is] or whether it undermines solidarity between Member States and the implicit understanding that they should not wilfully do anything to harm each other [what solidarity, you may ask].

Even if the numbers are not so impressive as in this case or, worse, the benefits and costs are unequally distributed across Member States, economists would still argue that the presence of an externality is a necessary but not sufficient condition for the EU to act. The EU should act only when the costs borne by others exceed the benefits to the Member State that adopts the offending measure.

The problem with this reasoning is that the numbers may vary significantly from case to case. Then, different Member States will be treated differently according to the balance of costs and benefits. But we value the principles which are conferred [and protected] by the EU because they are stable over time and across countries. Making the exercise of these rights conditional on whether benefits happen to exceed costs would create an unmanageable and, ultimately, useless patchwork of rights.

So, how should the EU handle the granting of passports to third-country nationals? There are two answers: an ideal and a pragmatic: The ideal answer is to make sure that the granting of passports always or in most cases results in a win-win situation. Unavoidably, it means that the EU needs to agree on common rules. This is probably easier said than done, but it is the only way to internalise the externality. The pragmatic answer is that it is unlikely that giving passports to wealthy persons will ever be a big problem. It is a sensational story for the press but unlikely to be the source of trouble for any Member State. The EU should not bother.


One thought on “Passports for Sale: Is it an EU problem?

  1. Luis Bouza García (@luisbouzagarcia)

    Thanks Phedon. It can be a win-win situation provided the person is making investments, but the reports I read were that just a lump sum was required. So other MS are trusting Malta to issue EU passports and Malta must make sure it checks the origin of the money and the activity the persons are likely to carry out in other member states.


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