"Any country joining the European Union must have a fiscal deficit at 3% or below. With the Scottish deficit at almost 8% the SNP must outline how Scotland could join the European Union as an independent country."


Scottish Labour MP Ian Murray at Scottish Questions. And we have a video.

The National:


The 3% target is actually a guideline which most EU members (including Germany) have breached – which is perfectly acceptable under the Maastricht rules if there is an economic problem.  Scotland, either as an applicant or full member, would have to agree a medium-term plan to seek to reduce any potential large deficit. But the existence of such a deficit (particularly if the result of a hard Brexit) is not a barrier to entry. Also, the Scottish Government runs a budget surplus, not a deficit.


The Maastricht Treaty, which entered force in 1993, laid down new, collective rules for EU member states governing their public borrowing. The idea was to promote price stability and sustainable economic growth by discouraging excessive public debt (which drives up interest rates and taxes). Those EU members joining the new euro common currency zone also wanted to ensure the stability of the new currency.

The so-called Maastricht “criteria” include a provision that member states – including those outside the eurozone – should aim to keep their annual, net public borrowing to no more than 3% of national income (GDP). This figure is usually referred to in EU documentation as the “reference value”, rather than an iron specification. Clearly, as an EU member, Scotland would be expected to aim for a 3% annual deficit as a best course.

However, the EU has always accepted that varying economic circumstances – domestic and global – will mean there can be divergence from the 3% reference value. In fact, between 1998 and 2017, the 3% deficit target was breached at some point by every single member state bar three exceptions (Belgium, Luxembourg and Sweden). Spain breached the rule for the whole of 2008-20017. France breached the rule in 2002–05 and 2008-2016. And the UK breached the rule in 2003–05 and 2008–16.

The National:

As a result, in 2011, following the euro debt crisis, the EU adopted new procedures for dealing with breaches of the deficit reference value.  These are called the Excessive Debt Procedure rules.  Essentially, they boil down to the Council of Ministers (not the European Commission) making “recommendations” to the member state concerned “for bringing the deficit back below the reference value”. The timetable for such a correction can be elastic “if it is found that the country concerned has made good progress” but “has not been able to fully correct its deficit because of an exceptional economic context”. In other words, the process is political rather than judicial.

For a country joining the EU, the heart of the matter would be to agree a process and timetable for convergence towards the 3% reference point, depending on the current state of the domestic economy at entry. Assume hypothetically that an independent Scotland had a deficit above the 3% - not something anyone can actually know prior to when independence negotiations are complete. Say this deficit was due to Brexit having distorted the Scottish economy (a not unreasonable assumption and one the EU would understand). Under the Excessive Debt Procedure rules, Scotland would have to present a reasonable plan for reducing the deficit. This already exists in embryo in the SNP’s Sustainable Growth Commission report.

Ian Murray’s reference to a notional 8% deficit refers to the 2018/19 Government Expenditure and Revenue Scotland (GERS) report published in August 2019. This makes hypothetical assumptions regarding the notional allocation of a proportion of existing Conservative Government borrowing and spending for 2018/19 to a future independent Scotland some years hence.  An SNP Government in an independent Scotland is unlikely (to say the least) to make similar borrowing and spending decision to a London Conservative administration. Currently, the SNP Government at Holyrood runs a budget surplus.  The provisional surplus for 2018-19 is £449 million.


Following the publication of the 2018/19 Government Expenditure and Revenue Scotland (GERS) report, Mr David Phillips, the associate director of the independent Institute for Fiscal Studies, was asked if an independent Scotland’s budget deficit would pose a barrier to the country re-joining the EU. Phillips replied: “I’m not sure whether [the deficit] would necessarily be a binding thing as ultimately the decision about whether Scotland could join would be a political one rather than economic.” (The National, 22 August 2019).


Sorry Ian, must do better next time...

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