Scotland’s Other Union

In the debate about whether Scotland should be an independent country, three major topics have proved to be both predictably contentious and genuinely problematic:

  • Scotland’s relationship with the EU in a context where the institutions of the EU are being reshaped in response to the ongoing crisis in the euro-zone, and where, once a new settlement emerges, an in/out referendum on EU membership seems likely to be held, either in the UK as a whole or, if Scotland is independent by then, in the rest of the UK;
  • The monetary and financial options open to an independent Scotland and their implications for fiscal policy;
  • The defence and foreign policies of an independent Scotland, with particular reference to nuclear weapons, the intelligence services and membership of NATO.

In the current issue of Perspectives, we review the first of these topics. In the autumn and winter issues, we shall cover the other two. Thereafter, we plan to commission an article setting out the constructive case for maintaining the Union and to convene a roundtable discussion on the substance, conduct and quality of the referendum debate, inviting participants to reflect on what it tells us about the state of our society and the condition of our democracy.

37-Su13

Independence in Europe: a reality check

Until last year, Alex Salmond and his ministers repeatedly claimed that an independent Scotland would automatically inherit all the UK’s ties and treaty obligations. By analogy with the “velvet divorce” between the Czech Republic and Slovakia, they assumed that once the Union had been dissolved, Scotland and the residual UK (rUK) would inherit the same legal status as successor states. At a press conference in September 2012, José Manuel Barroso, president of the European commission, confuted both claim and assumption, explaining his views at greater length in an interview for the BBC given in December.

Barroso’s intervention should not have come as a surprise: he was merely repeating the position set out by his predecessor Romano Prodi, who in April 2004 told the European parliament that:

“When a part of the territory of a member state ceases to be part of that state – for instance, because the territory has become an independent state – the treaties will no longer apply to that territory. In other words, a newly independent region would, by the fact of its independence, become a third country with respect to the Union, and the treaties would, from the date of its independence, not apply any more.”

The legal basis of Prodi’s view is unclear, but this hardly matters. There are no precedents for the Scottish case. The velvet divorce occurred in 1993, long before the Czech Republic and Slovakia applied to join the EU as separate states. No existing member state has ever split into two, so the question of what happens if both parts want to stay in the EU or if one wants to stay and the other to leave, has never arisen. The political reality is that an independent Scotland would not automatically be a member, but would have to go through the same accession process as have all but the original six member states, and would need to gain the approval of all 27 existing member states (28 after Croatia joins on 1 July).

After some initial huffing and puffing, the SNP sought to play down the difference between their previous assurances of a seamless transition to “independence in Europe” and the prospect that now beckoned of potentially fraught three-way negotiations between Edinburgh, London and Brussels, followed by formal ratification in each member state. John Swinney, for example, declared:

“Assuming there is a yes vote as a result of the referendum, Scotland will still be at that stage a part of the UK. We have always accepted that there has to be negotiation about the details and terms of Scotland’s membership of the EU. Crucially, that would take place at a time when we are still part of the EU, of which we have been members for 40 years.”

(The use of the plural “members” in Swinney’s final sentence reveals his reluctance to accept, or at any rate admit, the difference between being part of a member state and becoming a new state, the central point – of law or Realpolitik, as you prefer – that Barroso, and before him Prodi, had insisted on.)

A timetable for transition

In a bid to restore credibility and regain the initiative, on 5 February 2013 the Scottish government unveiled a timetable that begins immediately after a presumed yes vote in the referendum – then still expected to be held in October 2014, but subsequently set for 18 September – and runs through to independence day on 31 March 2016, followed by the Holyrood election in May. A decision about whether Scotland would participate in the Westminster election due in May 2015 will be taken after the referendum. This schedule raises two questions: Will the EU authorities be willing to open talks with Edinburgh before Scotland achieves formal independence, while Edinburgh and London are still haggling over the terms of independence? And if so, could both sets of negotiations be concluded in the space of 18 months (in practice, only 17 months, allowing one month off for the Westminster election campaign)?

The answer to the first question is almost certainly yes. Neither London nor Brussels will address any of the issues to be settled by negotiation as long as they remain hypothetical, so the Scottish government cannot expect to start talks prior to the referendum, a fact of political life that voters, demanding more information before making up their minds, will simply have to live with. But assuming a yes vote, there is nothing in EU law that precludes a territory that has voted for independence negotiating its accession, while still sorting out the terms of a divorce settlement. And it would clearly be in the interests of all member states to avoid the legal and commercial disruption that would ensue if, on independence day, Scotland were to be removed from the EU until its application to join is approved. Provided everyone co-operates, much of the groundwork could be done before secession. But formally, Scotland would have to be a state before it could accede. Thus, a gap opens up between secession and accession. The formalities take time: accession negotiations with Croatia, for example, were completed in 2011, but national ratification, which is entirely a matter for individual member states, took two more years.

