A guest from Paul Freeman, who’s known to his Twitter fans as @setindarkness, and who also blogs here. Thanks Paul!
In a recently published interview in Time Magazine, Alex Salmond was asked the question of whether an independent Scotland would keep the Pound:
The sterling, well, it really depends on the financial circumstances of the time. We would tend to stay within the sterling area until such time as it is to our advantage to join the Euro and then we would only do it with the consent of the people.
However, given the entry criteria for the Euro, jumping from the Pound to the Euro would be impossible.
As was noted in James’ recent article about Scotland and the Euro, Any other existing EU members not in the Euro have to join ERM II. You then have to spend two years in ERM II and meet the convergence criteria before you can join the eurozone.
If an independent Scotland kept Sterling, it wouldn’t be possible to join ERM II, given there is zero change of rUK ever joining, or ever wanting to join ERM II.
The logical conclusion is that if Scotland were unable to remain in the EU through existing treaties, it would have to create the Scottish Pound, join ERM II and then apply to join the eurozone, before they could join the EU.
If Scotland were allowed to remain in the EU, it doesn’t seem possible to do what Alex Salmond suggested and jump from the Pound to the Euro at some future time.
There are other options. There is nothing to stop Scotland not joining the EU. It hasn’t seemed to have done our favourite country, Norway, any harm, and it would add to the ‘remarkable similarities’ between the two countries.
You’d have to be pretty insane, but you could just start using the Euro, as Montenegro does. Whilst the European Commission wasn’t happy about it, they didn’t stop them, and now Montenegro is an official candidate to join the EU.
Finally, Scotland could go the whole way and introduce the Scottish Pound. After all, there are already notes being printed and in circulation. They are already foreign currency in most English shops. It could then decide whether to join the EU/Euro via a radical democratic device called a referendum.
All this highlights the increasing need to resolve the matter of EU membership. In my opinion, the EU wouldn’t want Scotland to leave, and Scotland’s use of Sterling would give the EU leaders a nice Swedish style opt-out, allowing EU membership without the Euro. Leaving everyone except the Unionists happy. But, the SNP shouldn’t leave this dangling before the referendum as uncertainty will not make persuading people to vote Yes easier.
Nor should Alex Salmond say Scotland will join the Euro straight from the pound unless he can show how it’s possible.
#1 by James on November 5, 2011 - 11:10 am
Paul’s right, as discussed on Twitter last night. There’s no way to join the Euro except through ERM2, and for ERM2 you need your own currency so you can stabilise the exchange rate with the Eurozone.
Keep the pound for now, fair enough, but anyone who (bizarrely) still thinks we should join the Euro, like the First Minister, would have to take us through our own currency first. Or is there any other possible reading of Euro treaties?
#2 by setindarkness on November 5, 2011 - 5:17 pm
I forgot to put that I would be pleased to hear of any other interpretation of the criteria for joining the Euro.
#3 by M G on November 5, 2011 - 11:39 am
This is when I wish the BBC and STV were more outward looking. A regular informed discussion programme,where Europe is allowed to be ‘involved’ could not only prove informative but also reduce the ‘scary’ ideas. How many of us return from our holidays unscathed (from Europe), only to be confused be the stories of gloom and doom presented in our newspapers regarding Europe and the Euro ,which appear to contradict our experience.
I really enjoy, this site because not only is it sometimes funny but very informative but I must admit I want to learn and understand the options.
I really feel we need to inform as many people as possible regarding joining the EU (or not ) and get as many ‘fair’ opinions ,including voices perhaps already more involved in Europe to give an alternate view.
No one knows where the cards will fall,regarding the Euro but in the run up to the referendum ,it would be great if the whole nation could have an opportunity to at least decide if they want to be informed,
I do appreciate BBC Alba does venture ‘into Europe’ but unfortunately because it is BA ,a lot of people don’t watch it.
#4 by Nikostratos on November 5, 2011 - 11:51 am
Poor Alex hasnt cut the Independence Gordian knot does he need another massive fight bolted on to his Campaign…
Err probably not
#5 by Barbarian on November 5, 2011 - 12:37 pm
Salmond needs to drop any suggestion about Scotland joining the Euro, looking at recent events.
The question has to be WHY do we need to join the Euro? What is the point in leaving one union where the currency is controlled to simply join another which has proven to be 100 times worse?
#6 by James on November 5, 2011 - 1:34 pm
Exactly! This is another issue where they’re being sloppy and currently getting away with it. The logic appears to be “starting a new currency sounds scarier than a sterling comfort blanket, and eventually joining the Euro is the only way we can say we’ll be not be in monetary union with rUK”. Except it doesn’t work.
