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Danny Alexander reveals EU currency bombshell

September 2, 2014 6:00 PM
Originally published by UK Liberal Democrats

Liberal Democrat Chief Secretary to the Treasury Danny Alexander is to reveal a significant blow to the Scottish nationalists' currency assertion from a leading figure in EU monetary policy.

In a speech to Chatham House this evening on Scotland's place in the world, Danny will highlight his correspondence with European Commissioner for Economic and Monetary Affairs and the Euro, Olli Rehn.

In their exchange Mr Rehn said that sterlingisation "would simply not be possible" if an independent Scotland was seeking to become a member of the EU.

In response to questions from Danny over whether sterlingisation would be compatible with entry to the EU, Mr Rehn said:

"As to the question whether 'sterlingisation' were compatible with EU membership, the answer is that this would simply not be possible, since that would obviously imply a situation where the candidate country concerned would not have a monetary authority of its own and thus no necessary instruments of the EMU."

The intervention puts further doubt over the nationalists' currency plans.

Speaking this evening, Danny will say:

"The nationalists say that they will be able to continue using the UK pound even if they become a separate state.

"Because, even if the rest of the UK doesn't agree to a currency union, they have said that Scotland would use the pound without a formal agreement...

"... this is an arrangement known as "sterlingisation", which would mean Scotland would not have a central bank to set interest rates or act as a lender of last resort.

"This is not only a bonkers idea which flies in the face of any reasonable notion of what independence means and which would impose costs and risks on people and businesses in Scotland...

"... it is also incompatible with Scotland's smooth re-entry into the EU.

"I will tell you why.

"Today I am publishing an exchange of letters between myself and former European Commissioner Olli Rehn, relating to the issue of Scottish independence.

"Until a few weeks ago he was the man at the EU Commission in charge of economic and monetary affairs, including the euro.

"He's very clear on one point.

"And I quote: "As to the question whether 'sterlingisation' were compatible with EU Membership, the answer is that this would simply not be possible."

"No country has ever joined the EU while using only the currency of another country at the point of accession.

"As Rehn says in his letter, in 2008 the then Icelandic Government requested the possibility of unilateral 'euro-isation' of thekrona to stabilise its monetary conditions and as a shortcut to EU Membership.

"The Commission's response?

"They flatly rejected it as against the Treaty.

"This was exactly the same case for Montenegro in 2007 which was required to create its own monetary authority as part of the conditions of the EU.

"There is a strong assumption in the EU Treaties that every member state will have its own central bank.

"But under sterlingisation Scotland would not have a central bank or control over its monetary policy.

"So let's recap on the facts.

"First, there will not be a currency union in the event of a 'yes' vote.

"That would expose the rest of the UK to risks it couldn't control, and would leave Scotland without the tools to steer its economy.

"One of Alex Salmond's 3 Plans Bs is 'sterlingisation' - borrowing the pound, but without any access to the support or stability provided by the Bank of England.

"Today we learn that that option is incompatible with EU Membership.

"So an independent Scotland would face a simple choice - using the pound like Panama uses the dollar, or joining the EU.

"It can't have both.

"This shows yet again the nationalists failure to put forward a credible currency plan and the dangers it poses to the people of Scotland."