Eurotrash

Unlikely, Unsafe, Unprecedented & Unpopular.

“An independent Scotland should consider joining the Euro if it becomes a member of the European Union, according to a leading expert.” Herald 17th Feb

Kirsty Hughes proposal is: unlikely, unsafe, unprecedented and unpopular.

Kirsty has stated elsewhere an Independent Scotland seeking to join the EU would need to go through the normal process, and meet the same criteria, as any other country. In suggesting extraordinary Euro adoption she contradicts herself.

Kirsty now asks: “Could you say to the EU we want to stay in the pound for another two, or three or four years, and even as we’ll go straight to joining the Euro.”

We could, of course, ‘say to the EU we want’ anything at all – that’s not to say they would, could or should, agree.

Unlikely

Kirsty’s proposal means first joining the EU without meeting the Copenhagen Criteria, then joining the Euro without meeting the Maastricht Criteria.

It would require treaty change where all 27 EU states would rewrite the rulebook – and it would have implications for every other state currently applying.

EU membership may not automatically mean Euro adoption; it does require the ability to join the Euro. That process includes treating exchange rates as a matter of common concern and demonstrating fiscal stability and competence. This is not possible while Sterlingised.

Kirsty’s proposal would also mean every EU state agreeing, for an extended period, to have an EU member state whose Monetary Policy, Interest Rates and Quantitative easing were all set by a Brexit rUK. The Eurozone countries would need to agree to extend to a new member with no track record in Monetary governance. The European Central Bank would need to reverse it’s interpretation of the Maastricht treaty and we would need treaty change ratified unanimously by 27 domestic parliaments.

Some of those countries, like Croatia, had to go through a decade of painful and unpopular economic reforms to meet the very rules that Scotland would get a pass on. With their own Eurosceptic domestic factions that may not play as well in Zagreb as it does in Falkirk.
There has been nothing to suggest any member states are open to this, never mind that it would gain unanimous support.European Commission spokesperson Amelia Torres stated “The conditions for the adoption of the euro are clear. That means, first and foremost, to be a member of the EU.”

Unsafe

Kirsty speculates that because a new Scottish currency would probably be weak against the pound, adopting the Euro would be in our interest.
Setting aside the hubris of currency rate speculation that, even on her own optimistic timescale, is 7 or more years ahead, the fact is that there is always increased downside risk when assets and liabilities are denominated differently.

The Euro is not immune to this. Thousands of Europeans families lost their homes because their wages were in Euros, but they had taken out mortgages in Swiss Francs. That had seemed like a bargain… until the exchange rates changed.

That should be a warning for Scots with mortgages in GBP contracted to pay back UK lenders in GBP. Moving their salaries to the Euro at best means remortgaging fees, and at worst adds uncertainty and risk into their monthly budget.

Scots with private pensions taken out with UK providers in GBP will also take on risk when their local prices are in Euros adding volatility to their fragile weekly budgeting.

In a best case scenario we would need to pay fees to redenominate – whether those costs are borne by us as taxpayers, or directly as customers, we can be certain we will pay.

As for the 60% of Scottish trade that is with the rest of the UK: Adding a currency border to the regulatory and customs border will simply add more friction and costs with our largest export market.

Unprecedented?

While the exact path Kirsty outlines is, as she says, unprecedented – there is a pathfinder that we can use to judge the complexity and the EU’s position. Montenegro.

Montenegro unilaterally adopted the Euro in 2002. Twenty years later it is still not an EU member state.

Montenegro did not have it’s own currency, it used the German DM so when Germany adopted the Euro, Montenegro also did so unilaterally – in the same way that Panama uses the dollar, or the way that an Independent Scotland would use Sterling if ‘Sterlingised”.

While this was not initially seen as an issue before Montenegro’s application for EU membership, Both the European Commission and European Central Bank have been unhappy with this scenario since. The ECB states in the Declaration attached to the Stabilisation and Association Agreement with the EU that: “unilateral introduction of the euro is not compatible with the Treaty.”

It’s such a sticking point that a decade after their EU entry negotiations opened, a clear path has still not been found. It’s even still possible that to join the EU Montenegro will need to scrap the Euro and launch their own currency in order to meet the Economic Copenhagen criteria and then readopt the Euro using the correct process.

That, of course, seems hugely complex and is not desired – but those are the rules and an easy exception has not been forthcoming. The Economic and Financial Affairs Council of the European Union (ECOFIN) has declared that “Euroization cannot be treated as a shortcut to Eurozone membership and as a way to circumvent the subsequent stages of adopting the EUR provided for in the Maastricht Treaty.”

The EU cannot allow Montenegro to become an EU member, and use Euro, while not meeting the Maastrich treaty criteria for Eurozone membership – they would not, for example, have access to the ECB as a lender of last resort.

The adoption of the Euro has made Montenegro’s EU membership harder to achieve: while making their borrowing more expensive and restricting their ability to use fiscal and monetary policies.

Unpopular.

Finally the question of consent. Is Kirsty suggesting the move to adopt the Euro be put to the people or, like EU membership itself, is it to be considered consented to by any vote for independence, without ever being on the ballot paper?

Adoption of the Euro is particularly unpopular in Scotland, even among those that want to be in the EU, A poll in August of 2021 suggested 40% of Scottish voters would be less likely to support independence if it meant adopting the Euro. That’s why it is so often stressed by the yes campaign that we wouldn’t be forced to adopt it even if we did gain EU membership.

It’s so unpopular in Scotland that even in the unlikely event that there’s a referendum, that independence follows, that EU membership is achieved, and that the democratic consent of 27 other nations approve it – Scots may be the only people in Europe NOT to have given our approval.