Yesterday, the UK Government issued a 100 page report analysing an independent Scotland’s options for the currency it would use post independence. They also produced an infographic summarising its conclusions. Unsurprisingly, the report concludes that staying in the UK is the best option for Scotland. For the first time, there was a very clear warning that the Scottish Government’s preferred option of a currency union may not be achievable.
On the other hand, the Scottish Government produced its own report saying that a currency union could and should work as there are mutual advantages.
The options under discussion in each report outside staying in the UK are:
- A currency union;
- Scotland using the pound with no formal arrangement, like Panama uses the dollar;
- Joining the Euro;
- A new Scottish currency.
George Osborne and Danny Alexander launched their report in Glasgow yesterday and Danny appeared on the STV equivalent of Newsnight. Asked whether an independent Scotland would be able to share in sterling, he replied:
The position we are setting out today is that having looked at all of the options facing Scotland, the best option is to keep with the current arrangements. All of the other options are worse for Scottish jobs or businesses. I have not yet seen from the SNP a worked out plan that deals with those issues for a currency union so I think it is unlikely that such an arrangement could be made to work.
Pressed further, he added:
I am saying that there are big economic problems (with a currency union). It is unlikely that the rest of the UK would agree to that but I don’t see that it’s necessarily in the interests of either Scotland or the rest of the UK.
One thing we’ve learned from the Eurozone is that where you have different countries sharing the same currency, you have to have tightly controlled fiscal plans.
The Eurozone is moving towards much tighter surveillance. Before you take your budget to your own national parliament, you have to take it to Brussels first. If you make mistakes, or you don’t meet your targets, you could be fined.
Why should we want to create the Eurozone in a broken up Britain when we could stick with the pound?
You have to look at all of the issues about entering a currency union with another foreign country. People in the rest of the UK would be wary of such an arrangement.
If you care about Scottish jobs and businesses you should vote to keep the UK together.
You can watch the whole interview here.
So far the independence debate has followed a pattern that goes something like this, whatever aspect of independence is under discussion:
SNP: Don’t worry, it’ll all be fine.
UK Government/Better Together: No it won’t, and here are lots of other people who agree with us (as they proffer reams of quotes from independent sources backing up what they are saying).
SNP: (at the slightest hint of being questioned): There’s those scaremongering unionists again. Aren’t they horrible?
I paraphrase, obviously, but these are the sort or exchanges that have taken place over Scotland’s EU and NATO membership. The SNP say it would be fine and an independent Scotland would be able to join both these on whatever terms they want. There is considerable doubt, at the very least, about their assertions.
The yes campaign wants to make independence sound as easy as possible. The Better Together campaign aims to highlight the difficulties. It’s inevitable. The truth, though, is, equally inevitably, somewhere in the middle.
I just wish that the tone from Better Together could be a bit lighter and more conciliatory. There’s not enough in terms of Liberal Democrat thinking and attitude coming through. Scottish Liberal Democrat leader Willie Rennie is up there with the best at holding Alex Salmond and the SNP to account, but he’s also been careful not to burn bridges and be conciliatory to them, by repeatedly saying he wants them, after a no vote, to be part of building the consensus for further reform.
The further ahead in the polls Better Together gets, the harsher and more dismissive their tone becomes. Most of what they say is factually fine, but the way they say it is too harsh. I think that’s a mistake. I think it’s quite important to show good faith at all times. While Danny was quite grumpy about the potential for currency union, I think he could have phrased his comments in a more conciliatory fashion. He could have said something like:
Look, if Scotland votes for independence, there will have to be negotiations between the rest of the UK and the emerging Scottish Government. But even with the best will, and if everyone behaves absolutely perfectly, breaking up the UK is not an easy or certain process.
