Pages tagged with "Currency"

Would an independent Scotland have to use the euro? The answer is “No”. Nicola Sturgeon was correct when she told Douglas Ross this today - but that doesn’t prevent Scotland’s Unionist politicians and media doing their best to spread confusion. 

The Times headline today was “Join the euro or your EU dream dies, Sturgeon told”. It is technically correct that Scotland will have to pledge to being open to joining the eurozone. But Scotland will control the timeline on that. It may not decide to join for decades.

Yes, Scotland would have to pledge to being open to join the euro at some point in the future. It could take 15 years, like Bulgaria which is adopting the Euro in 2024, or much longer. Sweden, Denmark, the Czech Republic and Poland have no current plans to switch. 

So, if the question is worded:

“Would an independent Scotland joining the EU as a full member using the process for joining as a new member have to commit to using the Euro at some undefined point in the future?” Then the answer is yes.

But whether or not to join the Euro and the timing of that will be a matter for future governments. It will be a matter for debate after Scotland has: achieved a referendum, voted for independence, established a central bank, a Scottish currency and rejoined the EU. It’s a way down the road. 

Scotland’s currency future will be Scotland’s choice

Last week’s Scottish Government report “Building a Stronger Economy” includes a section discussing comparable European countries’ currency choices. It says:

“Austria, Belgium, Ireland, Finland and the Netherlands share a currency – the euro – while Denmark, Iceland, Norway, Sweden and Switzerland have their own currencies. However, Denmark pegs its currency to the euro (meaning that it shared a fixed exchange rate with the euro) and shares it with Greenland and the Faroe Islands. The decision to peg to the euro is a policy choice: Denmark’s main trading market is the European Union, so pegging provides price stability for trade.

“All of those countries, regardless of currency choice, have higher national incomes per head than the UK.”

The best way to explain the euro position is to quote the European Union itself:

EU advice: Are the Member States obliged to join the euro?

"In principle, all Member States that do not have an opt-out clause (i.e. Denmark) have committed to adopting the euro once they fulfill the necessary conditions. However, it is up to individual countries to calibrate their path towards the euro and no timetable is prescribed."

The Member States that joined the EU in 2004, 2007 and 2013, after the euro was launched, did not meet the conditions for entry to the Euro area at the time of their accession. Therefore, their Treaties of Accession allow them time to make the necessary adjustments.

So it is clear that:

• To use the euro you have to meet the necessary conditions set by the EU and Scotland would not do so immediately on independence
• Scotland would be empowered by the EU to decide the timetable to meet the conditions and as quoted, no timetable is prescribed – in other words, we could be on an indefinite path to adoption.
• Some EU nations were told on joining that they did not yet qualify to use the euro.

Other EU members that are not using the Euro

• Croatia joined the EU in 2013 – On January 1, 2023, Croatia will become the 20th country to use the euro, ten years after becoming a member. It will join Schengen the same day. 
• Bulgaria joined the EU in 2007 – Bulgaria’s coalition government plans to switch in 2024, 15 years after becoming a member
• The Czech Republic joined the EU in 2004 – it has no plans to join the euro
• Denmark joined the EU in 1973 – the Danish Government has fixed its currency to the euro. It shares its currency with Greenland and the Faroes
• Hungary joined the EU in 2004 – Its semi-dictator leader Victor Orban has many issues with the EU - but the country is currently exploring joining the euro waiting room (ERM) as a way to stabilise their fluctuating currency. 
• Poland joined the EU in 2004 – whether or not to join the euro is a subject of lively political debate. The country is unlikely to join any time soon. 
• Romania joined the EU in 2007 – their target year to join the euro is 2024 - but they won’t be allowed to if they don’t meet the criteria. 
• Sweden joined the EU in 1995 – Sweden held a referendum in the early 2000s on euro membership, and the country rejected it. Sweden is obliged by treaty to join, as are other newer members but they have just said no. Swedes have a positive view of the EU; but most still don’t want to join the euro.

Conclusion

When an independent Scotland joins the EU as a full member state the EU will agree that it is not possible for Scotland to adopt the euro immediately and will give the Scottish Government full control over the timescales to meet the criteria. 

The Scottish Government would therefore be able to indefinitely postpone joining the euro. However, it is technically possible (however unlikely) a future Scottish Government might decide to join the Euro voluntarily - the point is that such decisions are able to be made by a sovereign independent country. As the report “Building a Stronger Economy” points out, even now, far more of Scotland’s manufactured exports go to the Eurozone than to the UK. 

These issues will no doubt produce political debate in the decades after Scotland has achieved its independence from the failing UK. 