#7 by Angus McLellan on November 5, 2011 - 12:40 pm
It’s unwise to treat remarks in an interview as being a clear and precise statement of policy thinking. It’s only an interview after all, not a white paper. So perhaps Paul is leaping on one phrase – “keep Sterling” – and ignoring the rest of the answer?
If we were to assume that “keep Sterling” means “maintain covertibility of Scottish currency with Sterling at par” we might get on better. Just like today a fine Scottish pound is worth exactly one of those English pounds. As Salmond says, this is no novelty. Not only are we and others in this position today, others such as Ireland and Australia have been in the same position in the past for long periods. Fifty years for Ireland, thirty for Australia.
If you then imagine that there was a desire to join the Euro at some future date, that would be simple enough. End the Sterling link and allow the currency to float. After a reasonable length of time, join the EMS, and then eventually the Euro. Or you could equally well imagine some future government deciding to end the link with Sterling and allow the currency to float indefinitely. The first trajectory would be a simplified version that followed by Ireland. The second would be that followed by Australia.
#8 by Duncan Hothersall (@dhothersall) on November 5, 2011 - 1:41 pm
You’re right of course, remarks in an interview are not on par with a white paper, or, say, a manifesto.
Which makes it odd that many of us still have to remind SNP folk that the “commitment” to a referendum toward the end of this parliamentary term was in fact just a comment made in an interview, not a manifesto promise or a policy statement.
If the SNP’s policy is to have a Scottish currency they should say so. If it isn’t, they should say that too. Essentially, they need to start fronting up what exactly is the proposition to which they are already emphatically arguing we should all say “yes” to.
#9 by James on November 5, 2011 - 1:46 pm
It’s his regular line, though. And it’s unsustainable now, let alone in the spotlight of a referendum campaign. I want a yes vote, but their position on this and a number of other issues are, I believe, undermining the chances of a win.
#10 by Doug Daniel on November 5, 2011 - 3:33 pm
Just out of interest James, on which issues do you feel the SNP’s position undermines the chances of a win, and what do you think their alternative should be?
After all, independence is too important to be left to one party. If there are better arguments that will win the referendum, we need to make sure they become adopted amongst the pro-independence side.
#11 by Angus McLellan on November 5, 2011 - 2:57 pm
I noted in my comment how long “keep Sterling” remained policy in Ireland and Australia. And we should probably keep in mind that in the case of Australia the ending of the policy was driven by events and not by choice.
I appreciate that some people would attribute near superhuman powers to the First Minister – after all, how else could Labour have lost, twice? – but expecting him to be able to tell us today what a hypothetical future government of an independent Scotland might decide at some unknown date, and in unknown circumstances, when (or more accurately “if and when”) dropping the “keep Sterling” policy seemed advisable is perhaps expecting rather too much. Salmond’s personal view and his version of current SNP policy we already have. That is to keep Sterling so long as that is advisable, and then move to adopt the Euro.
But that is no cast-iron guarantee. Salmond will inevitably be retired long before that decision is made. And political parties often change their policy positions – sometimes in major ways, you’ll remember Clause Four for example – so even if the SNP, if the SNP still existed, were to be in power who knows what would be decided? So, just as the status quo is not fixed – will Barnett survive, will the UK remain a nuclear power? – so too an independent Scotland would necessarily change in ways which cannot be foreseen today and in circumstances which are even more unknowable.
Charles Stewart Parnell’s line that “No man has a right to fix the boundary of the march of a nation; no man has a right to say to his country, Thus far shalt thou go and no further” applies just as much to the SNP as it does to their opponents.
#12 by James on November 5, 2011 - 3:08 pm
That’s not the point. As Paul sets out, there is simply no way to go straight from sterling to the Euro, which is his current proposal. Irrespective of when or if we become independent, it’s a false prospectus and the people deserve better.
#13 by Doug Daniel on November 5, 2011 - 3:42 pm
There’s no way to go straight into it at this point. But as Angus says, who knows what will happen in 30 years time? The Euro is only 10 years old, there could be numerous changes to entrance criteria by 2041. The UK may already have joined it, and Scotland along with them. It may not even exist! On that last point especially, it would seem a bit daft to make definitive statements when we don’t know what is going to happen in the near future, never mind when the time actually comes for Scotland to decide to change currency.
#14 by Allan on November 6, 2011 - 12:58 am
Don’t think so for one big reason.
The Anglocentric print media is dead against it. When was the last time you saw a fair balanced article in not just The S*n but in the Daily Sexpress or the Daily Fail? Admittedly the EU don’t do themselves any favours, but still 20 odd years of negative PR will take some shifting intime for any Euro referendum.
#15 by Doug Daniel on November 6, 2011 - 3:14 pm
No, I don’t really think so either, but that was just one of the points I was making – in fact, I put it in as an after-thought just before posting my reply. My main points were that the Euro is still in its infancy so will likely look quite different in several decades’ time, and that it may not even exist, in which case this is a completely academic argument.