Complications and delays could also arise from the fact that during the transition period, Scotland would continue to be represented in the European Council by the UK government. Barring his unexpected demise or defenestration, at least until May 2015 that government will be headed by David Cameron, whose policy of “less Europe, not more” runs counter to the efforts of EU leaders to resolve the crisis in the eurozone by pressing on with further integration in the form of a banking union and a fiscal union. Negotiations over Scotland’s accession could fall foul of attempts by London to secure a revision of the EU treaties or to start the process of withdrawing from the EU after an in/out referendum in the rUK. I shall return to this problem later.

Whether the trilateral negotiations could be completed on the timescale envisaged no one knows. In their legal advice to the UK government on the consequences of Scottish independence, Professor James Crawford of Cambridge University and Professor Alan Boyle of Edinburgh University express scepticism, opining that three years would be a more realistic estimate. Certainly the scale of the challenge is considerable. The Scottish government would be negotiating with London over Scotland’s share of the UK’s national debt, public assets and oil and gas revenues, along with currency and financial regulation, pensions and social security, defence and foreign affairs, energy and telecommunications, and other, lesser matters At the same time, it would be negotiating with Brussels over the terms of Scotland’s accession to the EU. That said, since the UK has been a member state for forty years, Scotland is clearly not in the same position as Croatia or Turkey, so presumably its commitment to democracy, the rule of law and human rights could be taken as read.

The road to accession

How difficult would accession negotiations be? As John Kerr points out, much would depend on the stance of the Scottish government itself. It would be unwise for Scotland, as a prospective new member, to seek changes in, say, the Common Agricultural and Fisheries policies, however desirable such changes might be from Scotland’s point of view. The best course would be to stress from the outset that its sole aim is to reinstate the rights enjoyed and obligations accepted when part of the UK. This would make it difficult for EU governments uneasy about Scotland’s accession – notably, Spain, wrestling with the aspirations of Catalans and Basques – to raise objections or cause delay.

But there would still be problems over UK opt-outs from the acquis communautaire, the accumulated legacy of EU policies which new members are required to adopt. In ascending order of difficulty, the three main stumbling-blocks are: the Schengen Agreement on border controls, originally organised outside the framework of the EU, but incorporated into EU law under the Amsterdam Treaty of 1999, with opt-outs for the UK and Ireland; the budget rebate secured by Mrs Thatcher at Fontainebleau in 1984; and the opt-out from monetary union negotiated for the UK by John Major at Maastricht in 1992.

The borderless Schengen Area operates very much like a single state for international travel purposes, with external border controls for travellers entering and exiting the area, and with common visas, but no internal border controls. The UK has not signed up, but neither has Ireland, which maintains a separate travel area with the UK. So Scotland could follow the Irish precedent, thereby avoiding border checks at Gretna Green, and could signal its willingness to fall into line with continental member states as soon as London and Dublin do so.

The UK’s budget rebate repays two thirds of the difference between the UK’s contribution to the EU budget and EU reciprocal payments to the UK. Over the past thirty years it has saved the UK some £70 billion at today’s prices, or roughly £2.3 billion a year. The UK now contributes 10% of the budget, far less than Germany, which contributes 20%, and somewhat less than France and Italy. The rebate, originally secured by strong-arm tactics and regarded ever since by the Tory right and the tabloid press as a symbol of national virility, is deeply resented by other member states, not least because the EU budget is a zero-sum game: the less the UK pays, the more all the rest must pay. There is little chance that Scotland would be able to retain the Thatcher rebate, even if it wanted to. Better, therefore, to offer to give it up as a gesture of goodwill. This is, in effect, the price to be paid for joining the club.

New members of the EU now take on a commitment to join the euro when they have satisfied the conditions for doing so. This is not an insuperable barrier to Scotland’s accession. Sweden has no formal opt-out, but retains its own currency and though still committed in principle to joining the euro, is unlikely to do so any time soon. Most Swedes, like most Britons, want to keep their own currency and central bank. For a while, after the successful launch of the single currency between 1998 and 2000, Swedish opinion shifted from “No, not now” to “Yes, but not now”, but since the financial crash of 2007-8 exposed deep flaws in the design of the euro, dividing the northern “core” of the euro-area from its southern “periphery” and plunging half of Europe into depression, the issue has died. In the more benign global conditions of the early 1990s, Sweden made a full and relatively rapid recovery from its own financial crisis and has weathered the recent storm better than most other European countries. Thus, until the euro-area resolves its crisis, no Swedish government would dream of holding another referendum on whether to join it.

So is a commitment to join the euro at some “appropriate”, but unspecified juncture a token gesture, with no real consequences for Scotland? Not entirely, for it sits uneasily beside the SNP’s current policy of retaining the pound and seeking to form a currency union with the rUK. This might be presented as an interim arrangement, to be superseded one day, if and when Scotland and the rUK jointly decide to give up the pound and embrace the euro, presumably after a referendum in both countries. But what if Scotland votes for independence in 2014 and the rUK subsequently votes to leave the EU? The tension between membership of the EU and protecting Scotland’s ties with the rUK would then become apparent, as the prospect of bureaux de change along the Tweed passed from the realms of fantasy to the horizon of possibility.

