Will all EU member states have to join the euro after 2020?

So much has the argument about Brexit gone around in circles that we are now reliving arguments that predate the 2016 referendum.

Esther McVey, former cabinet minister and prominent Eurosceptic, tweeted a 2014 article in The Daily Telegraph by Andrew Lilico, the gist of the piece being that all European nations would be required to join the European single currency. This is, as has been widely stated, wrong, and her tweet has been deleted, but there is another side to the story which is more favourable to McVey.

First, though, the actual facts. As things stand the UK and Denmark have an absolute exemption from the obligation to join the euro. This was the famous “opt-out” from the 1992 Maastricht Treaty, which set in train the long process towards adopting the euro across much (though even now not all) of the EU. All the other member states of the EU in 1992 have now adopted the single currency; some members that joined after 1992 and after the first wave of euro nations abolished their currencies in 1999 have also adopted the euro – Slovenia in 2007, followed by Cyprus and Malta in 2008, Slovakia in 2009, Estonia in 2011, Latvia in 2014 and Lithuania in 2015.

Altogether 19 of the 28 member states are members of the euro, including all of the largest economies except the UK. It has made trade and cross-border movements of money much smoother and made international pricing of goods and services more transparent, reducing business costs and adding modestly to economic growth.

However, despite this, others countries have not joined the euro, despite this being a formal accession treaty obligation once certain criteria are met. For example, Sweden, which joined in 1995, still retains its krona and shows little inclination to adopt the euro; nor, it seems, are the European Commission and European Central Bank pushing the point.

By contrast other, weaker economies that might wish to ditch their own currencies in favour of the euro are not yet qualified to do so. The experience of Greece, which was allowed to join the currency probably before its economy was strong enough, has been instructive.

As well as the UK and Denmark, other EU members still outside include Poland, the Czech Republic, Croatia, Romania and Bulgaria.

The problems with the single currency are well publicised, and have caused real economic harm and human misery among those countries that have endured years of austerity to try and make themselves more competitive, and/or pay for the banking rescues required after the financial crisis.

That is why richer countries – which would be expected to bankroll the system – are wary of joining. The Greek example is why some weaker countries are also cautious about the disciplines imposed by the system, and why the richer countries are also disinclined to hurry them into the arrangement.

President Macron’s proposal for a “fiscal” union to complement the monetary union – effectively moving some macroeconomic decisions on overall levels of taxes, public spending and borrowing to the European level – have been rejected by Germany, which usually pays the bills (Finland and the Netherlands also chip in). So this inherently unstable system seems set to continue on its present basis.

Whether the UK would be allowed its euro opt-out if it rejoined the EU in a few years’ time is impossible to predict, but it would not necessarily be granted.

Where McVey and her cited journalist have a point is that the euro was originally regarded as essential to ensure a “level playing field” under the single market. Countries, in other words, cannot gain an “unfair” advantage by devaluing or “manipulating” their currency as a way out of their uncompetitiveness (usually stemming from poor productivity, high wages and too much debt).

That logic applies as much today and in the 2020s as is it did in 1992. There may come a point when the political pressure on non-euro members to join the currency – whatever the legal formalities – would become so intense as to be unbearable. In that sense non-euro members states are always at long-term risk of being pushed towards the euro – but Denmark and the UK do have that strong international treaty protection in the final analysis.

Equally, it is true that the euro might fragment long before such pressures on members to join re-emerge. It seemed perfectly possible that it would collapse a few years ago. Today the precarious Italian public finances and banking system represent a mortal danger to the euro system, as the Italian economy is far bigger than Greece, and “too big to save”.

So, in the end, Esther McVey and her critics might both be proved equally wrong.

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