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

Author(s): André Sapir and Guntram B. Wolff

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.

From Bruegel:


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.

Fig 1


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’.


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