A guest from Paul Freeman, who’s known to his Twitter fans as @setindarkness, and who also blogs here. Thanks Paul!

A pound, yesterdayIn a recently published interview in Time Magazine, Alex Salmond was asked the question of whether an independent Scotland would keep the Pound:

The sterling, well, it really depends on the financial circumstances of the time. We would tend to stay within the sterling area until such time as it is to our advantage to join the Euro and then we would only do it with the consent of the people.

However, given the entry criteria for the Euro, jumping from the Pound to the Euro would be impossible.

As was noted in James’ recent article about Scotland and the Euro, Any other existing EU members not in the Euro have to join ERM II. You then have to spend two years in ERM II and meet the convergence criteria before you can join the eurozone.

If an independent Scotland kept Sterling, it wouldn’t be possible to join ERM II, given there is zero change of rUK ever joining, or ever wanting to join ERM II.

The logical conclusion is that if Scotland were unable to remain in the EU through existing treaties, it would have to create the Scottish Pound, join ERM II and then apply to join the eurozone, before they could join the EU.

If Scotland were allowed to remain in the EU, it doesn’t seem possible to do what Alex Salmond suggested and jump from the Pound to the Euro at some future time.

There are other options. There is nothing to stop Scotland not joining the EU. It hasn’t seemed to have done our favourite country, Norway, any harm, and it would add to the ‘remarkable similarities’ between the two countries.

You’d have to be pretty insane, but you could just start using the Euro, as Montenegro does. Whilst the European Commission wasn’t happy about it, they didn’t stop them, and now Montenegro is an official candidate to join the EU.

Finally, Scotland could go the whole way and introduce the Scottish Pound. After all, there are already notes being printed and in circulation. They are already foreign currency in most English shops. It could then decide whether to join the EU/Euro via a radical democratic device called a referendum.

All this highlights the increasing need to resolve the matter of EU membership. In my opinion, the EU wouldn’t want Scotland to leave, and Scotland’s use of Sterling would give the EU leaders a nice Swedish style opt-out, allowing EU membership without the Euro. Leaving everyone except the Unionists happy. But, the SNP shouldn’t leave this dangling before the referendum as uncertainty will not make persuading people to vote Yes easier.

Nor should Alex Salmond say Scotland will join the Euro straight from the pound unless he can show how it’s possible.