CAN we please put this one to bed? Scotland will never join the euro. End of. The choice is clear: keep the pound or use our own currency.
In 2022, the Scottish Government announced that the plan for a currency union with England, “Sterlingisation” was no longer the preferred currency option for Scotland. The medium to long-term plan was to adopt our own currency: “This would take place as soon as practicable through a careful and managed transition.”
In the same paper, A Stronger Economy For Scotland, there is no mention of joining the euro area. The paper does picture Scotland back in the EU, but there is nothing about choosing to adopt the euro. As we all know, it is possible to be a member of the EU without using the euro – approximately 25% of EU countries don’t use the euro.
The current strategy does not see us using the euro; all the evidence suggests that euro membership would be possible without it. So, surely, this should mean we are done with the debate? However, the euro option still remains on the lips of many supporters of independence and within the SNP administration. What is the appeal?
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There are perceived benefits of euro area membership. According to the European Union, using the euro makes it easier to compare prices between countries, boosts competition between businesses, supports price stability, facilitates safer transactions and removes transactional costs across the euro area and the rest of the world. This all adds to greater economic stability, growth and influence on the global economy.
But in reality, the euro is a more powerful political and cultural vehicle than it is an economic one. In his short essay, How The Euro Divided Europe, Yanis Varoufakis (below) explains how euro membership leads to economic divergence and stagnation, not convergence and growth.
So why does the euro still tick so many boxes for Indy supporters?
My only thought is that many indy supporters believe we can’t manage or cope without a powerful partner helping us. Too wee, too poor and too stupid is what I think this approach says to me – from within the independence movement! Even if the euro was an option, it should be rejected.
Scotland’s euro membership would raise five significant economic challenges. How would Scotland achieve its progressive wellbeing economy:
- Without an overarching fiscal authority in Europe to help lead to convergence
- Within a solidly neoliberal economic framework
- While keeping to the restrictive debt and deficit rules
- With a centralised interest rate policy and
- Lacking the ability to affect the price of its currency.
So, with the limited space in this newsletter (addressing only the first two on that list), I want to hammer that final nail into the euro coffin.
There were obvious design flaws in the euro area, which heterodox economists highlighted in the early years of the euro project. They are all still there. Wynne Godley’s (1926-2010) main criticism was the lack of fiscal authority to balance the monetary role handed over to the new European Central Bank. Godly suggested that the plan would leave an institutional hole in the entire enterprise that would one day become undone.
French economist Jean-Paul Fitoussi (1946-2022) suggested that a currency without fiscal authority was the “original sin” of the euro area project. An “incomplete currency” was how another French economist, Michel Aglietta, referred to this lack of a full suite of government institutions.
So, in summary, the euro would be like using the pound but without the block grant!
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The euro’s neoliberal nature is best demonstrated by the lack of a “growth model” for nations within the euro area. Does this sound familiar to Scots? I am baffled by the idea that the EU would be any more interested in Scotland’s growth model than Westminster seems to be.
According to mainstream economists, individual nations do not need growth models. Without barriers to capital and labour throughout the currency union, “regions” would quickly rebalance and recover simply by attracting capital owing to lower production factors. This internal market, directed by an “invisible hand”, was supposed to be the rebalancing actor in currency unions. However, we only find theory in the EU (as with the UK).
Let’s just briefly look at how unemployment across the euro area continues to show significant divergence.
Chart one. Full unemployment gap of selected northern euro area states.
Chart two. Full unemployment gap of southern euro area states.
Source: (Gökten, et, al. 2024)
The two charts show that Europe is still not “marching in step” regarding unemployment. However, there is little awareness that the Eurozone’s structural design is very similar to the unsustainable structure of the UK. This economic blindspot suggests that Scottish indy supporters could push a newly independent Scotland to sleepwalk from one unsustainable currency union into another.
The euro area’s experience has shown that a single currency without a fiscal authority has not led to greater convergence; there is, in fact, greater polarisation. The neoliberal underpinning of the union, including limiting fiscal space, does not support a framework for progressive policies. Its centralised, one-size-fits-all central bank interest rate and exchange rate severely hamper nations’ ability to use monetary policy to affect positive change.
The decision to forgo monetary sovereignty and join another currency union could be understood if this would likely lead to a significantly better economic position. However, there is evidence that joining the euro area would maintain the status quo. Scotland’s periphery economy would be forced into austerity while maintaining its role as a source of its largest neighbour’s exports.
The conclusion is that Scotland can achieve its progressive aims by acting only as a monetary sovereign government with its own currency. The euro? Enough already.
