The European Union dimension of the coming Scottish Independence debate is perhaps best approached by asking: 

• What kind of Union will it then be, and will Britain's position in it have changed?
• Should an independent Scotland want to be in the Union?
• Would an independent Scotland be welcome in the Union?
• Would becoming an independent member be difficult, or costly?

i) What kind of Union?

The crystal-ball is cloudy, and the EU’s future, even only two or three years ahead, uncertain. Pessimism is in the ascendant in Brussels, and the vision of ‘ever closer union’ ever more distant as the travails of the Euro dominate debate. Some, mainly in England, predict the demise of the currency, perhaps followed by the dissolution of the Union itself. Some, mainly on the political Right, advocate and foresee the reversal of the integration process, with an ever looser Union of variable geometry, or concentric circles, with common commitments weakening centrifugally. However, a majority in Brussels, and in most member states (but perhaps not the UK), expect the Euro to survive and to be bolstered by the emergence of some degree of fiscal and banking union. Opinions differ on how far this deepening will go, given constitutional constraints in Germany, and political sensitivities in countries hard hit by financial crisis and economic recession. But most believe that the bicycle has to move forward if it is to stay upright, as most want it to do; and most countries want to stay on board. Variable geometry is more popular in the UK than among continental countries, with most central European member-states not yet in the Euro still queuing to join.

What is clear to all is that the UK is different. The London government has adamantly stood aloof from fiscal union. It pursues austerity at home and advocates it abroad, but – unlike all the Eurozone, and all but the Czechs among other non-Eurozone member-states –refuses to accept any EU supervisory/monitoring fiscal policy mechanism. It believes it can square the circle of keeping Britain out of any form of EU banking union while still ensuring that London remains Europe’s financial capital. "It is conducting an "audit" of existing EU powers, as they apply to the UK, and the Prime Minister made clear, in his Bloomberg speech on 23 January advocating "fundamental, far-reaching change", as yet unspecified, that he intends to try to take some back. Such a renegotiation of the terms of UK membership would be difficult, because changes to the Treaties require the agreement of every member-state. But the Conservative Party seems confident that changes could be secured, has now promised to include in its 2015 manifesto a commitment to hold a Referendum on an improved deal – or, presumably, exit. What would happen if improvements to the current deal proved impossible to negotiate is not clear.

Not surprisingly, the UK is not currently particularly popular with its EU partners. But the forecast is for the skies to darken further. Before 2015 the UK will almost certainly have exercised its Lisbon Treaty right, which expires in 2014, to opt out from much EU Justice/Home Affairs legislation. Poorer member-states will be resentful of the UK’s rejection of any substantial increase in EU Budgetary resources; and all our partners will be smarting at their failure to secure a cut in the Thatcher rebate on our contribution. And if President Barroso is rash enough to press his bid for a new Treaty on “political union”, the British will have rejected it.

So a central forecast, for the purposes of the Scottish 2014 debate, might be that:-

• There will still be a Union for an independent Scotland to join, probably a little more integrated, with the Euro ship holed, but not sunk, and the EU economy, patched up a bit, limping out of recession.  In short, no major change; but
• Britain, though still a member, may be then have lost more friends and be influencing fewer policies.  The Channel may have got a bit wider.

ii) Should Scotland want to be in?

Is such an EU, introspective and lacking momentum, an attractive prospect? Would, or should, Scotland, leaving one Union, prefer not to be part of another?

Some might prefer the country to stand alone, a UN member untrammelled by other Treaties. But those who argue that Scotland’s voice in the world should be distinct and clear might prefer her to retain a platform: outside observers have little influence on major debates. Alliances bring obligations, but are multipliers, beneficial for the effective projection of national values; and introspective withdrawal might seem a break with Scotland’s traditions. Outside the EU’s Single Market, Scottish trade would certainly suffer, particularly if the residual UK remained inside. Inward investment from Asia and America would fall sharply. Being cut off from EU Research funding, and ERASMUS and other exchange programmes, would affect the University sector. Some would miss EU structural funds, though Scotland’s share of them is already shrinking. Autonomy from the EU Common Fisheries policy might be welcome, and the Financial Services industry, no longer subject to EU laws, would probably contrive to find a new, niche, role: the Caymans and Liechtenstein show the way. But on balance insularity might look unattractive.

