Heavy pounding

pile of euro currency banknotes Image copyright bbc
Image caption Current SNP policy is to sign up an independent Scotland to the euro currency - but not yet

The European Union set off in a fundamentally new direction in the middle of the night - not enough to convince the markets that the eurozone will hang together, but big enough to create an inner core.

Use of the veto by David Cameron has put the UK outside that core.

Not that the UK government sees it as isolated - Foreign Secretary William Hague characterises the UK as having preserved its economic autonomy on fiscal, monetary and currency powers.

So for all the energy used up over the years in ensuring the European project doesn't leave the UK in a slow lane or an outer orbit, that now looks like where it is, in a strange alliance with Sweden, the Czech Republic and (perhaps) Hungary.

And there are plenty of eurosceptics in Britain who are happy to see things that way - one Tory MP claiming this morning it's as if the country has the same autonomy as Switzerland.

The back foot

Would that include the Chief Secretary to the Treasury? Danny Alexander used to be not only in favour of the UK signing up to the euro currency and more integration - he drew a salary out of campaigning for it.

And along with fellow Liberal Democrats, there's been a strange silence about the tensions between David Cameron and his backbench eurosceptic rebels.

We know David Cameron has to keep his Europhile Lib Dem coalition partners in mind, but they've been low-key about what conditions they've placed on his negotiating position.

All this presented a tricky challenge for Danny Alexander to bring north to Edinburgh on Friday, speaking at breakfast with the Scottish Council for Development and Industry.

This is part of the UK government's move to put more pressure on the Scottish government over its plans for independence.

At last finding, they've got Alex Salmond on the back foot - the idea is to seize on the eurozone crisis as it forces awkward questions on the Scottish National Party.

Its policy is to sign up an independent Scotland to the euro. But not yet. It would stick with the pound sterling until such time as a referendum backed membership of the euro.

It doesn't have to spell out that such a referendum isn't going to get positive endorsement any time soon, so it's not going to take place in the foreseeable future.

But would Scotland have the choice? The policy throws up the question of whether an independent Scotland would be allowed to join the European Union while retaining the UK's opt-out of the currency.

Muddling through

Despite claim and counter-claim of the legal position, the fact is that we don't know.

No member state has split this way before, creating a new member state.

It's not clear if Scotland could retain special provisions for the UK, or even if the rest of the UK could be treated as a new member state, thus having its special provisions (the rebate as well as the opt-outs) brought back into play.

The 'muddling through' answer is that Scotland might be like Sweden (or indeed like Gordon Brown when he was Chancellor of the Exchequer) - signed up to aligning the economy in preparation for joining the euro, but with no intention of ever doing so.

The current SNP policy presents further challenges, on which Danny Alexander was focused this morning.

Sticking with the pound sterling is possible, but the Treasury minister says it means an independent Scotland would lack any influence over monetary policy.

The Bank of England would set its interest rates on the basis of the performance of the economy south of the border. This is criticised by the Scottish government as a "one size fits all" approach.

You might well ask whether that change would make much difference: has it ever over-ridden the interests of the City of London in favour of economic interests elsewhere?

Remorseless logic

And if Scotland loses its comparative position relative to the rest of the UK - or improves it, perhaps through the terms of trade shifting as a result of oil and gas - the government in Edinburgh would lack the ability to adjust its currency to take account of that.

The chief secretary went on to argue that an independent Scotland could join the euro, but would be required to sign up to the fiscal and tax convergence now being agreed by the 23 governments at the inner core.

He talked of a "remorseless logic of monetary union (leading) towards closer fiscal union". (I don't recall this Inverness MP talking about such "remorseless logic" when an employee of the European Movement and later the Britain in Europe campaign for euro membership.)

But it's the question at the heart of the SNP's policy: what kind of independence is it when Brussels commissioners, or Berlin debt-holders, or the Frankfurt central bank, get a veto of your national budget, borrowing powers and the level at which you set tax?

That includes corporation tax, the variation of which has been at the forefront of the SNP's case for a more agile, competitive business environment similar to the one in Ireland.

That's a huge democratic challenge to the 23 in the inner core. It also redefines any previous notion of Scotland's economic independence.

The SNP dismisses Danny Alexander's attack as "Tory-style scaremongering nonsense". It would be up to the Scottish people in a referendum, says a spokesman, and anyway, "independence will give Scotland control of the economic and fiscal levers we need to strengthen recovery, boost growth and create jobs".

Will it? It might have been able to say that last night, but with the eurozone deal struck in the middle of the night, can it still say that today?

Trade risk

There are those outside the SNP's inner core who are talking about re-thinking this policy.

For instance, Ian Blackford - a former party treasurer - was saying as much on Radio Scotland last weekend: that the SNP should look again at setting up its own currency.

Other smaller nations survive that way, including Denmark and Sweden. But for the sake of trade, providing stability for business, they tend to be pegged to larger currencies or to currency unions.

It leaves the option open of devaluation out of trouble, in the way the UK has done in the past three years, but Greece has been unable to do.

But a separate currency would mean exchange rate risk (the cost of hedging against future changes) and higher transaction costs, including those across the border at the Tweed.

It would also put Scotland at the mercy of currency and bond markets that are becoming increasingly used to using their power to punish those lacking fiscal discipline, or even distorting the market for those who provide a safe haven.

Obviously, an independent Scotland would begin with no credit rating. And as any young person in search of a loan will tell you, that can be an expensive place to start out.

Update: ever-closer union

As details of the early-hours European deal have become clearer, the UK looks like it's on its own.

Sweden, the Czech Republic and Hungary are not in the inner core yet, because they have yet to consult their parliaments - not because they're firmly opposed.

The implications for the UK and for the European Union will take time to digest.

David Cameron stresses that the fundamental relationships in Europe are unaffected. Others see it as a historic moment, when the other EU members chose to side-step the UK veto, and go on their own way without Britain.

And closer to home, if the London government is being set adrift from key decision-making about the economy in Europe, that's another challenge to the SNP strategy for independence.

Does it argue that independence offers a way of binding Scotland closer to the EU, in contrast with the direction of travel for a Tory-led government in London?

Or does it take advantage of the starting point of greater UK autonomy, as a means of securing Scottish independence as well?

Alyn Smith, one of the SNP's MEPs, couldn't have made it clearer that he's for joining up to the ever-closer union. He told BBC Radio Scotland that, by contrast with the eurozone which is "now getting its act together", he expects to see the UK "sinking a lot faster than the eurozone" within six months.