If an independent Scotland wants to manage its own affairs then a monetary union – whether with sterling or with the euro – would be a handicap. Our secret columnist in Brussels Schadenfreude delves a little deeper into the pertinent issues
If and when the Scottish First Minister Alex Salmond becomes the prime minister of an independent country, he wants to remain outside of the eurozone. When his adherents are politely asked how it will happen, they say, blithely ‘we will negotiate all of that’.
He also wants to form a monetary union with the United Kingdom. When told that the UK does not want it, they again say it is scaremongering and the union will happen. It would be salutary to think a little about both objectives.
Joining and remaining in the European Union involves an obligation to join the eurozone, if the conditions of membership are satisfied. Not joining would require a derogation. No new member has asked for one. An applicant with a string of opt-outs will find the negotiation hard going. What about intra-EU immigration, the Schengen agreement on passport-free travel and a share of the British rebate on budgetary contributions?
But assuming that it can be negotiated, as the nationalists declare, Scotland would be unable to use currency valuation as part of fiscal policy. Greece is the awful example – stuck with a currency, which it could not manipulate. The ‘Free Scots’ declare that under their management Scotland will be fiscally strong. Economic forecasters are not seers but members of a band of hope. Another bubble could come along, externally but with diffused effects.
The same is true of a monetary union with the UK. If the outlook for a ‘Free Scotland’ is as bright as the secessionists declare, it also depends on the fate of the monetary union partner. Here again, Scotland could not use revaluation to escape from worsening financial conditions in the South.
There is no way out. If an independent Scotland wants to manage its own affairs then a monetary union – whether with sterling or with the euro – would be a handicap. Better to take your chances with the currency dealers, if the economic prospects are so bright as promised, surely?