Thursday, 10 November 2011

Euro membership

There has been much discussion among politicians and the press in recent days, including at FMQs today, about whether or not an independent Scotland would be required to adopt the euro.

As someone newly qualified in EU law, I thought I would take a look, not at the political arguments, but at the black letter law - what the Treaties actually say.

So lets explore the 'worst case scenario' put forward by Labour and Tory politicians: Scotland as an accession state.

This is the legal position on euro membership:

The most recent accession treaty (for countries such as the Czech Republic, Hungary, Slovenia and Poland) contains the following provision:

"Each of the new Member States shall participate in Economic and Monetary Union from the date of accession as a Member State with a derogation within the meaning of Article 122 of the EC Treaty"

Article 122 of the EC Treaty has now been replaced by Articles 139 and 140 of the Treaty on the Functioning of the European Union (TFEU). If you stop at this point, the argument seems won - all new members "shall participate" in the single currency. However, there is another step. We need, also, to look at what Articles 139 and 140 TFEU actually say.

These articles apply to all Member States without a euro opt out, whether old or new, whether accession or not. Article 139 TFEU sets out that "Member States with a derogation" do not participate in the single currency or monetary union. Article 140 TFEU then makes clear that euro membership is not automatic. In order to join the euro, a Member State has to satisfy certain criteria, including currency convergence as part of the European Exchange Rate Mechanism (ERM II).

So what are the rules for participation in ERM II? These are set out in the 16 June 1997 Resolution of the European Council establishing the Exchange Rate Mechanism and the 16th March 2006 agreement between the European Central Bank and the national central banks of the Member States outside the euro area. These make clear "participation in ERM II is voluntary for the non-euro area Member States"

So, in summary, the Treaties make clear that a Member State can't join the euro without demonstrating currency convergence as part of ERM II "for at least two years" and because Scotland (or any other Member State, old or new) can choose whether or not to join ERM II, we can't be forced to join the euro. There is a point of decision - whether or not to join the Exchange Rate Mechanism - which is ours to take, and if we don't join ERM II, we won't be joining the euro.

As a final thought, I started work for the SNP in the House of Commons and have huge respect for the House of Commons library and its highly effective staff. It is therefore very disappointing that they should put out a report on euro membership for an independent Scotland without referring to what the Treaties and other provisions of EU law actually say. I hope that mistake is now remedied. 

7 comments:

  1. Perhaps it's to the researchers' credit that they didn't do so, but they could have simply referred to Wikipedia.

    See the first paragraph on
    http://en.wikipedia.org/wiki/Sweden_and_the_euro

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  2. "As a final thought, I started work for the SNP in the House of Commons and have huge respect for the House of Commons library and its highly effective staff. It is therefore very disappointing that they should put out a report on euro membership for an independent Scotland without referring to what the Treaties and other provisions of EU law actually say. I hope that mistake is now remedied."

    You should probably note Iain Macwhirter's blog on the subject today:
    http://iainmacwhirter2.blogspot.com/2011/11/of-course-scotland-would-be-admitted-to.html

    The HOCL note contains a very unambiguous disclaimer as to its authoritativeness.

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  3. You'll convince us ordinary people with facts and logic although I'd be amazed if a single journalist or professional pundit has an epiphany when reading this. But please don't stop trying.

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  4. You know Stephen, sometimes I think you should collect all the various questions unionists use to try and poke holes in the independence argument, and just debunk them in one massive, sprawling blog post that we can all link to whenever someone comes out with a question they think has exposed a weakness in our argument.

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  5. If recent events have proved anything, it's that monetary union without political union ends in disaster. Scotland should therefore not join the euro. By the same logic, it should also leave the monetary union with the rest of the UK, and have its own currency, which is what normal, independent countries do. I hope the SNP comes round to this position before the referendum.

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  6. The EU seems to have a different opinion. From their website, http://ec.europa.eu/economy_finance/euro/adoption/who_can_join/index_en.htm

    The quote below seems quite clear. If and when Scotland joined the EU it would at the same time sign up to a process of joining the euro. There could be no yes/no euro referendum after this point.

    "All Member States of the European Union, except Denmark and the United Kingdom, are required to adopt the euro and join the euro area. To do this they must meet certain conditions known as 'convergence criteria'.....

    Of the Member States outside the euro area, Denmark and the United Kingdom have 'opt-outs' from joining for reasons of economic sovereignty. These two countries can join in the future if they so wish.

    Sweden is not yet in the euro area, as it has not made the necessary changes to its central bank legislation and it does not meet the convergence criterion related to participation in the Exchange Rate Mechanism (ERM II). However, under the Treaty, Sweden is required to adopt the euro.

    The remaining non-participating Member States acceded to the Union in 2004 and 2007, after the euro was launched. At the time of their accession, they did not meet the conditions for entry to the euro area, therefore their Treaties of Accession allow them time to make the necessary adjustments – they are Member States with a 'derogation', as is Sweden. These Member States have committed to joining the euro area as soon as they fulfil the entry conditions. When this is the case, the 'derogation' is 'abrogated' by a decision of the Council, and the Member State concerned adopts the euro."

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  7. David: The Czech Republic is in the same position as Sweden, in that, technically speaking, it is obligated to join the Euro but has no intention of doing so. In their case, the Prime Minister has said that he would want a referendum before adopting the Euro, and it would be fully within the country's rights to do so. So yes, it is possible to have a referendum after signing the accession treaty.

    "Mr Necas added that the situation in the eurozone had changed so dramatically since the Czechs joined the EU that he would be in favour of a referendum on euro adoption – a view he said was shared by President Zeman.

    Herman Van Rompuy for his part stressed that the Czechs could only join when they felt the time was right – the ball, he said, was very much in their court."


    I imagine we WILL join the Euro...eventually. Maybe in 100 years time as part of a federal United States of Europe. The treaty says you have to join the Euro, but it gives no indication whatsoever of any timeframe, leaving it so open-ended as to be practically meaningless.

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