20 February 2023
Scotland and the Euro: Myths on Scottish EU Membership
Speech by Anthony Salamone, Managing Director of European Merchants, on the mysterious role of the euro in Scottish politics
© 2023 European Merchants
Anthony Salamone FRSA is Managing Director of European Merchants
Organisational information about this speech is available on its original event listing
Given recent events in Scottish politics, I reflected on whether it still made sense to give this speech. My conclusion was that it did make sense. This speech addresses a core dimension of the debate on potential Scottish EU membership which remains highly salient and notably dysfunctional. Indeed, the points which I will make today apply regardless of the leader of the Scottish National Party.
Of the many facets of potential Scottish EU membership in the event of independence, none seems to capture the Scottish political imagination as much as the euro. This apparent fascination with Scotland’s possible relationship with the euro is of course linked to the broader subject of Scotland’s currency under independence.
However, the place of the euro merits particular consideration. It reflects the degree of Scotland’s connection with, or disconnection from, the realities of the EU. It illustrates the health, or ill-health, of Scotland’s wider EU debate. Moreover, our conversation on Scotland, the euro and independence encapsulates the state of understanding in our politics on how the EU actually works and its collective substantive approach to European integration.
European Merchants is committed to supporting informed public debate through its analysis, particularly on Scotland’s current and future relationships with the EU. I have written extensively on both themes, including in my Scotland’s EU Blueprint, Scotland’s Global Standpoint and Scotland’s EU Debate reports. In that respect, it is not my purpose here to persuade people to support or oppose Scottish independence, Scottish EU membership or a Scottish state joining the euro. Instead, my aim is to parse the consequential, and largely inaccurate, myths on Scotland and the euro which have come to govern the terms of the debate in this area. In doing so, I will question the mysterious role of the euro in Scottish politics today.
Before moving to the euro, I will make three relevant observations on the general state of Scotland’s EU debate at this point. First, with the third anniversary of the UK’s formal departure from the EU having recently passed, that debate is in a poor and unfavourable condition. Most of the time, the best that political parties on both sides of the independence divide have to offer is basic sentiments and oversimplified grievances on Brexit and on Scotland’s and the UK’s relations with the EU. Indeed, Brexit is apparently not done in Scotland, where it has been fused into the independence debate. In reality, while its consequences endure, Brexit is assuredly over.
Scotland and the rest of the UK are not part of the EU. They have not been part of the EU for years. Whatever their future choices, neither will part of the EU for the foreseeable future. It is nostalgic at best and disingenuous at worst to operate on the basis that Brexit is somehow recent, temporary or unrealised. It is possible that, in the decades ahead, the UK could rejoin the EU. An independent Scotland could also join the EU. Absent those eventualities, neither of which I would expect this decade at least, Scotland and the wider UK will remain outside of the EU and will relate to the EU through non-membership bilateral arrangements (which are currently the EU-UK Trade and Cooperation Agreement and its associated texts).
Second, Scottish politics, as a collective body, continues to find itself largely unable to recognise the difference between Scotland’s current relationships with the EU within the present constitution and the prospect of future Scottish EU membership in the event of independence. One should have nothing to do with the other. It is perfectly normal for Scotland, as a European country which is not an independent state, to have connections with the rest of Europe and the wider world. It is entirely reasonable for Scottish political institutions to engage with European and international counterparts on matters within their competence.
In that spirit, Scotland’s current EU relations should be based on its current constitution. It is counterproductive to the success of those relations for either government or political parties to conflate EU engagement and the independence debate. The fact that Scotland has an active dialogue on whether it should become independent or remain part of the UK should have no bearing on developing exports to Germany or increasing renewable energy cooperation with Denmark, for instance. Moreover, neither the EU institutions nor the Member States have any desire to become involved in the Scottish independence debate. It would be highly beneficial if our political system could discover the maturity to appreciate that equating every aspect of EU relations with the constitutional issue diminishes the potential for good public policy in this area.
Third, this period of political change is a prime opportunity to reimagine both Scotland’s current EU relations as part of the UK and the debate on Scottish independence and EU membership. In a recent Political Courant article, I describe what I call “the Great Scottish European Illusion”, based on a façade of pro-EU sentiment in Scottish politics and society that masks Scotland’s substantial disconnects from the politics, institutions and functioning of the European Union at European and national levels. Such an illusion need not be permanent; now is a perfect time to transcend it.
On Scotland’s current EU relations, a reassessment should lead to credible and effective strategy for the post-Brexit context, which does not presently exist; foundations for renewed cross-party consensus on Scotland’s EU relationships; and development of a genuine policy culture on European affairs in Scottish politics. On the independence and EU membership debate, a reinvention should result in a conversation based more on substance and less on sentiment; credible and serious proposals from the major proponents of Scottish EU membership; and fuller appreciation of the realities of EU accession and the operations of the EU.
