07 Dec 2007

Andorra and the European Union

Michael Emerson

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In the second half of the 20th century, the Pyrenean principality of Andorra saw an extraordinary boom, based on tourism, commerce, financial services and real estate, with its population multiplying 14 times, mainly due to immigration. The drivers of this growth were very low taxation and light economic regulation, combined with the attractive mountain environment. It became a sovereign independent state in 1993, remaining outside the European Union politically while enclaved within it geographically. Since the turn of the century, the economy is encountering a mounting set of constraints: environmental limits, the erosion of commercial advantages and pressures to apply international fiscal and regulatory standards. This study therefore examines the possible futures for Andorra, in its search for economic sustainability and a sound systemic relationship with the European Union, and the now pressing interdependence between these two questions. For the architects of the EU’s foreign policies, who have to find a consistency in their dealings with all neighbours, large and small, from Russia to Andorra, this is a case study that has significance for the much wider set of very small states and entities around the EU.