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Understanding the European single market

15/07/2018

The United Kingdom is in the final stage of defining its relationship with the Single Market (and the EU). Yet many of us struggle with understanding what is the Single Market. Here is a simplified definition of the Single Market and the European Union’s role within it.

The Single Market includes 32 countries* and the one aspect in common to all those countries is free trade of products and services. Within the Single Market there are three partly overlapping groups that go much further:

The members by level of integration within the Single Market, pre-Brexit, are described below.

Single Market

17 countries representing 66% of Single Market GDP are members of all three groups. This can be seen as the core of the EU. Further, they do not have any opt-outs** so their memberships are full and unequivocal. 2 more countries are EU members and use the euro, but are outside Schengen: Cyprus and Ireland (with opt-outs).

9 countries are EU members using local currencies. 5 of them are within Schengen (2 with opt-outs), and 4 outside, most notably the UK (with opt-outs).

This gives the EU membership count of 28 countries representing 96% of Single Market GDP.

The European Economic Area (a free trade area) is made up of the 28 EU countries and 3 additional countries: Norway, Iceland, and Liechtenstein. They are also members of Schengen.

Finally, Switzerland has a special free trade agreement with the EEA and is a Schengen member.

This gives the total tally of 32 countries in the Single Market. It has (2018) 526 million inhabitants and a GDP of $23 trillion. In comparison, the US: 327 million — $21 trillion; China: 1.4 billion — $25 trillion.***

Below, the countries are ranked ordinally by current level of integration on a scale from 9 (high) to 1 (low).

Country List

The UK already is one of the five least integrated countries and has not far to drop to reach the bottom.

Does such a change matter? Probably not much to the EU, and maybe not even to the UK. The country is already an outsider and the extra step to leave is arguably small in the long term. However, the short- to medium-term repercussions may be severe as uncertainty spreads and new bilateral agreements take years to negotiate.

Below is an interactive table which can be sliced by degree of integration.


* 4 mini-states are excluded: Andorra, Monaco, San Marino, and Vatican City State, which have various separate agreements with the Single Market. Lichtenstein is included because it has a direct Single Market agreement.

** Opt-outs allow individual countries to not participate in a certain policy area. Currently Denmark (3), Ireland (2), Poland (1) and the UK (4) have opt-outs.

*** GDP in purchasing power parity dollars