More generally, in the hurly burly of the referendum debate, even the formal admission that Scotland might some day switch from one currency union to another gives SNP policy a provisional, makeshift appearance, adding to the irreducible uncertainty that the prospect of secession poses for business and financial interests. (The same applies to the proposal that, after a suitable interval, an independent Scotland should create its own currency. This proposal also carries the further risk of provoking conflict with the EU. It is one thing to retain your historic currency, pending a switch to the euro, but quite another to introduce an entirely new one, in preference to the euro).

An invidious choice?

Until now, the working assumption has been that an independent Scotland and the rUK would both remain in the EU. All Scottish parties, pro- and anti-independence, take it for granted that Scots are committed to Europe or, at least, have no wish to leave it. Bizarrely, this includes the Eurosceptic Scottish Tories, who try to scare voters with the threat that an independent Scotland would be forced out of the EU. But with the rise of Ukip in England and the growing likelihood of an in/out EU referendum in the next Westminster parliament, Scots now have to reckon with the possibility that they might end up there alone. Indeed, the SNP has started urging people to vote for independence in order to stay in the EU.

According to Angus Roxburgh, a former BBC Europe correspondent:

“Scots now face an invidious choice: vote next year for independence (and, it is assumed, membership of the EU) and risk the collapse of links with England if it then votes to leave the EU; or vote to stay in the UK and risk being taken out of the EU anyway, courtesy of voters down south.”

This dilemma, he notes, falls into a familiar pattern in British politics. In 18 general elections since the Second World War, the Conservatives have won a majority in Scotland only once (1955), yet they have formed the government at Westminster nine times. Despite voting consistently for the left, Scotland has been governed by Labour for only 30 years out of 68.

How serious is the danger that if Scotland votes to stay in the UK, it could end up outside the EU? Asked how they would vote if an in/out referendum were held today, the British public is evenly divided. According to a Guardian/ICM poll conducted in mid-May, a majority of 43-41 favours withdrawal, with the rest undecided, and this at a time when Europe is in the doldrums and hardly anyone has a good word to say for it. Moreover, only one voter in ten regards Europe as the most pressing issue facing the country.

The meteoric rise of Ukip as an English nationalist party has spooked the Tories because it threatens to split the right and let Labour back into government, whether alone or in coalition with the Lib Dems, just as thirty years ago the rise of the SDP split the left and handed Mrs Thatcher a landslide victory in 1983. But the root cause of Ukip’s success is less antipathy to the EU – 40% of Ukip voters want to stay in Europe – than general disgruntlement with the political class and the decline of Britain. In this respect, their views are a more extreme version of attitudes held by English voters as a whole. Indeed, while the Ukip threat to the Tories is real, it may have been overstated, for though the Tories have suffered most from defections to Ukip, England’s fourth party has also taken votes from Labour and the Lib Dems.

As an “island-race” that once ruled a global empire which has left its mark on the UK’s constitutional arrangements, foreign policy, military posture, trade links and financial system, Britons have always been reluctant Europeans. However, recent history suggests that when questions of geo-political alignment are seriously debated, British voters have no time for “splendid isolation”. In 1975, only months before the referendum on whether to accept the terms of a cosmetic “renegotiation” conducted by Harold Wilson for reasons of party management, opponents of the “Common Market”, as it was then generally known, were well ahead in the polls. In the event, they were decisively defeated by a majority of 2 to 1.

By calling a national referendum at a time of intractable economic crisis – with recurrent strikes, double-digit inflation, dwindling profits and rising unemployment – the wily Labour leader managed to rout his critics on the left, who shared with the Tory right the illusion that Britain could somehow solve its problems by going it alone as a sovereign power, free from continental entanglements and constraints. David Cameron may be hoping to emulate Wilson’s example. It is, however, salutary to recall that though the Labour government of 1974-9 won this particular battle, it went on to lose the war. Just over three years later, its Herculean efforts to manage industrial conflict, control inflation, restore profitability, boost investment and reduce unemployment on the basis of a social contract with the unions, fell apart in the “Winter of Discontent”. With this disaster, responsibility for tackling the crisis passed to the neo-liberal right, which seized the opportunity to emasculate the unions, dismantle the post-war settlement and establish a “free economy” under the aegis of a strong state.

The crisis we face today is different from that of the 1970s, but no less daunting. Besides recovering from depression and rebalancing our economy, we need to repair the fabric of our society and regenerate our democracy within the framework of a new constitutional settlement that gives greater responsibility and fiscal powers to local authorities, as well as extending and strengthening the powers of devolved national governments. And beyond these shores, the historic nations of the UK should all be actively involved in efforts to reform the EU, helping it to regain popular legitimacy. For the moment, this is a project in search of agencies with the will, strength, patience and skill to see it through in the face of organised resistance, structural bias and institutional inertia. In broad outline, we know what needs to be done. The problem is to work out how to get it done and who is going to do it. Nevertheless, in thinking about the coming spate of parliamentary elections and national referendums – in Scotland, the UK and the EU – we should do well to keep both project and problem in mind.

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