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While Luxembourg is a full-fledged member state of the EU, other European microstates (Monaco, Liechtenstein, Andorra, San Marino and the Vatican City) are not. The economies of these microstates are highly reliant on free trade with their neighbours, which are largely EU members (with the possible exception of Liechtenstein), and so they would benefit from full EU integration on the face of it.
Why are they not in the EU?
Different explanations for different microstates:
One explanation that covers all of the small states is that they already have, in practice, free trade and free movement between themselves and the EU. Therefore there is actually little to gain from being members, and a certain amount to lose in terms of offering low-tax or low-regulation goods or services.
The small states achieve this by simply not having any trade or movement regulations (or at least not enforcing them). While the neighbouring EU states could theoretically impose border controls it is simply not worth it for the amount of traffic and the tax benefits. All of these small states have a long history of integration and free movement with their neighbours, far pre-dating the EU, and an attempt to impose controls would almost certainly get more political backlash than benefit.
Further to the above answers, there is also a questions of scale - the microstates are significantly smaller, economically and population-wise, than the existing nations.
The EU nations with the lowest populations are Cyprus (850 000), Luxembourg (600 000) and Malta (475 000). Source
By comparison the microstates listed have, at most, a population of 77 000 (Andorra), and as low as 800 for the Vatican City. Source
GDP wise the situation is similar - here the lowest three GDPs are Estonia, Cyprus and Malta, with 27, 22 and 13 billion Euros respectively (2017 estimates). The comparison here is less stark, but the largest economy, Monaco, still has a GDP half that of Malta with 6.2 billion Euro. (Although Liechtenstein is not listed in the table of the source, the graphic shows it as comparable to Monaco). Source
Integrating such small countries would require the EU to re-evaluate a number of its institutions. As well as the rotating presidency of the European Council mentioned above, currently every country is guaranteed 6 MEPs. This already leads to big disparities between member states (Malta: 1 MEP per 80 000 population, Germany: 1 MEP per 863 020 population) - if San Marino (pop. 34 000) joined on the same basis, it would have 1 MEP per 5 700 population, another order of magnitude!
As others have said they already have open borders, free movement, shared currency, and free trade with their ‘parent’ nation, and by extension the EU.
Effectively the mico-nations gain all the benefits of EU membership without having to actually be a member. Not being official EU members allows them advantages, such as the ability to set taxes below the legal limit, that they have exploited to become very rich.
Much of the more thought out thinking about Brexit also revolves around the UK taking a similar approach. Managing to exploit the advantages of EU membership whilst at the same time getting ahead of the other members via being able to offer lower taxes and regulations. The problem is of course, that with the micro-nations they have largely been able to fly under the radar. They are so small that the impact of their ‘cheating’ has been kept rather small, if they were larger than things would be quite different and they wouldn’t be allowed their favoured status.
Even as far as the micro nations the tide is turning and there is a big movement underway to reign in tax havens. It could be argued that this movement was born exactly out of larger nations also introducing laws that allowed for loop holes (the infamous double Dutch exemption using the Netherlands and Ireland) and had this not happened the micro-nations would continue to fly under the radar.
As things are however, there’s a lot of attention on the micro nations at the moment. We shouldn’t forget too that though the micro nations particularly stand out to laypeople due to their legal status as separate nations, you also have a lot of other polities in a similar situation vis-a-vis the EU such as the Channel Islands, Caymans, etc…
Anyway, I’ve gone off on a ramble here. The TLDR answer- the micro nations already get all the advantages of membership and many of the advantages of non-membership with their current situation. There’s never been much interest from either side in actual membership due to their situation where they are effectively tiny but highly special parts of France, Italy, Switzerland, and France/Spain.
Of the five micro nations Liechtenstein presents the most interesting case as though it is in practice effectively a semi-autonomous part of Switzerland, it nonetheless has a far greater legal presence internationally than other micronations, such as for example being a full member of the EFTA.
If Swiss membership of the EU were to ever become a serious prospect again (its fairly dead for the moment given Switzerland is also able to enjoy the best of both worlds in many ways) then there will be a genuine question of what to do with Liechtenstein.