At the moment, this doesn’t really matter, because most of the Scottish people are not engaging in the debate at all. With just under 17 months to go, a lot of the chatter is amongst political activists, on both sides. Most of my friends who aren’t involved in politics aren’t living or breathing the referendum. Most of them are against independence and I think it’ll stay that way. I do think, though, that Better Together needs to remember it needs to win hearts as well as minds. The SNP are good at painting pictures of how lovely life would be after independence. They are also not averse to a bit of scaremongering and mentioning “the Tories” at every opportunity. They flounder on the details. Better Together and the UK Government have the arguments, and enough details to fry anybody’s brain, but they need to work on their pretty picture. This debate really needs to up its game, or it will be a very long 17 months.
* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings
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16 Comments
Guernsey? Jersey? Isle of Man?
All seem to manage OK as self-governing entities with a shared Head of State and currency union with the UK – not dissimilar to what Salmond wants surely?
Caron – the comments you quote from Danny Alexander might need more context, so I could be extrapolating wildly here, but it would seem to imply that he now thinks that the Euro is a fundamentally bad thing that the UK should steer well clear of. Or am I misreading something? If the Lib Dems are now Euro-sceptical then that’s quite a remarkable change of tack.
More generally I tend to agree with the SNP that this is all bogus. There are many formal/informal currency arrangements. You mention one. As another example, Ecuador has no domestic currency, it uses the US Dollar. The Swiss Franc has been (informally) pegged at €1.20 by the Swiss National Bank for the last few years. The Irish punt was tied to the UK pound sterling for many years before it was finally allowed to float (at which point it promptly dropped to 80p).
If an independent Scotland was to introduce the “poond” and tie it at the exchange rate 1:1 to GBP, who could stop them? Or indeed what would be the motivation in attempting to stop them?
Danny Alexander says:
“Why should we want to create the Eurozone in a broken up Britain when we could stick with the pound?”
But the SNP proposal IS that we (and they if they separate) should ‘stick with the pound’. The pound is surely as much theirs in Fife or Perthshire as it is the property of the people of Kent or Cornwall.
It was Lib Dems who insisted on an independent Bank of England. Isn’t it about time this body was properly renamed as the Independent Bank of BRITAIN? And still maintained independence from ANY government?
As for Guernsey, IOM, Jersey etc, let’s invade them and bring them under our direct control while we still can! 😉
‘Guernsey? Jersey? Isle of Man?’
Mmm, island tax havens with very small populations – just the model a forward-thinking Scotland should look to!
I find the SNP attitude amusingly childish. Imagine Salmond did get independence and it didn’t work out , he’d blame the English for that too.
Nationalists!
Hmm – remind me what yesterday was? St George’s Day – even though he was turkish and had nothing to do with England (apart from the crusades) – there must have been a better day in the year for the ‘better together’ campaign to patronise the Scots (again).
Is John Sharkey in charge of the ‘no’ campaign?
A currency board arrangement along the lines originally established by the Irish Free State should be achievable and in the trading interest of both Scotland and the UK i.e. a monetary authority which is required to maintain a fixed exchange rate with Sterling. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target. A currency board arrangement is different to and proposes to be more lasting than other forms of fixed exchange rate peg.
As the financial and fiscal system of a country matures, the apparent advantages of a currency board may eventually wear thin, and the flexibility of full-fledged central banking will seem seductive. Although any explicit indication that it will be temporary can fatally compromise the credibility of a currency board arrangement,a currency board is likely to be good as a transitional device.
The evolution of Irish monetary arrangements towards comprehensive central banking took place very gradually, and without losing the financial stability that the original pure currency board arrangement had established. Admittedly there were episodes of high inflation: the first imported from sterling, the second, in the early 1980s, a hangover from the fiscal recklessness of the late 1970s. But already by the late 1980s inflation was low, the currency was trading within sight of the old parity with the Sterling and exchange controls were being dismantled.
In the Ireland of the 1920s, the temptation to abandon sterling for political reasons was resisted. The currency system which the founders of the Irish State established, worked well for many decades. Indeed, the EMS crisis of 1992-93 evoked many wistful recollections of the stability of the old regime. This favourable experience helps explain Irish enthusiasm for retiring the Irish pound, and adopting the euro as Ireland’s currency from 1999.