Is there a viable European alternative to the EU? One might emerge in due course, if English Eurosceptic secessionists get their way. But in 2014/15, the only viable alternative models are likely to be Norway and Switzerland. Norway is not in the EU but, through the European Economic Area (EEA) agreement with Iceland and Liechtenstein, has full access to its Single Market. Scots would need to consider the dual price Norway pays. Though it has no say in the making of the Single Market’s laws and regulations, it has to apply them all. It also pays a substantial annual subscription, currently some €340m a year. The arrangement results from the rejection by the Norwegian people of the accession Treaty their government negotiated and most of their politicians supported, (as they, and Norwegian business, still do). It was the best deal obtainable, with UK help, from outside, and something similar might be obtained by Scotland. But Scots might see an intrinsic oddity in independence from London being limited in practice by Brussels laws made with residual UK, but no Scottish, involvement.

The Swiss model is still less seductive. Switzerland rejected EEA membership in a 1992 referendum, and consequently makes do with a patchwork of piecemeal bilateral agreements with the EU. Its association with the Single Market is partial: it too has no vote, and though any goods authorised for sale in any of the EU’s 27 member-states can be sold in Switzerland, not all Swiss goods can be sold in the EU. Not a model attractive for Scots – or for the EU, who see it as “complex and unwieldy”, and would not wish to repeat it.

The context would change dramatically if a future London government were subsequently to take the UK, ex-Scotland, out of the EU. Since membership is more popular in Scotland than in Southern England, Scottish independence might increase the chances of a Referendum result in the residual UK mandating Exit. There could be benefits for Scots if they were in, and stayed in, when the English left: Scotland’s relative attraction for inward investment would certainly rise steeply. But there would also be major complications for Scotland, and Ireland, in being separated from all other member-states by a non-member. The balance of advantage for Scotland might depend on the terms of dis-engagement obtained, from the inside, by the departing residual UK: perhaps a deal better than Norway’s or Switzerland’s might be obtainable, and extendable to Scotland, if she chose to follow. But to speculate on that would be to go well beyond the remit of this study, because the Scots, if independent, are likely to have to decide whether to join the EU well before the residual UK decides whether to leave.

Given the absence of attractive alternatives, particularly while a residual UK remains a member, the choice for Scotland would seem to be simple: autarky, or the EU, warts and all. Whether Scotland, as a separate and relatively small member-state, would be more or less influential in EU decision-making than it now is, as a significant part of a large member-state, is impossible for some-one outside government to predict with any certainty. It depends on a judgement of how much influence the Scots currently have in determining UK negotiating positions (and whether this would increase under “devo-max”, perhaps with formalised arrangements similar to those which involve Belgian and German regional governments in the preparation of their national negotiating positions). But it is perhaps unlikely that the issue would determine many votes in the 2014 Scottish referendum. More relevant might be the terms of Scotland’s EU membership, and the process of securing it.

iii) Would Scotland be welcomed?

If independence were the settled wish of the Scottish people, established by popular vote after thorough debate, and resulting in amicable divorce from London, that democratic decision would of course demand respect, EU-wide. Many in Brussels have also noted that down the years the Scots have been less grumpy, as fellow-members, than the English. Some might go so far as to want to welcome the Scots precisely in order to cock a snook at English sceptics talking of leaving.

Certain others might however wish to demonstrate, to breakaway regional or national movements within their own countries, that secession isn’t easy, and has costs. They might see an interest in ensuring that negotiations with the Scots were complex and protracted.

Madrid would have Basques and Catalans in mind. Because of her distaste for secessionist movements, Spain, like Bulgaria, Cyprus, Greece and Romania, has yet to recognise – and so permit the EU to recognise – the ten-year independence of Kosovo, the breakaway ex-province of Serbia: in Athens, the concern is their Macedonian province; in Nicosia, Turkish North Cyprus; and in Bucharest and Sofia worries about “greater Hungary” rhetoric in Budapest, and their own ethnic Hungarian communities. All five countries would be tempted to view the question of Scotland through their own domestic prism. Some might try to emphasise differences between Scotland and for example, Catalonia: unlike the Catalans, whose legal system is Spanish, the Scots have always retained their own, and Catalans seeking independence do not wish to retain the Spanish monarchy. But one could hardly expect Madrid to welcome the break-up of the United Kingdom, lest the habit catch on: some Spanish politicians, concerned about the rising Catalan secessionist movement, have already spoken of vetoing the Scots.

