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Witness Jose Manuel Barosso, President of the EU Commission saying that his conversations with British politicians persuaded him that “the people who matter in Britain” are now thinking about euro membership. And even Iain MacWhirter recently proposed, that, as regards the UK economy, “only dumping the pound can save us now”. We will argue here that the idea of early euro entry makes no sense from a UK point of view: and further, that it also poses specific dangers to the cause of Scottish Independence. The logic of those who are now proposing early euro entry appears to be along the following lines. Sterling is on the slide, with little prospect of things improving. The way to redeem the situation is to switch to a currency, the euro, which the world currently wants more. Another strand to this argument is that the sheer size of the eurozone to some extent protects the euro from instability caused by currency speculation. There are at least two big flaws with this point of view. First of all, there is nothing to say that the euro will be a sound currency in the long term. For one thing, the euro is unique in being the only currency not backed by a sovereign state. In addition, there are fundamental strains and inequalities within the eurozone itself which still have to be addressed. There must be a serious risk that these problems will not be overcome. More importantly, the weakness which Sterling is experiencing is not primarily due to others speculating against sterling: it reflects chronic problems in the UK economy – we have been living beyond our means, and borrowing rather than earning. Entry to the euro would do nothing in itself to address these chronic problems. In fact, it would tend to make the situation worse, since the UK would lose its ability to regain international competitiveness by devaluing its currency: ultimately only a real improvement in our competitiveness will get us out of our economic woes. Of course, devaluation is not in itself a panacea. Devaluation can deliver a short term boost to competitiveness, with our exports becoming cheaper and our imports more expensive. But, to make the advantages of a devaluation stick, there also needs to be a co-ordinated economic strategy, involving other steps to limit price rises and bolster competitiveness. However, if a country is locked into a currency union, either at an exchange rate which is not of its own choosing, or if it then suffers an adverse economic shock, there is a real danger that it will fall into a process of long running decline. This happens because with the exchange rate unable to take the strain, the country is in danger of losing labour through emigration: but loss of skilled labour makes a country even less competitive, so the cycle of emigration and decline becomes self reinforcing. This is where the argument starts to come very close to home. One way of looking at the present unhappy economic state of Scotland is that our long term relative decline is precisely what would be expected from being locked into a monetary union, (the UK monetary union), where interest rates are set primarily for the benefit of someone else – in this case the South East of England. Given this, it has always been a puzzle why some Nationalists, unhappy with the monetary union we are in, nevertheless want to hop onto the next monetary union which happens to come along – that is, the euro. However, even Nationalists who do feel that the ultimate destiny of an independent Scotland is within the eurozone would surely accept that Scotland’s entry into the eurozone should be done on our own terms. If we go in as part of the UK, entry will be on terms which suit the UK – which are unlikely to be terms which will suit us. Even more important, we will then also be faced with another major hurdle on the road to independence – namely, the need to unpick and renegotiate the UK stability pact commitments. Overall, there are great dangers in the current economic crisis – but there are also opportunities. We have indeed seen both of these aspects in relation to the financial sector. The dangers in this case are obvious – we seem likely to lose a significant part of a major sector of the Scottish economy. The opportunities are perhaps less obvious – but are nevertheless there: in particular, the financial sector now no longer represents as big a block on the road to independence as it once did. Who cares now what RBS or HBOS might say if they were to pronounce against Scottish independence. The dangers and opportunities are even greater on the currency front. 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