The European Union has signed a comprehensive association agreement with Andorra and San Marino, establishing a framework that will allow the two small European states to participate more fully in the EU single market while remaining outside the bloc.

The agreement was signed in Brussels on Monday, 19 October, by representatives of the European Commission and the two governments, marking the conclusion of negotiations that began more than a decade ago.

The arrangement covers trade, investment and regulatory cooperation, alongside provisions concerning financial services, education, environmental protection, consumer rights and other areas normally governed by EU legislation.

However, the agreement has not yet entered into force. It requires further approval procedures, including consent from the European Parliament and ratification by the participating countries. Andorra intends to submit the agreement to a binding national referendum.

Access to the European single market

According to the European Commission’s announcement, the agreement will provide Andorra and San Marino with access to the single market under shared regulatory requirements and conditions intended to ensure fair competition.

The principal objective is to remove barriers that continue to restrict economic activity between the two countries and the EU’s 27 member states.

For businesses, the arrangements should provide greater predictability concerning the rules governing cross-border trade, investment and commercial operations.

Participation will nevertheless require both countries to implement relevant EU legislation and maintain systems capable of enforcing the applicable standards.

In practice, access to the European market will carry obligations comparable to those imposed on companies established inside the Union, particularly concerning product standards, competition, environmental rules and consumer protection.

The agreement also establishes institutional arrangements for managing cooperation and dealing with future regulatory developments.

For two countries whose economies are closely connected to neighbouring EU members, greater regulatory consistency could reduce administrative barriers and facilitate commercial expansion.

Financial services to be integrated gradually

Financial services represent one of the more sensitive elements of the agreement.

Andorra has a banking and financial sector with substantial links to Spain and France, while San Marino’s economy is closely integrated with Italy.

Both countries already use the euro under separate monetary arrangements with the European Union, although neither is a member of the eurozone or the EU.

The new association framework would provide a route towards broader participation in the EU financial services market, but integration will be gradual and subject to specific conditions.

The Commission has made clear that the process will involve assessments of the regulatory and supervisory arrangements operating in both countries.

This means the signature does not provide their financial institutions with immediate, unrestricted access to all services available within the EU.

Brussels has also signed updated monetary agreements designed to remove overlapping requirements between existing arrangements and the new association framework.

Financial supervision, the prevention of money laundering and compliance with European regulatory standards will be central to the implementation process.

Integration without EU membership

The agreement illustrates how the Union can extend significant elements of its economic framework to neighbouring countries without admitting them as members.

Andorra and San Marino will not acquire voting rights in EU institutions or the political representation enjoyed by member states.

Their participation will instead depend on accepting relevant common rules and complying with the institutional provisions established under the association agreement.

The EU already operates differentiated arrangements with several non-member European countries, including Norway, Iceland and Liechtenstein through the European Economic Area.

Earlier European Council conclusions on relations with non-EU Western European countries identified Andorra and San Marino among the states with which Brussels sought closer economic and institutional cooperation.

The newly signed agreement does not replicate every aspect of existing arrangements, but it follows the broader principle that access to the single market can be negotiated separately from EU membership.

That principle is also relevant to discussions about how candidate countries might receive selected economic benefits before completing the full accession process.

Brussels has been considering wider market participation for countries such as Ukraine and Moldova ahead of possible membership.

Referendum and ratification ahead

The immediate political challenge now moves from negotiation to approval.

Following the signature, the Council will seek the European Parliament’s consent before the agreement can be formally concluded. Its application will also depend on the completion of the necessary national procedures.

In Andorra, Prime Minister Xavier Espot’s government has committed to a binding referendum, although no voting date has yet been fixed.

The referendum will determine whether Andorran voters accept the economic opportunities and regulatory commitments established by the agreement.

San Marino must also complete the procedures required under its constitutional system.

Until those requirements have been satisfied, the agreement remains a signed framework rather than an operational extension of the EU single market.

For both countries, the eventual implementation will determine how far their economies can integrate with the Union while retaining their existing status as independent non-member states.

MEPs have opened debate on the EU’s proposed Affordable Housing Act, which would give national and local authorities a clearer legal framework for restricting short-term rentals and some non-primary residential property use in areas facing severe housing pressure.

The European Parliament has begun examining legislation that would give cities and national governments greater legal certainty when restricting short-term rentals and the use or acquisition of residential property in areas where housing has become difficult to afford.

The proposed Affordable Housing Act, presented by the European Commission on 9 September, was on Parliament’s agenda in Strasbourg on Tuesday as housing costs move further into EU-level politics.

The legislation does not transfer general housing policy to Brussels. Decisions on construction, planning, rent policy and social housing would remain primarily with national, regional and local authorities.

Instead, the proposal would establish a common EU legal framework governing some restrictions that member states and cities may introduce when attempting to protect housing supply.

The draft regulation specifically covers measures restricting short-term accommodation in residential properties other than a host’s primary residence. It would also cover restrictions on the acquisition or use of land and housing that is not intended as somebody’s principal home.

Those provisions are designed partly to resolve a legal problem that has become increasingly important in cities with large tourism markets.

Local governments have introduced restrictions on holiday rentals and second-home use, but such measures can clash with EU single-market rules governing services, property and establishment. The Commission says the legislation would provide authorities with a clearer method for demonstrating when restrictions are justified and proportionate.

The law would therefore not impose a common European cap on Airbnb-type accommodation. Nor would it oblige cities to introduce restrictions.