And Scotland would have no EU precedent to which to appeal. The break-up of Czechoslovakia took place in 1993, well before the two separate countries joined the EU. In 1979, when Greenland achieved home rule (or rather an advanced form of “devo-max”) from Denmark, by then an EU member state, the 40,000 Greenlanders voted to leave the EU, and did so, with metropolitan Denmark staying on, and negotiating the terms of their departure. No existing member-state has split, with both parts wishing to stay. The Scots would be breaking new ground. Already concerned at the prospect of a post-2015 renegotiation with a London government calling for a looser EU, and/or new UK opt-outs, many in Brussels might see the Scottish issue as a further unwelcome addition to an already fraught agenda.

It is perhaps reasonable to conclude that Scottish secession might be welcomed in the EU with modified rapture, because:-

• For some EU member-states there would be a serious domestic political dimension to the legal and technical issues in a Scottish accession negotiation.

iv) Would the negotiation be easy?

Although some in Scotland question it, the reality is that separation from London would mean, ipso facto, leaving the EU. And not just at governmental level. EU citizenship does not exist independent of national citizenship: each member-state, signatory of theTreaties, determines who its citizens are, and their EU citizenship derives only from that national citizenship. If and when Scots cease to be citizens of the United Kingdom, they also cease to be EU citizens.

The procedure for regaining membership is clear. President Barroso’s 10 December letter merely repeated the position explained by Romano Prodi, the then President of the Commission, to the European Parliament in 2004: (1) “When a part of the territory of a member-state ceases to be a part of that state, e.g. because the territory becomes 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 day of its independence, not apply anymore…” (Official Journal of the European Union, C84E/422. (3.4.2004))

If the new country wished them again to apply there would need to be ….. “a negotiation on an agreement between the applicant state and the member-states on the conditions of admission and the adjustments to the Treaties which such admission entails. This agreement is subject to ratification by all member-states and the applicant state.”

In other words, re-admission is only possible when every existing member-state has agreed to every detail of the terms. So the Scots would need to go through the same accession process as all but the original six member-states have been obliged to follow, a process which the Croats have just successfully completed, but in which the Turks are bogged down. Moreover, when such negotiations are completed, an adverse Parliamentary or Referendum vote on ratification, anywhere in the EU, could still sink the ship.

That sounds formidable, but in practice the Brussels negotiation might not, on most issues, be particularly onerous. Recognising that an applicant is ill-placed to argue for changes in the club-rules, the Scots would presumably accept en bloc all the rules as currently applied to the United Kingdom. They would be ill advised to seek, from outside, reforms of the Common Fisheries or Agriculture policies, however welcome in this country such reforms would be; and to argue, from outside, for an allocation of Structural Fund monies more generous to Scotland would cut little ice. Scotland’s best tactic would be to stress that it sought no changes, merely the reinstatement of rights enjoyed, and obligations accepted, when part of the United Kingdom. Even those, for example the Spanish, most uneasy about any secession and so most tempted to play for delay, would find such an approach hard to resist in principle.

Problems would be more likely to arise when the negotiations turned to issues on which the United Kingdom, using an insider’s power of veto, had secured a special status, as Mrs Thatcher did at Fontainebleau in 1984, on the EU Budget, and Mr Major did at Maastricht, in 1991, on Monetary Union. As an outsider, with no veto, Scots might find it difficult to secure the necessary unanimity among all insiders for the continuation of all such arrangements.

Six stand out.

First there would have to be a debate if the Scots wished to retain the UK’s hard won VAT anomalies, e.g. zero-rating of food and children’s clothes. But, given goodwill, it looks a winnable fight, because it wouldn’t be a zero sum game. Regular cross-border shopping in Scotland by French or Germans would be no more plausible then than now; and actual rates charged in shops in member-states bear no relationship to the VAT element in the EU’s central budget income (because the VAT base used for budget purposes is an artificial statistical construct: actual rates vary widely between member-states). For existing member-states, if disposed to be kind, there would be no cost.

