Why an independent Scotland wouldn’t have to adopt the Euro
Just as many in the Yes movement have started the campaign for indyref2 long before we even know if there is going to be one, so too are many of the old Better Together stalwarts starting to come out of the woodwork trying to put a dampener on any thoughts of self determination. We recently debunked the idea that Scotland should remain in the UK because England is our biggest trading partner. This time we will examine the claim that Scotland will have to adopt the euro if it is to remain in the EU.
Lord Steel is the last of many people I have seen making this argument as reported in the Edinburgh Evening News. He does seem a bit conflicted over whether it would be good for independence or not. The tone of the article seems to indicate he thinks it would be problematic but he also suggests that joining the Eurozone would get the SNP out of the ‘What Currency Will We Use’ quandary.
Personally, I think joining the Eurozone would be a bad idea for two reasons. The first is that by adopting the euro Scotland would lose control over key levers that can be used in situations like the 2008 financial crisis, a problem that anyone from Greece will be able to tell you about. Secondly, I believe that adopting the euro would not play well with the public who would prefer Scotland to have its own currency.
Luckily, we don’t have to join the euro at all if we choose to become independent and remain in the EU. The best case scenario would be for Scotland to retain the current UK opt out, a scenario that could be achieved through negotiation. This would seem a reasonable resolution given the new warmth shown to Scotland by EU countries since we voted to remain a part of the organisation. It is worth noting that Denmark, a country with a similar population to Scotland, also has an opt out from having to use the euro. This should be the option we pursue and promote if the situation arises, while making it clear what would happen if we failed to retain the opt out.
If we are not successful in keeping the current situation where we have no obligation to join the currency zone, then that does not mean we will be adopting the euro any time soon. In fact it is clear that although we meet the criteria for joining the European Union, we do not come anywhere near to meeting the criteria of joining the Eurozone.
The five Convergence Criteria are:
|What is measured:||Price stability||Sound public finances||Sustainable public finances||Durability of convergence||Exchange rate stability|
|How it is measured:||Consumer price inflation rate||Government deficit as % of GDP||Government debt as % of GDP||Long-term interest rate||Deviation from a central rate|
|Convergence criteria:||Not more than 1.5 percentage points above the rate of the three best performing Member States||Reference value: not more than 3%||Reference value: not more than 60%||Not more than 2 percentage points above the rate of the three best performing Member States in terms of price stability||Participation in ERM II for at least 2 years without severe tensions|
committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro in due course after accession. Until then, they will participate in the Economic and Monetary Union as a Member State with a derogation from the use of the euro and shall treat their exchange rates as a matter of common concern.
This means that we would join seven other countries who are members of the EU but who are not members of the Eurozone other than the two states (UK and Denmark) that have opt outs. These countries are Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden. Some of these countries have only recently joined the EU, but Sweden has been happily using its own currency since the euro was first adopted. Although this option is not as good as having an opt out, an independent Scotland could adopt the same strategy as Sweden without any complications.
Interestingly, post Brexit it appears that the two biggest states in the EU have been discussing the prospect of not being as strict about the requirement to join the euro. After a meeting on 24 June between the French and German foreign ministers they released a document which contained the following quote.
We have to acknowledge that the requirements of membership and the fiscal implications stemming from the common currency have been higher than one could have expected when the euro was founded. We must therefore respect the wish of others to decide on their own when to join the euro.
So, it may well be that if we don’t inherit the UK opt out, we may not even have to do as Sweden has done and pretend we are 100 percent committed to the euro. The French and the Germans seem to have realised the the euro can only work if everyone involved in it is fully behind the idea. So, the situation is far more complex than Lord Steel and others would have us believe;
It is clear that Scotland could have a currency other than the euro and still be a member of the EU.
Here are are some other EU blogs we have done:
Why we don’t mind staying in the EU but want out of the UK?
Is there and EU queue?
Could we remain in the EU?
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