Given those observations, my assessment is, unsurprisingly, that Scotland’s EU debate need some work. With this context, I will address the principal myths on Scotland and the euro by exploring four core dimensions: (1) the purpose and meaning of the euro for the European Union, (2) Scotland’s outlook on the euro, (3) the place of the euro in the EU accession process, and (4) the approach of an independent Scotland to the euro. I will take each in order.
1 : The Euro and the European Union
The first dimension is the purpose and meaning of the euro for the EU. In the parlance of Brussels, the euro is often referred to as the “single currency”. It is, of course, not the only currency of the EU. To date, 20 of the EU’s 27 Member States have adopted the euro. The remaining seven maintain their own national currencies. Croatia, the most recent country to join what is formally called the “Euro Area” and informally the “Eurozone”, adopted the euro at the start of this year. Considering that Croatia joined the EU in July 2013, it took the country 9.5 years from accession to switch to the single currency. At present, it appears that Bulgaria will be the next country to adopt the euro, enlarging the Eurozone even further.
In general, the remaining non-euro Member States are not in a great rush to take up the euro, for different reasons. Nevertheless, it is reasonable to imagine that most, if not all, of them will adopt the euro in time. Only Denmark has a legacy opt-out from the euro. However, the Danish krone is pegged to the euro through the EU’s exchange rate mechanism (called ERM II). With this context, the utility of that opt-out in practice is questionable. As the Euro Area expands, the relative political and policy isolation of the non-euro states in this field increases. At some point, the resulting pressure may encourage states to accelerate their paths to euro adoption.
The euro forms part of the wider project called Economic and Monetary Union (or EMU), which involves greater economic, fiscal and monetary integration between the Member States. In turn, the purpose of the single currency is multifaceted. It complements and facilitates the Single Market, by underpinning the operation of its Four Freedoms – goods, services, people and capital – for it is easier to trade and work across the EU where the same currency is in use. It combines the monetary power of most of the Member States to create what has become a global currency and the second international reserve currency, after the US dollar. It provides daily tangible proof of the cooperation that defines the EU in reality.
For its proponents, the euro is a logical extension of the Single Market and the two are deeply interconnected. In that sense, the euro is not a freestanding endeavour – it is an essential component of the overall EU economy. Indeed, the single currency is a core and defining pillar of the modern European Union, along with the Single Market and the Schengen Area. Beyond economic reasons, the euro was also intended to advance European unity by bringing the Member States and their peoples closer together in a practical way. At its core, the EU and its predecessors have always been a political project, founded on the aspiration of a united Europe. The euro is a literal and visible manifestation of that European unity.
In turn, the meaning of the euro is profound. It represents the close and enduring partnership between the Member States. It supports a common European identity through a shared symbol recognised within the EU and around the world. It makes the principles of the EU manifest. Before becoming too sentimental, it is of course important to acknowledge the challenges of operating the single currency and the consequences which have resulted. A common currency, with a common monetary policy, eliminates exchange rate concerns and transaction fees. It also removes the national monetary policy levers which the Member States could previously use to ensure the stability and health of their national economies. The European debt crisis, which resulted in bailouts for Greece and Ireland, among others, showcased difficulties in EMU. Many EU figures would say that the architecture around the euro has since evolved for better in response; time will surely tell.
While the euro is not the sole currency of the EU, for now, it is an integral dimension of modern European integration. The single currency is not a side project. It is a core feature of the EU today. Since its introduction, the euro has become one of the most identifiable examples of what the EU is and what it means. Just as the Single Market has facilitated greater integration, the euro has also catalysed new elements of the European project. Moreover, the Eurozone is the principal locus for future political integration. The direction of travel is evident: the Eurozone is by now largely complete, and it should enlarge in the years ahead. The shrinking group of non-euro Member States will be at an increasing disadvantage. They do not directly share in the benefits of the common currency. They have no substantive role in the common monetary policy. They are, in simple terms, on the outside.
2 : Scotland’s Outlook on the Euro
The second dimension is Scotland’s outlook on the euro. By most accounts, Scotland is overall a pro-EU place. The most frequently cited evidence is our collective rejection of Brexit, before, in and after the 2016 EU referendum. In my wider work, I have labelled this pro-EU consensus as Scotland’s “mainstream Europeanism”. At the same time, the fusion of the Brexit and independence debates has surely eroded that consensus to some degree. Moreover, public or political support for being part of the EU does not equate to support for Scottish independence – though alignment between those two opinions has undoubtedly grown in recent years.