Second, and more significantly, the Treaties now require applicants for EU membership to take on a commitment to join the Euro when eligible to do so. At face value, this would necessitate a currency frontier on the Tweed. But the Danes and Swedes ignore the requirement, and retain their national currencies; and if UK debt were divided pro rata as the Kingdom divides, Scotland’s inherited share would be too high to make her, at least initially, eligible for Eurozone membership. And in any case, given goodwill all round, including from Madrid, a declaration of intent to give up Sterling, and switch to the Euro, at the appropriate moment, un-defined, once Scotland became eligible, might well be taken as sufficient. Rather more difficult might be the negotiation between Edinburgh and London on how to ensure, with a common currency (Sterling) but separate national economic policies, that no repetition of the Eurozone’s Greece/Germany problem with the Euro arose. Would London not want some sort of Fiscal Pact, constraining Scottish borrowing; and would Edinburgh not demand some say in London’s setting of interest rates? But this negotiation would presumably be no less necessary under “devo-max”.

Third, if the UK maintains its current position, the 2012 Austerity Pact will still be separate from the EU Treaties and will not come up in an accession negotiation. The Scots would be free to choose whether, like all Eurozone members and most non-members (e.g. the Poles, Swedes and Danes) they wished to accept whatever common fiscal disciplinary mechanism had by then emerged, or to stick with the residual UK and the Czechs, rejecting it.

Fourth, Mr. Cameron’s December decision to agree that the ECB should be the Supervisory Authority in a Banking Union, compulsory for Eurozone members but optional for others, and to keep the UK out, may store up future difficulties for the City, but solves a problem for the Scots. Edinburgh would be free to follow London in staying out, keeping the great Scottish banks under London’s supervision, at least while they remain under London ownership. If that were what the Scots wanted, there would be nothing to negotiate.

Fifth, the UK is not a party to the Schengen Agreement, which does away with border checks on travellers between most member-states. But neither is Ireland, which instead maintains a separate travel area with the UK; and if the Scots preferred to follow that precedent, avoiding a physical frontier on the Tweed, with passport checks and border-guards, the common-sense geographical arguments for doing so might well suffice – particularly if the Scots were prepared to signal a wish to come into line with Continental member-states, and non-EU Schengen members like Norway and Switzerland, as soon as London and Dublin did so. But the Scots would in any case need, on accession, to accept the EU provisions on cross-border crime and policing from which the UK will by then have presumably opted out.

None of these issues looks insoluble, provided all parties display a degree of goodwill. But solving them might take some time, if in some countries goodwill were in short supply.

On the sixth issue, the Budget, it is harder to see a happy outcome. The Thatcher rebate, secured from inside by effective strong arm tactics and disruption of other business, repays two-thirds of the difference between the UK contribution to the EU, and the EU’s payments to UK entities. Though the UK has, over time, accepted that the rebate should not apply to that part of the Budget which covers expenditure in new, poorer, Central European member-states, it has so far saved the country some £70 billion, and means that the UK now contributes some 10% of the total Budget: the Germans pay 20%, the French and Italians more than the UK, the Dutch, in per capita terms, the most. To UK public opinion the rebate looks well justified, but everywhere else it is much resented: unlike VAT arrangements, this is a zero sum game: the less we pay the more they all must. But the UK, as an insider, benefits from the unanimity rule: what we have, we hold. Since the demise of the rebate would require a UK vote for abolition, it survives, and will survive again.

But for an applicant, Scotland, outside and wanting to come in, the unanimity rule reverses. To secure a Thatcher rebate for Scotland would entail a Scottish government convincing every member-state government, and their parliaments and peoples, many much less rich in per capita terms than Scotland, that the Scots should not have to pay the normal membership fee: a Herculean diplomatic task. On this issue, one can be certain of no goodwill.

So the central assumption has to be that an independent Scotland, like the UK now, would be a substantial net contributor (one of about a dozen) to the EU Budget, and that, since no rebate would apply, each Scot would pay considerably more than each Englishman.