Alexander wasn’t believing a word he said- what he did say made no sense- Scotland is not some foreign country- They will still be trading neighbours- If Scotland were to become so estranged Bank of England couldn’t do business with- Westminster would have to be demanding unresonable terms- Wouldn’t look good to the rest of the world- SNP are quite right to presuppose common sense will prevail- In the EU- UN- IMF and rUK- thats how business is done- Scotland will have oil and gas to trade with- It is more in the best interests of England to find a way to accommodate Scotlands neads- Otherwise England will be bankrupt- Staying in the Union is best for England not for Scotland- if it hadn’t oil and gas Westminster wouldn’t care- Scotland own the house- Osborn wan’ts all the furniture
I am glad that contributors above have brought in the experience of the Irish Free State (later Republic) here. It is an interesting thought that 3 Euro countries are former Sterling Area countries. (Ireland, Cyprus and Malta).
Slovakia, after the Velvet Divorce from Prague in the 1990s, also separated off it Crown currency, which fell slightly against the Czech crown, and then later entered the Euro. The Czech Republic retains its Crown. After an period of rising against sterling and Euro, it now tends to shadow the Euro, used by all its immediate neighbours, except Poland.
So there are many models an independent Scotland COULD follow. Continuing to use sterling requires continued co-operation with the Bank of England. In the pre-Punt days Irish state Sterling notes issued in Dublin by the Central Bank of Ireland promised to pay the Bearer on Demand in London!
The chart seems to be deliberately misleading. For instance, it asks what would the cost of government borrowing be and concludes it would be “higher” in all bar the “stay in the UK” scenario. That claim is nonsense as the cost of government borrowing is set by “the market” and is determined primarily by the faith the markets have in a government policies and its financial position.
Obviously, if Scotland mismanages its finances it will indeed pay a higher cost for government borrowing. Equally obviously if it manages its finances well and/or (equally likely) the remainder of the UK mismanages its finances, it could end up paying a lower cost for borrowing.
For instance, a quick glance at a list showing the cost of 10 year government bonds shows that 7 EU member states plus the Euro area as a whole can finance their borrowings cheaper than the UK with the risk-premium “crisis” level costs for many of the other member states dropping toward UK levels.
Alexander Rennie,
sorry your conclusions do not follow from your arguments.
“Scotland is not some foreign country” then it has no interest in becoming one.
“Scotland own the house” then Scots should pay for English furniture.
Once the Bank of England comes up with an estimate of how much of the UK national debt the Scottish should take on, and Alex Salmond agrees that I get a vote as to whether I agree with it.; then I will take these pronouncements seriously. Until then it is all a phoney war of words.
David
If you want to add further knotty problems that could arise if Scotland leaves the union, you could add how the debts of RBS and HBOS should be divided up. I’m not saying it’s insolvable, but would need to be the subject of discussions.
In Ireland in the early 1930s there was the Cattle War. After the Free State government restricted remittance of rents to English landlords, the UK retaliated by restricting remittances to Irish farmers and cattle dealers who had exported cattle to England.
The point here is that all the options are possible, but none of them are better for Scotland, than Scotland staying in the UK.
Sorry to digress, though, but I am really worried by the question of what the country that would comprise England, Wales and Northern Ireland could reasonably be called. EWNI? Yuk. South Britain perhaps.
“what the country that would comprise England, Wales and Northern Ireland could reasonably be called”
Oh, I don’t know – the “United Kingdom” perhaps? I’ve never yet heard a convincing reason why the remaining state would have to change its name. Let’s not sweat the small stuff…
Malcolm
The name United Kingdom dates from 1801, when the then Irish parliament was abolished and Irish MPs first came to Westminster. The full form was United Kingdom of Great Britain and Ireland. Then from 1921 United Kingdom of Great Britain and Northern Ireland, which is what it says on the front of British Citizens’ passports today. In Roman times “Britain” was roughly present England and Wales up to Hadrian’s wall. (And for a short time up to the Antonine wall!) So clearly the term needed for the UK without Scotland is “United Kingdom of Britain and Northern Ireland”.
KENIPOW. Kingdom of England & Northern Ireland; Principality of Wales.