A EUROPEAN economist has warned of the major obstacles an independent Scotland would face if it were to join the Eurozone after a Yes vote.

Writing exclusively for The National, economist Dirk Ehnts, of the Chemnitz University of Technology in Germany, said using the euro would require a newly-independent Scotland to put strict limits on public spending.

Ehnts, who co-authored the influential Green New Deal for Europe policy programme, said that the European Economic and Monetary Union’s (EMU) rules on state spending relative to gross domestic product (GDP) had brought the Eurozone to the “brink of recession”.

He said: “The first problem is created by the deficit limits that limit public deficits to 3% of GDP, a rather random small number. In practice, this means that Eurozone governments are shy to raise government spending. This translates into stubbornly high unemployment rates of upwards of 6%.

“When the pandemic hit in 2020, the rules had to be suspended in order to ensure growth and stability – not a good sign.

READ MORE: Expert issues warning over SNP's currency plans and EU membership

“While many policy makers recognized that the rules were not fit for purpose, the EU returned to them anyway because of the insistence of the German finance minister. Bringing back the rules and cutting government spending has the Eurozone on the brink of recession. That is all the more astonishing given the success of the response to the pandemic in the Eurozone.”

Eurozone countries saw GDP stagnate in October to December last year – narrowly avoiding a recession.

Ehnts argued that instead of pursuing “disastrous austerity policies”, Eurozone countries should have maintained the more relaxed approach to government spending adopted during the Covid pandemic.

He said: “ Instead of cutting down government spending with disastrous austerity policies – think about Ireland in the early 2010s – the EU responded by removing the deficit limits. Governments spent money to address real deficits, like a lack of social and health spending.

“More spending translated into more demand for goods and services and also workers, which increased employment. Since the Eurozone's unemployment rate currently stands at 6.4%, which is a record low, there is no reason to cut back government expenditure. Why send workers into unemployment if they have been doing a good job?”

The Scottish Government’s official policy on currency is to continue using sterling after independence until a new Scottish currency is created.

This would be backed by a central bank but the Scottish Government appeared open-minded in a recent independence white paper on pegging the exchange rate with the euro.

Dirk Ehnts shares his thoughts, alongside other Real World Economists, at the Scotonomics Festival of Economics in Dundee
on March 22 to 24. Programme details and tickets to attend in person or online are available from the Scotonomics website.