Solo Scotland could stay out of the euro

The question of an independent Scotland’s possible participation in the eurozone clearly is one of considerable importance in the constitutional debate. We would make the following general points.

While it is the case that a commitment to introduce the euro is part of EU membership for all countries that do not have an opt-out (currently UK and Denmark), it is equally true that before any country is permitted to join the eurozone it must pass five specific tests (“convergence criteria”).

These include a number 
of economic criteria (for 
example on debt/deficits
and inflation), as well as 
requiring the member state’s own currency to have been inside the EU Exchange 
Rate Mechanism (ERM) for at least two years prior to joining the eurozone (see EU Treaty Article 140 (1) and 
Protocol 13).

Member states that do not meet all five tests are ineligible to adopt the euro and are deemed to have a “derogation” from the single currency obligation.

The rules governing participation in the ERM leave no room for doubt that the decision on whether or not a currency joins the ERM rests 
entirely with the member state concerned. They stipulate that while member states with a derogation can be expected to join the mechanism, “participation in ERM II is voluntary for the non-euro area member state”.

Therefore, under EU law as it stands at present, unless an independent Scotland (a) opts to introduce a new currency and break with sterling; (b) voluntarily opts to peg its new currency at an agreed euro-exchange rate inside the ERM; and (c) then delivers stability of that pegged value inside the ERM for two years (bearing in mind it could devalue/
revalue at any time if it chose) then it is not technically possible for an independent Scotland to be required to adopt the euro.

This is precisely the approach followed by Sweden since EU membership in 1995, and that is why it may continue to remain outside the eurozone while complying with EU law.

Consequently, whatever the merits or not of joining the euro, currently there is no legal mechanism which can enforce eurozone membership for countries that opt to remain outside the ERM.

In addition, we would also suggest the EU lacks the powers necessary to enforce meeting any of the other four convergence tests for eurozone membership on a member state unwilling to adopt the euro.

We are also unaware of any occasion on which the EU has sought to require a non-euro member to join the eurozone, or indeed even contemplated such a policy.

(Dr) Fabian Zuleeg

Chief economist

European Policy Centre

Brussels

(Prof) Drew Scott

Europa Institute

School of Law

University of Edinburgh