To put numbers to these propositions is not currently possible: the sums would depend principally on the final outcome of the Brussels debate on the size of the EU Budget for the next seven year period, the formula for calculating Member State contributions, and the distribution of expenditure during that period.

The overall conclusion is that Accession negotiations need not be particularly complex, and would cover far less ground from the standard process for an application from a territory not formerly part of a member-state. But the procedure would still provide scope for trouble-making by those concerned about secessionist movements in their own countries. It could therefore prove protracted. A practical Scottish approach, recognising the weak hand which any applicant must play, would maximise the chances of finding a relatively speedy way through. But there would certainly be a Budget price to pay.

Conclusions:

Given all the uncertainties, it would be rash to predict outcomes. But this analysis suggests that Scots, as they approach the independence debate, would do well to bear in mind that:

• Independence from London means leaving the EU, with no automatic return-ticket;
• Alternatives to EU membership are unlikely to look attractive, particularly while the residual UK remains a member;
• Scottish re-entry would need to be negotiated: this could take time, with the shadow of Catalonia long over the table; and
• There would be a recurring financial price to pay.

Sequencing Issues

i. Pre-Referendum

The EU Institutions will not wish to address these questions while they remain hypothetical: pre-negotiations will not be feasible. Nor could much be achieved now by discussions with other member-state governments: it would be naive for the SNP to seek assurances of full co-operation from those, e.g. in Spain, with the greatest interest in the Scottish debate: they have their own fish to fry. Even the London government, whose voice in Council debate on a Scottish accession bid would be significant, might be reluctant to give binding assurances before a referendum.

ii. Post-Referendum, Pre-Secession

It would be highly desirable, and legally possible, as Sir David Edward's analysis makes clear, to get talks started after a referendum vote for independence but before actual secession took place. Whether this would be politically possible is harder to judge: member-states like Spain might insist that such talks could only be informal and exploratory, and the complication of the looming UK Election, with the Conservative commitment to re-negotiation, might incline Brussels to "wait and see". Conceivably much of the groundwork could be done at this stage, but formally Scotland would have to be a state before it could accede. Moreover the terms of her disengagement from the UK, and the uncertain prospect of the UK's disengagement from the EU, partial or total, would have a critical bearing on some aspects of Scottish accession discussions."

iii. Post-Secession, Pre-Accession

The final formalities can take time: Croatia’s accession negotiation was successfully completed in June 2011, but she is not due to join until this July. Timing of national ratifications is entirely a matter for individual member-states. The practical problems of an extended hiatus might be mitigated if the Scots were to choose to apply EU laws autonomously in the interim period. Given goodwill, some reciprocal transitional arrangements might be offered by Brussels. But the ratification processes, like the prior negotiations, could become protracted were they to coincide with an attempt by the London government to secure a wider Treaty revision, or, after a referendum in the residual UK, to initiate the Article 50 procedure for withdrawal from the EU. Other countries might wish to consider Mr. Salmond’s request together with any from Mr. Cameron.

Questions:

Total clarity on the EU dimension of the independence question isn’t obtainable in advance.

Yet certain of the issues discussed in this paper are fundamental; greater clarity on them would be helpful for informed debate as the Referendum approaches.

In particular, it might make sense now to ask, at least informally:-

• from the EU Institutions:- would the option of joining the EU while retaining the £ sterling for an indefinite period be acceptable (if all member-states acquiesced)?
• from Edinburgh and London:- how far would the mechanisms for sustaining a currency union of two independent countries constrain Scottish fiscal autonomy?
• from the EU Institutions:- would remaining outside the Schengen border free travel area, for as long as the residual UK and Eire do so, be permitted (provided all member-states acquiesced)?
• from Edinburgh and London:- what are the estimated additional EU Budget costs for Scotland, assuming no Thatcher rebate?
• from all parties: to preent an extended hiatus while Scotland's accession was ratified, could interim transitional arrangements be devised?

John Kerr was UK ambassador to the EU and the US, Foreign Office Permanent Under Secretary, and Secretary-General of the EU Convention. He now is an independent member of the House of Lords.

A shorter version of this essay appears in the February 2013 issue of Prospect magazine.