Independent Scotland could lose sterling, Treasury suggests The Treasury fired a warning shot to Scottish voters today that they might have to abandon sterling if the country splits from the UK. Announcing that the 'People in Scotland expect and deserve good information on which to base their decision', the Treasury's in-depth 'Scotland analysis' report casts huge doubt over whether a deal could be reached for a joint 'sterling zone'. Both states would become exposed to fiscal and financial developments in each other's economies, it said. And George Osborne told Radio 4's Today programme: 'I think it's unlikely that the rest of the United Kingdom would agree to, or we could make work, a euro-style currency zone with Scotland. Scottish finance minister John Swinney (right): 'Mr Osborne should be listening, at a time when Scotland's economy and jobs market is outperforming the rest of the UK and when the Chancellor's own financial mismanagement has been exposed' 'It's of course a decision for two governments - it wouldn't just be the Scottish government, but also for the rest of the United Kingdom. If Scotland wants to keep the pound, the best way to do that is to stay in the United Kingdom. Scottish Finance Secretary John Swinney has already dismissed 'insulting' claims in it that Scottish banknotes could be lost under the SNP's plans to retain the pound if the country votes to leave the UK in next year's referendum. He said: 'Instead of coming north to lecture the people of Scotland, Mr Osborne should be listening, at a time when Scotland's economy and jobs market is outperforming the rest of the UK and when the Chancellor's own financial mismanagement has been exposed by the latest international ratings downgrade.' However, experts warn that a separate Scotland would have a 'narrower economic and fiscal base, and be exposed to a number of volatile sectors such as finance and energy, including North Sea oil and gas'. Sterling has remained fairly steady against the euro this year, dropping from €1.19 to €1.17 in the last three months. Around this time last year a pound was worth €1.22. But if Scotland were to join the euro, it would be even more at the mercy of the region's wildly fluctuating fortunes than it is now. Eurozone data this morning revealed Germany's private sector is shrinking for the first time since last November, with its services and manufacturing sectors both reporting much weaker than expected PMI data. Both readings came in below the 50-point mark, showing a contraction in Europe's largest economy. Richard Driver at Caxton FX Analyst said: 'This is yet more lacklustre data from the eurozone; the pace of contraction in France may be slowing but Germany is the one we are all interested in and the picture there looks very bleak indeed. The chances of a German and pan-European bounce back in Q2 are looking pretty remote right now. 'If the ECB doesn't respond by cutting interest rates next month then you have to wonder how bad things have to get before they do bite the bullet. This should keep the euro under the cosh in the coming weeks. The Treasury report - one in a series of papers from the UK Government on the impact of Scottish independence - outlines four options for currency if voters north of the border decide to leave the UK. Scotland could continue to use the pound as part of a formal agreement with the rest of the UK, creating a sterling currency union, or could instead continue to use the pound unilaterally, with no such deal in place - but that would leave Scotland with no control over monetary policy. Alternatively, a new Scottish currency would hand Holyrood the full sovereignty the SNP claims to want, but would come with a risk of high borrowing costs and a 'rapid destabilising flow of money' if people switch assets to a strong currency like the pound. It could also mean higher trading costs with export markets, particularly the rest of the UK, a volatile exchange rate, and large fluctuations in people's wages and prices. Or, a separate Scotland could be forced to join the euro, with today's report confirming that an opt-out is 'far from certain'. This would mean Europe meddling in its monetary policy, with influence on its tax and spending levels. None of these would be as economically suitable for Scotland - or the rest of the UK - as the current set-up, the Treasury believes. The Scottish Government has already set out plans to retain the pound, so a report raising the likely prospect of having to give up Sterling is a hammer blow to Alex Salmond's economic case for independence. Swinney said: 'We do not want to join the euro and we have no intention of joining the euro. Our proposition is to establish and to maintain the use of the pound as part of a sterling zone with the rest of the United Kingdom. And he told the Today programme: '[Osborne] is playing with fire, in my opinion. 'He's arguing in his paper this morning that the UK would be the successor state, that it would hold onto the pound and that we somehow couldn't get access to that. 'Well if that's his position, then the UK's obliged as a successor state to hold on to all of the debt, and we wouldn't be. We'd be liberated from a population share of UK debt of £125million.' But the Treasury report argues that the economic rationale for the UK to agree to enter a sterling union with a separate state 'is not clear'. The recent experience of the euro area has shown that it is extremely challenging to sustain a successful formal currency union without close fiscal integration and common arrangements for the resolution of banking sector difficulties. An independent Scotland would 'need to agree a negotiated set of constraints on its economic and fiscal policies', the report said, adding: 'In practice this would be likely to require rigorous oversight of Scotland's economic and fiscal plans.' In other words, a separate Scotland's tax and spending plans would still be subjected to intervention by Westminster. Former Labour Chancellor Alistair Darling came down on the side of Osborne, saying yesterday: 'The pound is not a physical asset, it is a system. If [Scotland] leaves the UK and the UK's monetary institutions, like the Bank of England and UK Treasury, we leave the UK pound.'