Myself and another forumite wrote to all of the European Aviation agencies and asked if a pilot with a JAA Licence and a JAA IR could fly in their airspace in an N reg aircraft.
The answer from everyone was yes. So a pilot with a UK JAA licence with a JAA IR may fly an N Reg aicraft airways on the JAA licence anywhere in Europe. The FAR's permit a pilot to fly an N Reg aircraft OUTSIDE of the USA on a foreign licence.
The FAA do consider European airspace as a single sky because we are all under JAA/EASA.