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One market, two monies: the European Union and the United Kingdom


  • André Sapir
  • Guntram B. Wolff


The issue Access to the single market is one of the core benefits of the United Kingdom’s membership of the European Union. A vote to leave the EU would trigger difficult negotiations on continued access to that market. However, the single market is not static. One of the drivers of change is the necessary 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 markets. This is bound to affect the UK, whether it remains in the EU or not. The 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 integration, which might involve only the subset of EU countries that use the euro. Since these countries constitute the EU majority, safeguards are needed to protect the legitimate single market interests of the UK and other euro-outs. But the legitimate interest of the euro-area majority in deeper market integration to bolster the euro should also be protected against vetoes from the euro-out minority. Participation of euro and non-euro EU countries in intergovernmental arrangements to strengthen EMU Source - Bruegel. SRM = Single Resolution Mechanism. In the late 1950s, many European countries shared the goal of market integration but those able to choose freely split into two groups. Some, wishing for more than market integration, joined the European Economic Community (EEC) - an ‘ever closer union’ with common institutions and policies. Others, led by the United Kingdom, joined the European Free Trade Association (EFTA) and wished only for market integration. The UK joined the EEC in 1973 (and decided to remain in 1975)1 because it judged that staying outside would hurt its economic interests, not because of a change of view on the broader aims of European Integration. Most other EFTA members eventually joined the EEC. In the 1980s, the UK government was one of the staunchest supporters of the single market that aimed to complete the common market’s objective of free movement of goods, persons, services and capital. But in line with its divided view on integration, the UK rejected the ‘one market, one money’2 logic advocated at the time in support of a single currency, because it considered that the single currency would create common institutions and policies amounting to a huge step towards ‘ever closer union’. Since the decisions were taken to complete the single market and create a monetary union, there have been three major developments in European economic integration. First, the single market has advanced but is unfinished, with significant remaining barriers to free movement inside the EU. Second, the euro was introduced but the original design has proved fragile and additional institutions and policies have been introduced to address the causes of the euro crisis. The euro also remains an unfinished construction. Third, the EU has grown to 28 members, with increased heterogeneity in economic, social and political conditions. These developments lie at the heart of UK prime minister David Cameron’s November 2015 letter to European Council president Donald Tusk asking for “a new settlement for the United Kingdom in a reformed European Union” (Cameron, 2015). His four key demands3 are - In order to improve competitiveness, the EU should “do more to fulfil its commitment to the free flow of capital, goods and services”, ie it should complete the single market. Regarding the other single market area, the free flow of persons, there should be limits to social benefits in order to “reduce the flow of people... coming to Britain from the EU”, a clear reference to the situation created by the EU enlargements to low-income countries from central and eastern Europe. It is legitimate for euro members to take the necessary measures to sustain the monetary union and it matters to Britain that the project succeeds. “But we want to make sure that these changes will respect the integrity of the single market, and the legitimate interests of non-euro members”. There should be a recognition that the UK position in the EU is special by ending “Britain’s obligation to work towards an ‘ever closer union’”. They raise three questions - (1) How can the single market be deepened in line with this vision? (2) How would measures to sustain the monetary union affect the single market? (3) How should the relationship between euro and non-euro countries be managed to ensure the integrity of the single market? Irrespective of whether the UK stays in the EU or leaves, these questions must be tackled. In particular, after an exit from the EU, the UK would want to retain access to the single market.

Suggested Citation

  • André Sapir & Guntram B. Wolff, 2016. "One market, two monies: the European Union and the United Kingdom," Policy Briefs 12037, Bruegel.
  • Handle: RePEc:bre:polbrf:12037

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