#16 by Angus McLellan on November 5, 2011 - 4:23 pm
So you did want a paper with some details set out rather than a speech or edited interview? Perhaps you (and Paul) would have been better to wait for one then rather than playing at amateur Kremlinologists with speeches or interviews. You don’t get details and precise mechanics from politicians. Those get filled in by policy wonks and civil servants and tame academics.
#17 by James on November 5, 2011 - 4:43 pm
It’s a clear and repeated statement of a position from the First Minister, not Kremlinology. If Jack McConnell had been that clear and assertive about something that makes no legal sense, you’d have been all over it and so would I.
#18 by Craig Gallagher on November 6, 2011 - 6:33 am
You’ve spent the last week claiming that the only way to join the Euro is via ERM2, which is the basis of your “no legal sense” comment here. Yet Paul makes it clear that Montenegro is already using it despite not being a member of the European Union. How do you square that circle?
It seems to me this argument is putting the cart before the horse. It would be SNP policy to join the Euro at some stage after independence, but it might very well be Labour policy NOT to do so after. It’s a decision to be made only in the event of a Yes vote, we can wait for the election campaign that follows the referendum before this matter becomes urgent. Remember, we’re attempting to gain the right to make this decision, which you need to have before arguing about how you should make it.
#19 by James on November 6, 2011 - 8:29 am
Join the Euro is one thing: i.e. currency union. Use the Euro is another. Montenegro just uses it, the way they used the Deutschemark in the 1990s. We could use the dollar if we wanted, and we’d have zero say over our own interest rates, just like Montenegro does.
#20 by setindarkness on November 6, 2011 - 9:45 am
James has already answered your first point.
On the second, there is no chance of Labour winning the first election after a YES vote in a referendum.
“It’s a decision to be made only in the event of a Yes vote”
My point is that Alex Salmond is giving us the SNP decision, and it doesn’t seem possible.
Maybe he should be saying, “We’ll stay in Sterling, and then once we have the right to make a decision, an all country/all party team will come up with the options” rather than say “We’ll stay in Sterlind, and then at some future point, join the Euro”
One of the reasons, I’m saying this is because joining the Euro is quite an unattractive option right now.
#21 by Doug Daniel on November 6, 2011 - 3:24 pm
But that IS what he says. His line is exactly thus: upon independence, Scotland will retain Sterling, but after that we can join the Euro once the conditions are favourable for Scotland AND the people of Scotland have had their say in a referendum.
That decision to give the people the choice in a referendum is probably why there is no appetite to nail colours to the mast – why close down the options when we’ve not even got the choice yet?
#22 by Doug Daniel on November 5, 2011 - 3:50 pm
“Which makes it odd that many of us still have to remind SNP folk that the “commitment†to a referendum toward the end of this parliamentary term was in fact just a comment made in an interview, not a manifesto promise or a policy statement.”
Must this same tedious and tenuous line be brought up all the time? If there is nothing in the manifesto saying the referendum would be held towards the end of the parliament (and as Erchie points out below, the referendum DOES talk about getting the Scotland Bill out of the way first), then there’s also nothing to say it would be held within the first year. Manifestos are made up for entire parliaments, not just the first year. It’s up to the government’s discretion to decide the timetable for implementing the manifesto.
So, why keep banging on about it? It just sounds like soor grapes.
#23 by Craig on November 5, 2011 - 4:19 pm
Retaining the Sterling/Sterling link has the same problem as joining the Euro: namely we won’t have control of our monetary policy or exchange rates. Without significant convergence with the Rest of the UK (specifically England given their dominating economy), major imbalances will build up. We’d either end up in an investment boom and bust (like Ireland and Spain) or stagnation and gradual debt build up (like Greece, Italy and Portugal).
Leaving aside previous complaints that our economies aren’t converged at the moment (and that BoE interest rates didn’t take into account Scotland) and assuming that our economies are indeed converged today – there is no guarantee that will remain the case after independence. Especially if Scotland begins to pursue an independent fiscal policy, or oil prices flunctuate significantly.
This is likely when you consider that one of the main arguments for independence is that it will lead to better economic performance for Scotland – effectively acknowledging that the economy is expected to diverge from England’s.
There’s another issue with the sterling link/Euro: an independent Scottish government would not be an issuer of its own currency – its bonds would be subject to default risk, meaning higher interest rates. This is what we’re seeing in Greece (and potentially other PIIGS). A Government that issues its own currency can avoid default by simply devaluing, which tends to be less damaging than a liquidty-driven default. You can get away with that if you have a track record (just look at the pound).
