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In February 2016 the European Council agreed to a set of arrangements as a response to the concerns of the United Kingdom. In particular, the Heads of State or Government of the Member States adopted a Decision that is intended to form an instrument for the interpretation of the Treaties. This is a concept recognised under art.31(3)(a) of the Vienna Convention on the Law of the Treaties and as such must be taken into account when the EU Treaties are interpreted. The Decision covers four sections or "baskets": Economic Governance, Competitiveness, Sovereignty, and Social Benefits and Free Movement. It is to take effect if and when the UK informs the Council that it has decided to remain in the EU. Unfortunately, from the point of view of a well-functioning Union, some of the features of this new settlement are contradictory and harmful. In particular, the provisions concerning free movement serve to undermine the EU�s economic and monetary union.
The first basket, Economic Governance, seeks to manage the relationship between the euro area and those countries that do not participate in the euro, for example by prohibiting discrimination based on the official currency of a Member State. For the euro area, it explicitly recognises the need to deepen economic and monetary union further, and the nonparticipating Member States promise to facilitate this. In this respect the Decision is in line with the key proposals emanating from the EU institutions from the Commission's 2012 Blueprint to the Five Presidents' Report of 2015, all of which have advocated significant further integration as a method of safeguarding the troubled single currency. Unfortunately, after reaffirming their commitment to the euro in the first section, the Member States do their best to undermine it in the fourth section, which seeks to curb the free movement of persons.
The very first scholars investigating monetary unions pointed to labour mobility as an essential precondition for a well-functioning currency area. Beginning from Robert Mundell's seminal 1961 paper on optimum currency areas, this has been a constant theme in the literature. The idea is simple. Before joining a single currency, a country can respond to negative economic shocks with devaluations and the lowering of interest rates. Within a currency union this is no longer possible. Instead, workers need to be able to move from regions experiencing a downturn to those that are booming. This is of course a feature that can be observed in the US, and the low level of actual labour mobility in Europe was a factor that was frequently raised in the debates on the desirability of the euro.