In a context in which an evident majority of the public endorses EU membership (whether for Scotland or the UK) and the principal advocates for independence propose Scottish EU membership, it would be logical to assume that such pro-EU sentiment would translate into support both for the EU and its major initiatives: the Single Market, EU citizenship, Erasmus and, indeed, the euro (the Schengen Area is a more complex question, given that Ireland and the UK operate the Common Travel Area instead). Yet, towards the euro, we find in reality a preponderance of antipathy, not affinity, in Scottish politics. Among proponents of independence within the political system, open endorsement of the euro for Scotland is uncommon.
While it defies sensible reason, the euro is a perennial source of doubt and fear in Scottish politics. It is apparently an endeavour which is too difficult or dangerous to contemplate. Indeed, the baseline premise of both proponents and opponents of Scottish independence is that Scotland, or indeed the UK, must somehow avoid adopting the euro, by whatever means, in the case of EU membership. In turn, the standard question in the independence debate on currency and EU membership has for some time been: “Would Scotland be forced to join the euro?” I find that question supremely revealing. It presupposes that joining the euro would be undesirable for Scotland. It deems the euro a risk to be managed.
We can begin to observe the paradox of Scotland’s mainstream Europeanism and the antipathy of its politics towards the euro. That contrast is strange and it reflects Scotland’s disconnect from what the EU means and what it does in practice. The euro is an integral part of the European Union. While new members do not join the euro immediately, it is not an optional extra. In Scotland, however, some political proponents of Scottish EU membership appear to endorse the EU only insofar as it is convenient to them (and that tendency applies to other parts of the EU as well, not least the Common Fisheries Policy and the realities of EU-UK borders). In truth, joining the EU does not involve a menu. The choices are either to sign up to the EU as it exists or to remain outside the EU.
Incidentally, I am not convinced that public opinion in Scotland, principally among supporters of EU membership, is as opposed to the euro as Scottish politics collectively appears to be at present. Moreover, it is difficult to genuinely assess whether the Scottish electorate supports or would support joining the euro when almost no one in Scottish politics actively advocates for that outcome. I suspect that many people who back independence or could be minded to back it are most interested in clarity on the currency arrangements of an independent Scotland, and are perhaps less worried about whether or not they would involve the euro.
In my assessment, the antipathy towards the euro in Scottish politics has at least three bases. The first is the alignment of Scotland’s EU debate with that of the wider UK. In British politics overall, support for joining the euro during the UK’s former EU membership was never abundant. Despite variations in opinion across (and within) the constituent parts of the UK on Brexit, many arguments and positions on EU affairs are interchanged between Holyrood and Westminster politics, simply with different intensities and results. As I have already noted, Scottish mainstream Europeanism does not in itself create a more Europeanised political system or culture. Indeed, I would contend that Scottish politics is currently based on pro-EU sentiment paired with a UK-centric worldview.
The second is the practicality of making Scotland an independent state, should such a decision be definitively made in future. The contention among some proponents of independence would be that it would be too complicated to argue that Scotland should continue to use the British pound (for however long), then create a Scottish pound and then, finally, join the euro. However, I do not find this argument particularly persuasive, not least because it is not clear to me that most participants in Scottish politics know that Scotland could not, if following normal practice, simply adopt the euro directly. Moreover, a desire to avoid complexity in the initial period of transition and establishment of a Scottish state does not require rejection of the euro outright. Scotland would certainly not join the Eurozone on the date of independence or the date of application for EU membership. Adoption of the euro is a gradual process which takes place after EU accession, not before or during.
The third is the prevalence of Scottish exceptionalism in the debate on potential EU membership. While surely every country find itself special and unique, an excess of such sentiment and its practical application to relations with the wider world are not beneficial. In the event that it was unclear, it is not the case that Scotland can simply declare itself uninterested in the euro and that would be the end of the matter. Moreover, it is irrelevant in this context that Scotland did not support Brexit. In fact, most EU actors would assume that, if Scotland is so pro-EU, it must surely support the euro as well, given its centrality to the European project. If more participants in Scottish politics possessed greater grounding in the politics, institutions and functioning of the EU, perhaps a deeper appreciation would exist in Scotland that it is not wise to dismiss a core policy of the EU while professing a desire to join it.
3 : The Euro and EU Accession
The third dimension is the place of the euro in the EU accession process. As I have indicated in my other work, if Scotland sought to join the EU after becoming an independent state, it would follow the normal EU accession process. As I have also noted, that reality is not some disadvantage. In many respects, Scotland would be extremely well qualified to join the EU. The length of its accession process would depend on a combination of its own approach to joining the EU and the internal politics of the EU. The core of the path to EU membership is the implementation of the acquis communautaire, the collection of the EU’s laws and policies. One of the acquis chapters is dedicated to economic and monetary policy.
