While many celebrate the new decade today, or sleep off their celebrations from last night, others will look back at what is now the 21st anniversary of the launch of Europe’s common currency, which not only ushered in the official currency of the European Union, but also established shared monetary policy for the bloc through the European Central Bank.
The euro was not a particularly prominent feature of the Brexit debate, as the UK was one of two member states legally exempted from its adoption (though it may not have been exempted in future from financial responsibility for EU bailouts, had the UK voted to remain in 2016).
But as some already begin to talk about rejoining the European Union – and as Scotland’s First Minister Nicola Sturgeon calls for a second referendum on Scottish independence, offering to apply to re-join the EU as an sovereign state if a vote to leave is upheld – the euro, and the role it could play in the UK’s future, remains worryingly relevant.
While the UK and Denmark managed to secure a full opt-out from the euro currency, very successful economies like Sweden have not. And while Scotland may be used to the benefits it has secured under the umbrella of the UK, it’s by no means clear they would maintain them in new negotiations with the EU.
Because for all the praise issued by European leaders about the euro, its flaws and vulnerabilities as a common currency – especially for smaller states – remain stark.
The last president of the European Central Bank, Mario Draghi described the currency in 2018 as ‘a logical and necessary consequence of the single market.’ While access to tariff-free, borderless trade has no doubt been a huge economic benefit to those with access to the single market (a major reason why the UK needs to strike a free trade deal with the EU, to maintain the seamless flow of goods and services) it is not the case that the common currency has equally provided or protected countries across the economic bloc.
Some unfairly jump to blame the euro for all of the eurozone’s financial woes, but there’s no doubt that smaller countries have struggled under central planning that has angled towards the needs of the big players. Youth unemployment in Spain and other southern European countries, the most recent recession in Italy, and the debt crises epitomised by Greece have all been felt harder by their respective citizens because of the strict monetary policies of the ECB.
The inability of countries like Greece to devalue their currency and lower their costs to boost exports and attract tourism, business and investment created impossible circumstances and unnecessary pain, and prolonged the economic downturn for a country that could have turned its economy around more successfully under a less restrictive regime.
It is not under the euro’s first decade of relative stability and growth that Scotland would be applying to rejoin the EU, but a decade defined by significantly more tension and controversial monetary policy, which may not complement Scotland’s current financial position.
The combination of Scotland’s reliance on redistribution from the rest of the UK and its deficit problem make it an economic gamble for the EU to take on. Scotland should also be concerned that if it eventually adopts the euro as a condition of re-joining the EU, that it will be treated (and suffer a similar fate) as other smaller players, whose financial standing means they haven’t been considered as important historically as their larger counterparts.
Similar to membership of the European Union, signing up to the euro has liberal and illiberal angles to it. But given Scotland’s size, negotiating possibilities and current financial situation, it should be reflecting seriously on the euro’s 21st anniversary about the consequences of placing its economic and monetary future in the hands of Germany and France.
Scotland’s winning party may feel that Westminster shouldn’t be making these decisions, but lessons from Southern Europe indicates that handing those decisions to other countries may not fit with their principles of independence and autonomy either. While Scotland’s leader would like to frame the debate as control being held in Westminster vs Scotland, it may well pan out to be a debate between currency control being managed by the Bank of England vs the European Central Bank.
https://blogs.spectator.co.uk/2020/01/scotland-must-reckon-with-the-euro/