As evidence mounts that Brexit is playing a major part in the UK’s cost of living crisis, the national broadcaster appears to be avoiding reporting honestly on the subject. Why is this? One reason is that as Scotland moves towards an independence referendum, the issue of Brexit is particularly sensitive.

Scotland voted against Brexit - it was foisted upon us.  An independent Scotland would be able to rejoin the EU as an associate member immediately, and if the referendum is held in 2023, it could reasonably expect to be a full member by January 1, 2025. 

Every mention of Brexit damage is a boost for the Yes campaign - and presumably, this is one reason why the Unionist British Broadcasting Corporation goes to Orwellian lengths to avoid telling the truth about its contribution to UK inflation - in April they edited out the word “Brexit” in the middle of an interview with Scotland’s National Farming Union President Martin Kennedy. They then blamed tailbacks at Dover on holidaymakers not extra Brexit checks, and now inflation is being blamed on the Ukraine war not the post-Brexit slump in the British pound.

Bloomberg, the Financial Times and other international outlets report the Brexit effect

High-quality, independent news media outlets like Bloomberg and the FT report the UK has worse inflation than similar G7 countries. Since the Brexit vote the pound has slid against the dollar and that is leading to extra steep inflation. It is also weakening against the Euro and Bloomberg predicts a Euro will be worth 90p by the autumn. 

“Citigroup Inc, Bank of America Corp and Standard Bank all see the UK as an outlier in the developed world because of the economic damage wrought by the decision to cut ties with the European Union. Even as price pressures start to fade elsewhere, they say UK inflation will be higher-than-normal because of immigration controls and supply chain disruption.”

Bloomberg, June 22.

The Financial Times BIg Read a day earlier explored the negative consequences of leaving the EU on the shrinking economy, the falling pound and the flatlining investment curve.  It was headlined  "

The BBC appears unwilling to acknowledge what international outlets do

But the BBC seems unwilling to report this in the same way as these respected international sources. In a long item on BBC Scotland’s flagship “Good Morning Scotland” on June 22, for example, reporters discussed the effect of higher prices on Scots. That pattern was repeated in a report by the BBC’s economics editor Faisal Islam on the BBC News at Ten on June 20. Neither show reported the Brexit effect on inflation. 

Good Morning Scotland and other news shows such as “the Bottom Line” discuss the impact of higher costs on agriculture and food prices. They do not explain to viewers why items like oil, gas, diesel, fertiliser cost more for UK buyers.  Lower trust in sterling, lower trust in the UK's direction of travel means a pound buys less on the international markets. 

Food imported from Europe costs more

Imported food - fresh fruit, salad, pork, tomatoes, jam etc - which predominantly came from the EU, have experienced a substantial Brexit effect. Brexit increased average food prices by about 6 percent last year - and that is likely to increase.

The UK has the lowest growth in the G20  bar Russia - OECD

The UK’s inflation rate hit another 40-year high in May, reaching 9.1 percent, its highest level since 1982. The Bank of England expects the inflation rate to exceed 11 percent in October.

The UK is lagging behind the rest of the G7 in terms of trade recovery - business investment, trails other industrialised countries, in spite of Treasury tax breaks to try to drive it up. Next year, according to the OECD think-tank, the UK will have the lowest growth in the G20, apart from sanctioned Russia. 

Brexit has shrunk the UK economy by £100bn a year

The Office for Budget Responsibility first predicted in March 2020, that Brexit would reduce productivity and UK gross domestic product by 4 percent compared with a world where the country remained inside the EU. It says that a little over half of that damage has yet to occur. 

That level of decline, worth about £100bn a year in lost output, means lost revenues for the Treasury of roughly £40bn a year. That money might have enabled them to inflation-proof the Scottish budget - the money “gifted” to Holyrood by Westminster which is being slashed in real terms by inflation, despite the Treasury pulling in extra billions through a windfall tax on Scotland's assets.

Sterling fell 10 percent after the Brexit referendum

Sterling fell almost 10 percent after the Brexit referendum in June 2016, against currencies that match the UK’s pattern of imports. It did not recover. This sharp depreciation was not followed by a boom in exports as UK goods and services became cheaper on global markets, but it did raise the price of imports and pushed up inflation. 

While the UK was still in the EU and during the Brexit “transition phase”, there were no significant effects on trade flows. But this has changed since stricter border controls were introduced at the start of 2021, imposing no tariffs, but significant checks and controls at the formerly frictionless border. 

Scotland makes a third of the UK”s food and drink exports so it takes the hardest hit

Scotland accounts for a third of the UK”s food and drink exports and many smaller Scottish businesses are struggling to absorb the extra costs of the non-tariff barriers. Many have stopped exporting to the EU completely. The Scottish economy is now trailing behind Northern Ireland which benefits from the protocol, which keeps a door open to the EU single market.

