Rehn warns Scotland of currency issue in EU

An independent Scotland could not be a member of the European Union if it uses sterling without a currency union deal with the rest of the UK, former European commissioner Olli Rehn has warned.

The currency an independent Scotland would use has been one of the central issues in the referendum campaign, which goes to a vote on September 18th.

Scotland's first minister Alex Salmond has argued for a currency union with London, but has held open the option that Scotland could use sterling without its agreement if necessary. In a letter to the British chief secretary to the treasury, Danny Alexander, Mr Rehn, who is now an MEP, said states applying for membership have to have a central bank. However, Scotland – if it opted for the so-called "sterlingisation" model – which, said the Finnish commissioner in charge of economic and monetary union, "would not be 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 would not have a monetary authority of its own,” he told Mr Alexander.

Mr Rehn played a key role in the aftermath of the 2008 economic crisis, leading the efforts by the EU institutions to respond to the banking crisis in Ireland. The Icelandics in 2008, he said, had "requested the possibility of the unilateral euroisation of the krona", but this was ruled out by the European Commission because it was against the EU treaties.

Montenegro, which has used the euro since 2002 on the same basis as Mr Salmond proposes using sterling, was told in 2002 that it had to fulfil all EU membership rules, before its application was accepted. Saying that the referendum is a matter for Scots to decide, Mr Rehn said he believed “Scotland, Great Britain and the EU would all be stronger and benefit from the UK sticking” together.

Delighted by Mr Rehn’s letter, Mr Alexander last night told the Chatham House foreign policy institute in London last night that it was “a significant blow” to the pro-independence camp.

Insisting

The Scottish National Party and others in the Yes campaign have insisted they will continue to use sterling even if the rest of the UK “doesn’t agree”. “This is,” he said, “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 would hinder Scotland’s “smooth re-entry into the EU”, he said – emphasising that Mr Rehn was “in charge” of the EU’s economic and monetary affairs until “a few weeks ago”. Significantly, however, the questions surrounding the currency has not struck home with some voters, who appear to have been persuaded by Mr Salmond’s declarations “that we’re keeping the pound”.

Meanwhile, British prime minister David Cameron said Mr Salmond's threat not to pay Scotland's share of the UK's national debt was "the most chilling thing" he had heard during the campaign.