Given the regrettable state of our EU debate, I should make some further points clear. First, an independent Scotland would not join the euro at the same time that it joined the EU. Euro adoption, if it took place, would surely happen years after accession. Second, Scotland would not have to meet the criteria for adopting the euro to join the EU. Each set of criteria is for its own respective purpose. Third, Scotland would not be obliged to adopt the euro by a specific date. While Scotland would make a general commitment to join the euro, implementing that commitment would be its own choice.
Like the Schengen Area, Economic and Monetary Union (which includes the euro) does not apply equally throughout the EU. Moreover, new Member States only join the euro or Schengen when they are deemed to be ready. In that regard, these areas are different from the rest of the EU accession process, under which Scotland would be expected to apply the rest of the acquis, with the exception of any transitions or special arrangements, at the point of joining the EU. After accession, adoption of the euro is based on satisfying the euro convergence criteria – inflation, national budget debt and deficit, exchange rate stability, the long-term interest rate and the compatibility of legislation. While the European Central Bank would assess Scotland’s status on these criteria, it would remain Scotland’s decision whether or when to fulfil the criteria.
As I referenced earlier, the process of adopting the euro involves in effect converging fiscal and monetary policies until the national currency is irrevocably fixed relative to the euro and the candidate adopts the euro as its currency. Logically, a Member State requires its own national currency to join the euro. Moreover, the entire EU accession process is based on the premise that the candidate has its own national currency. If Scotland wanted to adopt the euro directly, without having its own currency, the EU would have to agree to that novelty and invent a new method for joining the euro. While both might be possible, I remain to be convinced that the EU is interested in establishing an alternative route to the euro for Scotland or others. Moreover, Scotland would still need monetary institutions, not least a central bank, to adopt the euro in any eventuality. When a state joins the Euro Area, its national central bank does not cease to exist. Instead, it participates in the structures of the European Central Bank and it continues to perform important national regulatory functions.
If Scotland joined the EU after independence, it would be “a Member State with a derogation” in respect of the euro until it had chosen to fulfil the convergence criteria and it had been accepted to join the Euro Area and adopt the euro. Theoretically, it would be possible for Scotland to use the euro unilaterally, without having formally “adopted” it in the sense of joining the decision-making structures of the euro with the endorsement of the EU institutions. However, I would consider that option to be excessively complex and not particularly helpful. Regardless of whether Scotland considered the fact or manner of its independence to be unique, it would make the most sense to follow the EU’s established norms.
4 : Scotland’s Approach to the Euro
The fourth dimension is the approach of an independent Scotland to the euro. As I have indicated, adopting the euro immediately at accession would not be part of the normal process to join the EU. However, Scotland would require a strategic approach to the issue of Economic and Monetary Union. Just as with EU membership, Scotland’s official position on the euro should be based on cross-party consensus, while naturally taking public opinion into account. Brexit aside, decisions on the order of joining the EU or adopting the euro are generally considered to be permanent. They would be constitutional choices which would reshape important dimensions of the Scottish state. In consequence, such choices should be founded on considered opinions, open dialogue and collective decisions to the greatest extent possible.
From our vantage point today, it is challenging to predict the conclusion of such a reasoned debate on the euro, in the event of Scottish independence and EU accession. However, we can find some clarity on the potential options that would be available. In my assessment, Scotland would be highly unlikely to secure a treaty-level opt-out from the euro. With the UK no longer part of the EU, I see no real appetite for new opt-outs in the treaties – and certainly not for well-established and core policies such as the euro. Separately, I do believe that Scotland and the EU could find a suitable arrangement so that Scotland could be part of a renewed Common Travel Area instead of the Schengen Area, but that would be a different matter. On the euro, I see no reasonable prospect for an opt-out for Scotland or any other candidate or potential candidate to join the EU.
At the same time, Scotland would not be obliged to adopt the euro involuntarily. It would control the timetable for its path to joining the euro and its satisfaction of the euro convergence criteria. If Scotland decided to postpone euro adoption indefinitely, it could certainly do so. While they might be perplexed, I doubt that EU decision-makers would seriously challenge such a decision. In that sense, Scotland would not need an opt-out to stop its adoption of the euro. It could simply make that choice itself. Moreover, seeking an opt-out on the euro, which in my opinion would be extremely unlikely to succeed, would expend important political and diplomatic capital which could be better deployed in other areas.