But BBC Scotland is failing to report the effect of Brexit on Scotland’s economy, which is worsening over time.  

The UK’s threat to rip up the Northern Ireland protocol means Scotland's universities have now been excluded from the world’s biggest science funding stream, Horizon, losing one billion Euros and the international prestige that would have brought. BBC Scotland has failed to cover this issue. 

The Scottish Highlands and Islands were particularly dependent on summer workers from EU countries. Summer visitors will notice the lack of facilities due to shortage of seasonal workers. That means those businesses will pay less in taxes. Farmers chose to plant less this year and that will lead to higher prices for food. But BBC Scotland has largely ignored the Brexit effect on agriculture. 

Is the BBC taking an anti-independence stance?

The BBC is a UK institution, at its core the BBC doesn't want change. It has now institutionally accepted Brexit and therefore despite Brexit being the foundation for mass inflation, disruption at ports and airports and loss of economic growth the BBC ignores it as "not news". The BBC is a very top-down organisation run from London - journalists who try to discuss the Brexit effect will soon be sidelined. People who want to get promoted try to please the bosses - and that means not using the B word. 

The issue is particularly sensitive in a Scottish context. Brexit was forced on Scotland without consent or even consultation. BBC Scotland now seems desperate to avoid acknowledging what international publications like Bloomberg and the Financial Times regularly admit - that Brexit is playing a major role in driving inflation. Is the BBC’s reluctance to report the truth about Brexit also motivated by concerns it will feed into support for independence?

Guy Stenhouse, writing in one of the Herald's regular, 'talking Scotland down' columns, that they gift to unionist campaigners, appears to have only a passing acquaintance with movies or the facts. He uses the analogy about wheels coming off the nationalist bus just as they did in the movie the 'Italian Job' - I can categorically tell you that the bus in the aforesaid movie didn't lose any wheels nor has the Yes movement. However, let’s humour him with his wheels off the bus analogy and point out where he is wrong.

Wheel one, pensions. Scotland more than pays its way. Once independent, it will keep all the tax and national insurance revenues, not send them to Westminster, and since life expectancy is lower, Scotland could raise the state pension at no additional cost. But Scotland shouldn’t advertise this since it may precipitate a flood of people coming north to escape one of the lowest basic state pensions in the developed world.

Wheel two, currency. SNP policy is to adopt a Scottish currency as soon as practicable after independence. Currency has no intrinsic value but derives value from the goods and services an economy produces. Scotland’s immense natural wealth, highly developed economy and educated and innovative people will guarantee our currency has value. Scotland will launch its own currency at the point it becomes advantageous to Scotland to have one, there will be a transition period and using Sterling (our own currency) for a short period would maintain pensions values and facilitate trade as Scotland becomes independent. A sensible, desirable and pragmatic approach. 

Wheel three, the deficit. Under the terms of the devolution settlement, the Scottish Government must balance its budget every year. London assigns Scotland a deficit based on the supposed benefits we receive from being part of the UK and for billions spent on nuclear weapons, foreign wars, unemployment payments because of UK economic mismanagement, Westminster corruption, servicing a UK debt Scotland didn’t generate, expenditure on Brexit and negotiating foreign treaties that damage Scotland’s economic interests. Some of the UK's spending on Scotland's behalf is spent in Scotland but what deficit Scotland has will change dramatically once we remove the added costs of UK membership and start investing in Scotland's wellbeing.   

Wheel four, the EU, not English, Single Market. ONS figures show the UK’s economic recovery has lagged that of its EU counterparts and UK exports to the EU plummeted by £20 billion in 2021 compared to 2018. As for that vaunted EU rebate, there is no £350m extra per week for the NHS. Regressive National Insurance taxes are rising, the triple lock on pensions is gone, and food and energy prices are soaring. Meanwhile, the newly minted Minister for Brexit Opportunities, Rees-Mogg, is desperately scrabbling around amongst Sun readers for ideas on how to turn this sow’s ear into a silk purse.

Scotland will be back in the Single Market as soon as we exit this failing Union and like Ireland, will rapidly forge new trade links with the EU, leaving behind an isolated rUK that will sorely need Scottish energy, water, and food and drink.  

The wheels have been off the UK bus for some time now. The founding director of the Fraser of Allander Institute, David Simpson, put it well: “The economic cost to Scotland of our dependency on England is measured by the incomes, jobs and tax revenues that have been foregone as a result of the slower rate of growth of the economy because of its mismanagement under the Union.”

Once independent, Scotland will be able to make economic, social and foreign policy decisions that will benefit the people of Scotland.