Authorities choosing to intervene would instead have to demonstrate housing stress and ensure that their measures meet EU requirements on proportionality, transparency and review.

Brussels argues that the scale of Europe’s housing problem now affects more than social policy.

According to the Commission’s European affordable housing plan, house prices across the EU have risen by more than 60 per cent since 2013, while average rents have increased by about 20 per cent. Short-term rentals increased by 93 per cent between 2018 and 2024.

Only between six and seven per cent of EU housing stock is classified as social housing, while about 20 per cent of homes are recorded as unoccupied.

The Commission estimates that Europe needs to build more than two million homes a year to meet current demand — around 650,000 more annually than are presently being constructed. It estimates the additional investment requirement at approximately €153 billion each year.

Those figures underline a central difficulty in the housing debate: restrictions on tourist accommodation may return some properties to residential use, but they do not address the full shortage of new homes.

EU Today examined that wider supply issue when the Commission launched its European Affordable Housing Plan, which combines proposed regulation with investment, faster permitting, construction reform and changes to state-aid rules.

The debate is becoming more politically prominent as housing affordability affects a growing share of middle-income households as well as those on lower incomes.

Berlin offers one example. EU Today reported last month that advertised rents in the German capital had risen by roughly three-quarters in less than a decade, while the city calculates that it will need another 211,000 homes by 2040.

Pressure is particularly acute in large cities and tourism centres, where residential demand competes with short-term accommodation and investment properties.

The Commission argues that this has consequences for the wider economy because workers who cannot find affordable accommodation may be unable to move to areas where jobs are available.

That is why Brussels increasingly presents housing not only as a social concern but as part of the competitiveness and single-market agenda.

The proposal is still at an early stage. Parliament and the Council must negotiate the legislation under the ordinary legislative procedure, and substantial amendments remain possible.

Questions are likely to centre on how “housing stress” is defined, what evidence authorities must provide before restricting property use and how far EU law should permit local intervention in property markets.

The political dividing line is already apparent. One side of the debate stresses that cities need more freedom to protect permanent housing stock. The other warns that regulation of short-term rentals or second properties can affect tourism businesses, property owners and investment without necessarily creating sufficient new supply.

The Affordable Housing Act attempts to establish legal rules for that dispute rather than settle it centrally.

If adopted, its importance will therefore depend less on a single Brussels policy than on how individual European cities use the powers and legal protection it provides.

France and Germany have proposed giving the European Commission powers to respond within days to serious trade distortions, including the possibility of restricting access to the EU single market. The initiative comes as European concern grows over Chinese subsidies, industrial overcapacity and dependence on critical imports.

French President Emmanuel Macron and German Chancellor Friedrich Merz have called for a new European Union trade instrument capable of acting rapidly against countries whose economic practices cause serious disruption to the European market.

In a joint initiative sent to European Commission President Ursula von der Leyen on Monday, the two governments proposed strengthening the EU’s ability to respond to what they describe as systemic market distortions, including dumping, widespread subsidies and restrictions affecting access to critical supplies.

The Franco-German proposal does not formally identify China as its target. However, many of the practices it describes correspond directly to long-standing European concerns over Chinese industrial policy, including excess manufacturing capacity, state support and restrictions on exports of critical minerals.

The initiative represents a further development in a harder European approach towards Beijing. EU Today reported last week that China had warned it would respond if the EU introduced new restrictions against Chinese companies or products.

Macron and Merz are proposing two additional instruments.

The first would be intended to reduce European companies’ dependence on single suppliers for strategically important products and raw materials. The second would allow the EU to restrict access to its internal market when a third country uses political or economic measures that seriously undermine fair competition.

Under the proposal, the Commission could initiate countermeasures unless a qualified majority of EU governments voted to block them. That would reverse the normal political dynamic in which Brussels must first secure sufficient support before acting.

German officials have argued that the EU needs powers comparable in effect to the United States’ Section 301 trade measures or China’s ability to restrict exports of critical raw materials.

The Commission has welcomed the Franco-German intervention as a contribution to its work on economic security and global trade imbalances. Any new instrument would, however, require legislation and approval by both EU governments and the European Parliament before it could be used.

The proposal comes amid growing concern in both Paris and Berlin over the effect of subsidised Chinese production on European manufacturers.

Germany’s position is particularly significant. Berlin has traditionally been more cautious than Paris about measures that could restrict trade with China, reflecting the importance of the Chinese market to German carmakers, engineering companies and chemical producers.

That position has shifted as German industry faces increased competition from Chinese electric vehicles, machinery and other manufactured goods.

EU Today has previously examined the emerging Franco-German alignment on tougher China trade defences and demands from German manufacturers for broader European action rather than product-by-product investigations.

The new proposals go considerably further by seeking a mechanism capable of dealing with entire sectors and acting much more quickly than conventional anti-dumping proceedings.

Chemicals, PET plastics and hybrid vehicles are among sectors identified in the Franco-German document as areas where additional action may be required.

The timing is also significant. EU leaders are due to discuss trade relations with China at their summit in Brussels on 15–16 October, while Trade Commissioner Maroš Šefčovič is expected to hold talks with Chinese officials beforehand.

The Commission is already attempting to balance two objectives: maintaining Europe’s access to the Chinese market while reducing strategic dependencies that could be used as political leverage.

The Franco-German plan would give Brussels another instrument at the more coercive end of that policy. Its eventual importance will depend on whether governments agree to create it and how readily they would permit the Commission to use it against a major trading partner.