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The European Union and the United Kingdom

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The European Union and the United Kingdom ISSUE 2016/ 01 policy brief JANUARY 2016 bruegel ONE MARKET, TWO MONIES: THE EUROPEAN UNION AND THE UNITED KINGDOM by André Sapir THE ISSUE Access to the single market is one of the core benefits of the United Senior Fellow at Bruegel Kingdom’s membership of the European Union. A vote to leave the EU would [email protected] trigger difficult negotiations on continued access to that market. However, the and Guntram B. Wolff single market is not static. One of the drivers of change is the necessary Director of Bruegel [email protected] reforms to strengthen the euro. Such reforms would not only affect the euro’s fiscal and political governance. They would also have an impact on the single market, in particular in the areas of banking, capital markets and labour mar - kets. This is bound to affect the UK, whether it remains in the EU or not. POLICY CHALLENGE A defining characteristic of the banking, capital and labour markets is a high degree of public intervention. These markets are all regulated, and have implicit or explicit fiscal arrangements associated with them. Deepening integration in these markets will likely therefore require governance inte - gration, which might involve only the subset of EU countries that use the euro. Since these countries constitute the EU majority, safeguards are Participation of euro and non-euro EU countries in inter - needed to protect the governmental arrangements to strengthen EMU legitimate single mar - ket interests of the UK European Union and other euro-outs. Fiscal Compact, 2012 But the legitimate SE interest of the euro- Euro-area 19 Euro-plus area majority in deeper AT, BE, CY, DE, EE, ES UK Pact, 2011 HU market integration to IE, FI, FR, GR, IT, LT, LU, LV BG, DK, PL, RO MT, NL, PT, SI, SK bolster the euro should also be protected Banking Union (SRM), 2014 against vetoes from CZ, HR the euro-out minority. Source: Bruegel. SRM = Single Resolution Mechanism. ONE MARKET, TWO MONIES: THE EUROPEAN UNION AND THE UNITED KINGDOM IN THE LATE 1950 s, many Euro - there have been three major tion created by the EU 02 pean countries shared the goal of developments in European eco - enlargements to low-income market integration but those able nomic integration. First, the countries from central and f e to choose freely split into two single market has advanced but eastern Europe. i r groups. Some, wishing for more is unfinished, with significant b than market integration, joined remaining barriers to free move - • It is legitimate for euro mem - y c the European Economic Commu - ment inside the EU. Second, the bers to take the necessary i l nity (EEC): an ‘ever closer union’ euro was introduced but the orig - measures to sustain the mon - o p with common institutions and inal design has proved fragile etary union and it matters to l e policies. Others, led by the and additional institutions and Britain that the project suc - g United Kingdom, joined the Euro - policies have been introduced to ceeds. “But we want to make e pean Free Trade Association address the causes of the euro sure that these changes will u r (EFTA) and wished only for mar - crisis. The euro also remains an respect the integrity of the b ket integration. unfinished construction. Third, single market, and the legiti - the EU has grown to 28 members, mate interests of non-euro The UK joined the EEC in 1973 with increased heterogeneity in members” . (and decided to remain in 1975) 1 economic, social and political because it judged that staying conditions. • There should be a recognition outside would hurt that the UK position in the EU its economic inter - These developments is special by ending “Britain’s ests, not because of ‘Most UK demands lie at the heart of UK obligation to work towards an a change of view on correspond to a prime minister David ‘ever closer union’” . the broader aims of Cameron’s Novem - ‘one market, two (or European Integra - ber 2015 letter to They raise three questions: (1) tion. Most other EFTA several) monies’ European Council How can the single market be members eventually vision of the EU.’ president Donald deepened in line with this joined the EEC. Tusk asking for “a vision? (2) How would meas - new settlement for ures to sustain the monetary 1. See Mourlon-Druol, E. In the 1980s, the UK government the United Kingdom in a union affect the single market? (2015) for a discussion was one of the staunchest sup - reformed European Union” (3) How should the relationship of the UK’s 1975 EU ref - porters of the single market that (Cameron, 2015). His four key between euro and non-euro erendum and possible 3 lessons for today. aimed to complete the common demands are: countries be managed to ensure 2. The title of a 1990 market’s objective of free move - the integrity of the single mar - European Commission ment of goods, persons, services • In order to improve competi - ket? publication that argued and capital. But in line with its tiveness, the EU should “do that “one market needs one money” . See Euro - divided view on integration, the more to fulfil its commitment Irrespective of whether the UK pean Commission UK rejected the ‘one market, one to the free flow of capital, stays in the EU or leaves, these (1990). money’ 2 logic advocated at the goods and services” , ie it questions must be tackled. In 3. These demands were time in support of a single cur - should complete the single particular, after an exit from the formulated against the background of a com - rency, because it considered market. EU, the UK would want to retain prehensive and that the single currency would access to the single market. The detailed examination of the balance of compe - create common institutions and • Regarding the other single exit negotiations would certainly tences between the UK policies amounting to a huge market area, the free flow of focus on that access and the and the EU by the UK step towards ‘ever closer union’. persons, there should be lim - conditions attached. Changes to civil service, which con - cluded that, in most its to social benefits in order to the single market and its gover - areas and on most Since the decisions were taken “reduce the flow of people... nance – for instance to issues, the balance is to complete the single market coming to Britain from the EU” , strengthen Economic and Mone - about right. See HM Government (2014). and create a monetary union, a clear reference to the situa - tary Union (EMU) – would affect ONE MARKET, TWO MONIES: THE EUROPEAN UNION AND THE UNITED KINGDOM all countries that are part of the inated but many non-tariff barri - addition, the Services Directive single market, whether they ers were still in place. But free did not cover regulated network 03 belong to the EU or not. But they movement of goods also meant services, such as transportation, f will affect EU and non-EU coun - common competition, trade and telecommunications or energy. e i tries differently in terms of agriculture policies. The UK had For these activities, the creation r governance. For EU members, to adopt these policies, despite of a single market would require b y the governance mechanisms some reticence about loss of a common EU philosophy about c i would be mostly based on the EU sovereignty. regulation, if not the replacement l o treaties, but the UK outside of national regulators by single p l would have to rely on intergov - Free movement of workers had EU regulators. e ernmental agreements. also been technically achieved g by 1973 when the UK joined, but A NOT-SO SINGLE MARKET e u Finally, no federation or confed - did not translate into much r eration remains static in labour mobility between EU The EU is characterised by differ - b governance terms. The EU will be countries. In addition to cultural entiated levels of integration for continuously subject to reforms obstacles, economic and social different countries and different and changes. This complicates conditions were sufficiently sim - policy areas, but the UK stands the definition of the relationship ilar across EU countries to result out as the most differentiated 4. between the euro area and the in little desire or necessity to single market because the euro move. The 1991 Maastricht treaty did area’s eventual shape is far from not affect the EU rules on free being agreed. We consider likely The single market programme movement of goods, persons, future developments in euro- that started in the mid-1980s services and capital, but it did area governance and how their sought to remove hundreds of introduce a permanent deroga - impact on non-euro area and remaining barriers to the free tion (‘opt-out’) from monetary non-EU countries can be man - movement of goods, persons, union for Denmark and the UK aged. As a blueprint for future services and capital. Non-tariff and a temporary, but not time- governance developments, we barriers to goods were largely limited derogation to fulfil the use the Five Presidents’ Report eliminated as were capital con - conditions to adopt the single issued by European Commission trols, resulting in substantial currency for all other EU coun - president Juncker (2015), capital movements. Further barri - tries. though we recognise that it ers to the free mobility of workers leaves many important ques - were also removed but intra-EU The Maastricht treaty also intro - tions unanswered. migration flows remained low, duced differentiation in social despite the accession in the policy.
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