Currency Scotland & the EU

Fact: An Independent Scotland would not have to use the euro.

With Brexit completely undermining the credibility of Westminster governance, the subject of Scottish independence is becoming news again in UK-wide news cycle. As a result, many of the issues that UK-wide news reporters didn’t understand in 2014 are starting to raise their heads again. One is the genuinely confusing question of whether an independent Scotland would have to use the euro. This was raised by Sky News’ Kay Burley in an interview with the SNP’s Ian Blackford which demonstrated news presenters are poorly briefed on the issue.  

How the issue becomes confused is that the Government of an independent Scotland would, if it joined the EU as a new nation,  have to make a commitment to joining the euro at some point in the future. But that does not mean that it would ever use the euro.

So if a news interviewer asks the question: “Would an independent Scotland have to use the euro?” The answer is no. 

If the question is worded: “Would an independent Scotland joining the EU as a full member using the process for joining as a new member have to commit to using the euro at some undefined point in the future?” Then the answer is yes.  

Lets put to one side for now that: 

  • The SNP Government’s current policy is to be an EU member but its semi-official policy of using sterling unofficially for a period of time may actually mean it can’t fully join the EU (this is debated). Therefore Scotland would have to access the single market and customs union via membership of the European Free Trade Association (EFTA). EFTA includes Norway, Iceland, Switzerland and Liechtenstein. EFTA members are not required to join the euro.
  • There is a case to be made that if Scotland is a member of the EU as part of the Union with Great Britain and Northern Ireland and if it leaves that Union prior to the UK transition period it remains a member and could ask to retain its opt out of the euro.  They can ask but no one knows what the answer would be.
  • It is also the case that Scotland, if joining the EU as a new nation-state, would be able to say our circumstances are unique and so we would require an opt out of the euro or else we would join EFTA. The EU would rather have Scotland in the EU with an opt out.  That would be subject to negotiation and again they can ask but no one knows what the answer would be. However asking a nation to launch a currency, set up a central bank and then scrap it all after two years would be impractical and the UK are pragmatic to say the least on the issue of the euro. 
  • It is technically impossible to join the euro if you do not have your own currency.  Joining the euro involves joining the European Exchange Rate Mechanism and without a sovereign currency, you can’t to that.
  • The UK Government may offer a newly independent Scotland a currency union and if the offer is good enough as part of the wider negotiations the Scottish Government may accept. This would again block Scotland from committing to the euro and necessitate an opt out of for Scotland. Remember that an official currency union with the UK is still (for now) the Scottish Government’s officially stated position.  

So under the very specific and highly unlikely scenario of: 

  • Scotland becoming independent
  • Applying to join the EU as a new member state 
  • Not negotiating an opt-out on using the euro. 
  • And having launched its own Sovereign currency before joining (which it will not do). 
  • Then Scotland would have to commit to using the euro at some point in the future, but not to actually use it or to even set a deadline to adopt it.

The best way to explain this is to quote the European Union itself:

Are the Member States obliged to join the euro?

In principle, all Member States that do not have an opt-out clause (i.e. the United Kingdom and Denmark) have committed to adopting the euro once they fulfil the necessary conditions. However, it is up to individual countries to calibrate their path towards the euro and no timetable is prescribed.

The Member States that joined the EU in 2004, 2007 and 2013, after the euro was launched, did not meet the conditions for entry to the euro area at the time of their accession. Therefore, their Treaties of Accession allow them time to make the necessary adjustments.

So it is clear that:

  • To use the euro you have to meet the necessary conditions set by the EU and Scotland doesn’t, not least because it neither has nor plans to launch its own sovereign currency immediately after becoming independent.
  • Scotland would be empowered by the EU to decide the timetable to meet the conditions and as quoted, no timetable is prescribed – in other words, we could be on an indefinite path to adoption.
  • There are several nations to whom this process already applies and the EU told them they did not qualify to use the euro.

Other EU members that are not using the euro.

  • Bulgaria joined the EU in 2007 – Bulgaria’s finance minister has laid down a plan for euro membership and has said the country could join in 2022. The government approved the roadmap. The European Commission apparently don’t think Bulgaria is quite ready to join yet. so Bulgaria wants to join but the EU doesn’t want them to – yet. 
  • Croatia joined the EU in 2013 – Croatia’s central bank chief has said that that the country intends to formally announce plans to join the euro and they will send a letter of intent to the EU – six years after it joined the EU.  
  • Czechia joined the EU in 2004 – The country made some early steps to align with the euro, but the government has decided not to recommend a date for joining the Eurozone because they feel the Czech economy is not ready. They are clearly delaying entry, indefinitely.  
  • Denmark joined the EU in 1973 – The Danish Government isn’t saying much about the euro. It’s a done deal for them not to adopt it. Denmark rejected further EU integration in a 2015 referendum. They had already rejected euro membership in a referendum in 2000.
  • Hungary joined the EU in 2004 – Run by a man many view as semi-dictator who despises Europe and the EU. So long as Orban and his party are in power, there will be no path to the euro.  
  • Poland joined the EU in 2004 – The Polish Government is being ambiguous on the euro. They haven’t said they will never use the euro just that it is not their priority right now, that raising living standards is instead.
  • Romania joined the EU in 2007 – The Romanian Government has adopted a strategy to join the euro by as early as 2026 but the EU won’t let them unless they meet the criteria and they probably won’t even by then.
  • Sweden joined the EU in 1995 – Sweden held a referendum in the early 2000s on euro membership, and the country rejected it. Sweden is obliged by treaty to join, as are other newer members but they have just said no. 

Conclusion

An independent Scotland just does not need to use the euro as its currency under all circumstances.

If independent Scotland joins the EU as a full member state the EU will agree that it is not possible for Scotland to adopt the euro and will give the Scottish Government full control over the timescales to meet the criteria. The Scottish Government can therefore indefinitely avoid joining the euro. However, a future Scottish Government might decide to join the euro voluntarily – doubtful but who knows.

Sky News’ Kay Burley and Channel 4 news and others plainly don’t understand the facts of the matter. 

And finally, my advice given to the Sustainable Growth Commission and also the Scottish Government is that the next independence prospectus should state that: Scotland would consider a currency union if the offer was good enough but that it plans to sterlingise for a period of time to promote ease of trade with the rest of the UK. Thereafter Scotland would launch a sovereign currency and gain the benefits of monetary policy flexibility at the time that is right for Scotland and not before, without any set timescale.  So that could be anything between 2-10 years but that decision will be down to a future Scottish Government. 

I also believe that Scotland will join EFTA and not the EU after independence and therefore regain the benefits of membership of the single market and customs union being denied us by the UK, whilst maintaining trade deal flexibility with the rest of the UK. If Scotland is to rejoin the EU at a future date it should only after the Scottish people vote to do so in a referendum.

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

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