In this context, the only actual question would be: “Should Scotland decide to join the euro?” Here, it would be crucial to have addressed the deficiencies associated with Scotland’s EU debate, represented in the Great Scottish European Illusion, which I outlined earlier. The euro is a central feature of the EU and of European integration. It is not something to be readily dismissed. If the consensus in Scottish politics and society were that Scotland should not join the euro, whether for a particular period of time or indefinitely, that conclusion should be implemented through a nuanced and finessed approach in respect of the EU institutions and the Member States. Otherwise, Scotland would undermine its wider EU accession process and its prospects for future success in the EU. Incidentally, if Scotland instead chose a transactional and exceptionalist approach, it would surely remind the EU of the UK.
In practice, Scotland could defer adopting the euro for as long as it wanted after becoming an EU Member State. At the same time, its political and diplomatic approach to the issue should reflect real understanding of the politics and dynamics of the EU. Moreover, Scotland’s debate on the euro at that stage should take into account of all the considerations at play – the economic, fiscal, monetary, political, strategic and geostrategic dimensions. Joining or not joining the euro would concern far more than the currency which Scotland would use (though that question is of course important). It would influence Scotland’s trade relations within the EU and with the rest of the world. It would determine whether Scotland was part of the political core of the EU or closer to its political periphery. It would affect Scotland’s geostrategic position by being part of one of the world’s major international currencies or maintaining its own small currency. The question of Scotland’s relationship with the euro, as an EU Member State, would be pivotal to its overall position and success within the EU.
In summation, Scotland’s debate on the euro and independence, like its wider debate on EU membership and independence, needs more substance and greater nuance. It is both inaccurate and insufficient to contend that either an independent Scotland would be obliged to adopt the euro in short order after joining the EU or that an independent Scotland could dismiss the euro at will. As I have shown, neither would be the case. It is dysfunctional to have a debate oriented around the question of whether Scotland would have to join the euro, when the real question is whether Scotland should join the euro. The debate on the former is circuitous, irrelevant and uninteresting. A debate on the latter would have the potential to be nuanced, informative and engaging. I reiterate today that Scotland needs the latter, not the former.
A substantive debate on Scotland, the euro and independence would require our political system and its participants to evolve. It would demand greater understanding of how the EU functions and greater appreciation of the realities of an independent Scotland’s position in Europe and as a potential EU Member State. It would certainly be possible for Scotland to avoid joining the euro. However, in my assessment, remaining outside the euro indefinitely would not be compatible with Scotland becoming a successful EU member. That contention and others should form part of the better debate on the euro, EU membership and independence that we require. It is time to move past our outworn myths, to recognise the EU in all its complexity and to debate our future in the light of reality. Thank you.
Anthony Salamone, Managing Director of European Merchants, delivered this speech, Scotland and the Euro: Myths on Scottish EU Membership, on 20 February 2023 in central Edinburgh.
Of the many facets of potential Scottish EU membership under independence, none seems to capture the Scottish political imagination as much as the euro. Part of Economic and Monetary Union, the single currency is an integral dimension of modern European integration. For its proponents, the euro is a logical extension of the Single Market, intended to make the principles of the EU manifest and to advance European unity. At present, 20 of the EU’s 27 Member States have adopted the euro. Most, if not all, of the remaining non-euro Member States will surely join the Euro Area in time. Only Denmark has a legacy opt-out – and its currency is pegged to the euro, so the utility of that opt-out in practice is questionable. Despite this European context, the euro is a perennial source of doubt and fear in Scottish politics. The baseline premise of both advocates and opponents of Scottish independence is that Scotland must somehow avoid adopting the euro, by whatever means. The contrast between the mainstream Europeanism of Scottish politics and its collective antipathy towards the euro is strange and paradoxical. At its core, that contrast illustrates the unhealthy state of Scotland’s EU debate.
In this speech, Anthony Salamone, Managing Director of European Merchants, will parse myths on Scotland, the euro and EU membership under independence. He will explore the purpose, function and meaning of the euro in the European Union of today. He will probe the antipathy towards the euro in Scottish politics and its consequences for Scotland’s EU relations. He will consider Scotland’s approach to the euro in the event of independence, including in a hypothetical EU accession process. In doing so, Anthony will assess how Scotland’s myths on the euro and EU membership reflect its substantial disconnects from the EU in practice. Q&A to follow. This event is on the record.
Anthony Salamone FRSA is the founder and Managing Director of European Merchants, the Scottish political analysis firm based in Edinburgh. A political scientist and analyst, Anthony is an authority on Scotland’s EU and international relations and on the prospect of Scottish EU membership in the event of independence. Read his profile on the European Merchants website.