Thinking about this hilarious put-down by the Treasury of Salmond’s plan to persuade England and Wales to join some form of currency union with New Scotland next year, I was thinking back to when the Euro was a very new and exciting thing.
I went to Ireland and Scotland a couple of times either side of the point when Euro notes and coins came in. In England William Hague and others led a populist campaign to ensure that Blair’s plan to sell British economic independence in return for some EU sinecure after his retirement failed. So for most Brits, the idea of joining the Euro was anathema. And yet in Scotland shops had big signs up saying they accepted Euros. It is, of course, sound business sense to accept payment in many currencies because a sale is a sale but the signs were not for visiting Irish, Dutch or German visitors. The Scots saw themselves as more modern, more pro-European, more forward-looking than the English. The consensus view seemed to be that the English were holding back Scotland’s ambitions of being a model poster-boy pro-EU small country, like Ireland.
How times change very very quickly.
If Scotland does leave the EU by default (which is a very interesting question in its own right!) and re-joins, it will be committed to joining the Euro as are all new member countries (only Britain, Denmark and Sweden are allowed to choose for themselves). But would New Scotland meet the Maastricht criteria? Well the UK as a whole certainly does not these days. 3% or smaller deficit? 40% or less government debt to GDP? You’re havin’ a laugh! New Scotland would have to take on less than half its share of the UK’s debt and suddenly find some way of reducing its massive structural deficit. I can’t imagine Scotland would be in the Euro for several years.
Another thing I’ve been thinking about is the assertion by Salmond that the English would quite like to have the oil industry’s foreign exchange earnings. Put aside for a moment whether New Scotland would get 100% of the oil money. There are plenty of people who think that mineral wealth can actually be quite harmful to an advanced economy because the effect on the exchange rate makes other tradeable goods and services more expensive for the rest of the world. The argument goes that if we hadn’t had North Sea oil Britain might have retained more of its large manufacturing base. If England did lose a substantial proportion of its foreign earnings virtually overnight it could be pretty painful in the short term, but might it actually encourage investment in modern industrial developments in the longer term? You might have to ask Tony Blair for advice on that one.
Update 29th April:
I read somewhere else (sorry, no credit because I can’t remember!) that to join the Euro a country has to have its own currency to abandon. So if (and it’s a large “if”) Scotland does want to join the Euro at some stage, setting up this weird Sterling single currency zone rather stuffs the possibility of Scotland joining the Euro later.