Kirsty Hughes: An independent Scotland may benefit by joining the Euro

The former economist also says it may allow the new state a stronger currency option than a new Scottish currency which could be weak against Sterling

Her comments were made as she appeared as a panellist in an online Question and Answer session on "Independence, Brexit and Borders", hosted by The Herald last night on Scotland's Future, following the launch of our series on the subject last week.

Currently, the SNP's policy is for the newly independent country to carry on using the pound without being in a currency union with the UK under a process called 'sterlingisation' and then to introduce its own currency once the economy had met six economic tests.

Panellists Kirsty Hughes, bottom right, Graham Avery, bottom left, Philip Rycroft, top left, and chair Brian Taylor, top right, pictured during last night's Q&A for The Herald.

Sterlingisation would mean Scotland continues to use the pound, but without a central bank as lender of last resort. It also means monetary policy would be set by the Bank of England.

The policy is not shared by the Greens who argue Scotland would not be properly independent unless it had its own currency and central bank. Both political parties want an independent Scotland to join the EU.

Ms Hughes and her co-panellist Graham Avery, honorary director general of the European Commission, pointed out that there was no requirement for new EU member states to join the single currency - with several including Sweden and Denmark not doing so. However, Ms Hughes pointed out an independent Scotland may benefit from joining the Euro.

She argued that while one option could be using the four to five year period between independence and EU membership to set up the new currency, another option could be negotiating with the EU to continue using the pound and then move to join the Euro.

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"I think there is a lot of confusion about the currency question and especially vis-a-vis the European Union. Obviously it's an important political and social issue especially in the early years what impact a different currency will have on Scotland's economy.

"But to join the EU we would have to wait four or four years... [post independence]...So if SNP currency policy as it currently says 'we'll go for sterlingisation and then we will move to a Scottish currency,'" she said.

"Well if we've done that in four to five years we then just join the EU as long as you met any other criteria like any other member state would. And if you haven't done that in four to five years then [there's] an interesting question.

"And it's is unprecedented but it doesn't mean we couldn't have a discussion with the EU about it. Could you say to the EU we want to stay in the pound for another two, or three or four years, and even as we'll go straight to joining the Euro."

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She said there would have to be an early commitment to joining the Euro and adding "an independent Scotland mustn't make the mistakes" of British prime ministers and say one thing in Brussels and another thing in London or Edinburgh and "assume nobody is listening" in the EU.

"They won't want to bring in a small difficult, like the UK country", she added.
She went on: "I also think we are very negative about this.

"I mean Ireland joined the Euro, Finland joined the Euro, they wanted to be core players in the EU. Sweden and Denmark are still influential but nonetheless they are in that non Euro group.

"But it is true if you come in with your currency you cannot be made to join the Euro."

Mr Avery dismissed "scare stories" and "false arguments" around Scotland rejoining the EU, including joining its official currency and the Schengen Area –the bloc's zone of unrestricted movement. He added the EU couldn't "make" a new member join the Euro pointing to several states which had not done so.

"They don't even had to have an opt out. Sweden has never had an opt out. It doesn't apply to join the Euro because it is not ready to do it. Let me say very clearly Scotland can only join the Euro when and if it thinks it's in its interests to do so. End of story," he said.

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Hughes replied: "It could be very much in its interests because you're going to have a discussion about what happens a Scottish currency. Will it be weak, will it be damaging to the independent Scottish economy? If Scotland joined the Euro very fast then that's not going to weak against the pound Sterling. So there are potential positives to being in the Euro." 

The European Commission sets out a number of criteria for joining the single currency.

These include an inflation rate no higher than 1.5 percentage points above the rate of the three best-performing member states and "that a country should not be under the excessive deficit procedure".

It also says that long-term interest rate should not be higher than two percentage points above the rate of the three best-performing member states in terms of price stability.

Candidates to join the euro area must also ensure that national legislation is compatible with the Treaty and the Statute of the European System of Central Banks (ESCB) and the European Central Bank (ECB).

Co-panellist Philip Rycroft, a former permanent secretary at the Department for Exiting the EU and a leading Cabinet expert on devolution, said that while there could be positives to joining the single currency, an independent Scotland would have a "significant deficit."

Scottish Labour has previously raised the prospect of an independent Scotland pursuing major cuts to public spending in a bid to reduce the deficit.

Mr Rycroft said: "I wouldn't dispute there are potential positives around joining the Euro but clearly its not seen as a politically attractive proposition which is why I suspect the SNP don't push it harder.

"Of all the arguments about currency I sense the underpinning of this is the fact an independent Scotland would be carrying both a significant current account deficit in terms of its trade balance and also a significant fiscal deficit."

He added that these "transition issues" would be "really really" large.

"The way that Scotland approached the currency issue would be hugely important to the short term economic prospects and would be driven by these twin deficits. So an independent Scotland in order to get to the point of stability would have to deal with both of those things. So this would be a very very tough transition," he said.

"And I'm not saying Scotland wouldn't get there eventually and find that prosperous space but one of the things I would look for in the debate is honesty about the scale of the issues that would be faced. And people can make their choices, as is their right to do so, based on that solid information."

Last night's event, chaired by Brian Taylor, BBC Scotland's former political editor, was the first in the Questions and Answers's series for subscribers to The Herald.
Future subject matters to be discussed in the Scotland's Future series include oil, gas and energy supply, transport, health and social care, currency and finances, as well as defence and foreign affairs. Alternatives to independence are also to be discussed including devo max.

The debates are taking place as First Minister Nicola Sturgeon prepares to make "concrete decisions" this Spring on holding a second independence referendum. She has said she will 'do all in her power' to hold a second referendum by the end of next year.

The Scottish Government wants to hold a second independence referendum before the end of 2023 on the condition the pandemic has passed. 

Prime Minister Boris Johnson has said he will refuse to agree another independence referendum, with the First Minister saying she would then hold a vote using Holyrood legislation. 

However, such a move could lead the UK Government to challenge the legislation in the Supreme Court battle over whether Edinburgh can legally hold one on its own.