Which brings us to the Scottish Government issuing its own currency. With no track record, the new currency would immediately depreciate away from the presumed 1:1 exchange rate with Pound Sterling. This is partly because it’s a new currency of a relatively small country (with no track record) and partly because the pound sterling is a minor reserve currency with the lower interest rate benefits.
The new Central Bank of Scotland (or whoever controls Scottish monetary policy) would have to decide between increasing interest rates to maintain parity – strangling the economic growth promised by independence – or allowing the currency to depreciate, increasing the real value of debts denominated in Pound Sterling (there’s no getting away from the fact that an independent Scotland will have to assume some of the UK National Debt (either on per-population or per-GDP basis) and increasing the cost of imports – which while good for our export businesses, will reduce the standard of living for Scottish consumers.
This is while the issue of currency in an independent Scotland is about more just the state of the Euro at the time.
#24 by setindarkness on November 5, 2011 - 5:22 pm
I was not just that one interview. It is a regularly held position.
Keeping a Scottish pound on a par with Sterling is a very valid option, is it gives a lot of flexibility for the future
#25 by Erchie on November 5, 2011 - 2:36 pm
As I have read the manifesto, it talks about getting the Scotland Bill out of the way first.
So, in the manifesto, is an indication that the referendum was never going to be immediate.
I know that Labour supporters never seem to have read that bit.
#26 by Observer on November 5, 2011 - 2:58 pm
We are not in the spotlight of a referendum campaign – yet. I am not surprised the SNP are keeping their powder dry for the moment on where they stand on the currency, as the Eurozone is currently in turmoil. Why give hostages to fortune now, when it is not necessary to come up with a definitive position until the referendum is in sight.
When that happens I doubt it will be explained by Eck. He doesn’t do detail. Surely we have all noticed that by now?
#27 by Red Celt on November 5, 2011 - 3:41 pm
” Scotland could go the whole way and introduce the Scottish Pound. After all, there are already notes being printed and in circulation. They are already foreign currency in most English shops.”
Not in my experience. I know that some shops won’t accept them, but I’ve never had that experience myself. If you claim that it is, in fact, “most” could you provide some evidence, please?
#28 by Aidan on November 5, 2011 - 7:28 pm
There’s also the fact that they’re the same currency, no exchange rate, no conversion cost. Scottish notes may not be readily accepted in London for some things (particularly power cards), but you can just go to an ATM and get some BoE notes.
That’s very different from a separate currency with a floating exchange rate.
#29 by Barbarian on November 5, 2011 - 6:09 pm
Type your comment here
I’m glad someone else feels the same. I firmly believe that unless Salmond categorically rejects joining the Euro, it will seriously damage the referendum campaign, perhaps fatally.
There is no point in saying “oh its a few years yet” or “things have yet to be confirmed”. The damage is being done now. It’s not obvious but any party which now hints at closer ties with Europe is asking for trouble.
#30 by cynicalHighlander on November 5, 2011 - 7:26 pm
How much longer will money be left in the hands of a few privately owned banks?
Until the issuance of money is brought back into citizen control then the argument over what currency Scotland has in the future is an unknown unknown until the present enslavement of countries by bankers through increasing debt is a diversionary tactic by the spineless ruling classes.
#31 by cynicalHighlander on November 5, 2011 - 7:28 pm
Damn where’s the edit button!
#32 by Allan on November 6, 2011 - 1:03 am
Welcome back from the dark side….:-)
#33 by Jim Fairlie on November 6, 2011 - 10:59 am
Rather than spend endless hours discussing the legalities and practicalities of joining the euro, the SNP should be pushed to explain why it would be in Scotland’s interest to either keep sterling or join the euro. In either case, Scotland would not have control of its own economy and the longer the SNP continues with the nonsense that fiscal autonomy will give independence of action, the weaker their arguments will become. Anyone with even a modicum of understanding of economics knows that fiscal and monetary policy must complement each other, if an economy is to function in a stable environment.
The euro fantasists have been telling us for years that the single currency can function without fiscal centralisation and only now, having had the reality of monetary union brought centre stage by the current crisis, is it being admitted that no currency union like the euro can operate effectively without fiscal centralisation.
The SNP is arguing for fiscal autonomy in the UK, as something which is both desireable and necessary to allow Scots to control their own economy, while commiting the newly independent Scotland to maintain sterling, thereby ditching traditional SNP policy that allowing London to control Scotland’s interest rates was detrimental to the Scottish economy. At the same time, the party’s longer term aim is to join the euro, which if it cintinues at all, will almost certainly include centralised taxation in order to function.
The SNP’s Independence in Europe has always been a contradiction in terms but was sold to a gullible electorate as something which just might be attainable. Their newer version is just a nonsense and will cause the party to falter the closer we get to the promised referendum.
#34 by cynicalHighlander on November 6, 2011 - 12:46 pm
Type your comment here
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