WARNING - LONG POST. Someone has asked me about my position on the currency question. Dont worry Im not getting ideas above my station, or imagining myself an economist or expert who can pontificate on this. I am simply going to state my position as a fairly well informed voter on how I call this, which has been one of the most difficult issues before the YES campaign, as I prepare to cast my own vote. The first thing to remember is that the currency question was deliberately set as a man-trap, a political spoiler designed early on by the unionist parties in concert to block a YES vote. In the context of a UK government insistence that there would be no pre-negotiations on any aspect of independence, the one aspect which they were willing to pre-negotiate (actually there was no negotiation just an ultimatum) and to draw the Governor of the Bank of England into (Ive been asking for a long time why it is still called that, perhaps now we know) was the currency and it was set up as a political spoiler. Imagine for a second, that a more positive approach had been taken and various options had been explored positively in advance. [UK Govt: We dont want you to go, but we want to avoid market uncertainty and any appearance of bullying or coercion, so we will have provisional talks, involving the Governor of the Bank of ENGLAND, and John Swinney on the minimum conditions you would have to meet for a Currency Union. You will find that these are demanding conditions.] I know, I know, but just go with it for now.. At present, the option of a Currency Union has been given very little precise definition - all reports of comments on it cut straight to the so its incompatible with sovereignty and you couldnt therefore be independent duh. Again a clear political tactic to cut straight to the headline put down and scare. Why could and should there be a Currency Union and why would a YES voter (and SNP member) like myself accept it? Equal top of the list are psychological and cultural reasons and reasons linked to economic stability. Lots of us in Scotland are worried about what we are contemplating. We want to change what needs to be changed, but to keep as much continuity as possible because it will be easier, more co-operative and more reassuring. So the psychological reassurance of keeping the pound is a huge gain for YES and NO voters. However this works both ways. I dont know anyone in England, Wales or Nothern Ireland who would prefer to have to use another currency when coming to Scotland. If we can do it, its a win-win psychologically and culturally for us all. Secondly, in terms of economic stability, it will help a fledgling independent Scotland to get a good start if it has a strong and stable currency, and it will reassure markets and financial institutions, if there is a lender of last resort. But is this just wholly one sided - wanting to have our cake and eat it? I suggest it is not. It will be better for England for 4 reasons: It will help businesses on all sides of the borders if there are no transaction costs or currency differentials. It will help England/rUK to have a stronger currency if the oil receipts continue to be recognised in sterling in the balance of payments figures which lie behind a sterling zone. It will help England/rUK if Scotland takes on its full share of the debt It will help England/rUK if Sotland leaves its £15billion share of UK reserves (Mark Carneys figure to Treasury Select Committee yesterday, confirmed by Tory Andrew Tyrie today) in a currency related common reserve rather than taking them away to create its own reserve to back a Sterlingisation regime or its own new currency. Overall England has a strong interest in Scotlands economy performing well because it then becomes a bigger market for English goods and services (this is the background to the UK helping to bail out Irish banks in 2008/9 - they acted as if they were lenders of last resort even though they werent - go figure!) [But there would be a price in terms of autonomy wouldnt there and the EURO proves that all currency unions dont work?] The answer to the first question is of course there would. YES campaigners are not stupid or in denial about this - they understand that signing up to a British Currency Union (membership of which might also conceivably be offered to Ireland if it wished or needed to exit the Euro at any point in the future) would involve restrictions and conditions. This would always have been expected. The problem is in how it has been scornfully spun - A Ha! Got You Scotland! So you wouldnt really have independence after all - England would dictate everything to you under a Currency Union!!! If we step back for a moment and actually ask exactly how it would work and what conditions rUK might want to impose, so there is no additional risk to them, then we could have a serious conversation. Based on the EURO experience, the key thing is that there would have to be agreed ranges for the kind of deficits which could be run. So limits on borrowing would be part of the deal otherwise a heavily indebted Scottish economy could put rUK at risk. The same is true for countries in the Eurozone, though nobody says they are not sovereign or independent. In the 21st century, all states work with degrees of independence and interdependence. The problem with the Eurozone has a lot to do with its size and the enormous disparity between different economies in terms of what value of currency suits them and what levels of debt they want or need to run. My understanding is that in a smaller, simpler union between two countries whose economies are much more closely aligned and integrated to begin with, if we agree ranges for the deficits we both run, we have no reason to fear that we will become another Euro. And Scotland is left with a very significant amount of additional independence. So long as it does not run up deficits beyond what is agreed, it can set all of its own tax rates and regimes and it can decide on all of its own public spending. It can raise or lower income tax and corporation tax - although to avoid disabling competition it might again agree a range within which these can be varied. The constant attacks on the 3% C Tax cut are overdone I think - given the importance of Europe as a market and the additional costs of transport between Dundee or Paisley and Spain, as opposed to the South of England, why should Scotland not be able to take some steps to reduce costs for some businesses who might set up here, but which would worry about additional transport costs to European markets? It would be the same as reducing business rates in part of a city, to encourage businesses back into an area of urban regeneration. How would this be overseen? Again pro YES folk understand that Scotland would be the smaller partner. So you would create a Currency Union Board, like the current MPC, or the ECB governors, which was in charge of setting interest rates and deficit limits across the currency zone, in consultation with governments. Membership would be weighted e.g. according to GDP of the countries? but England would have a clear majority. It would make little sense not to have a minority of Scottish reps (and Welsh? NI?). So Scotland would be at the table - England would be able to dictate on some things, but it might not always work like that and (hawks, doves etc on both sides?) the aim would be consensus where possible. Worse off than we are now? Well we are outnumbered heavily in the House of Commons by the same kind of ratio already, due to the large majority of English MPs. So on all these questions, there is already weighted voting. This way we get to keep our independence on fiscal issues (within those limits) as well as on defence and foreign policy. Thats my sense of how it could work anyway. And does it tie Scotland for ever to a neo-liberal economic policy? Only if you assume that any more socially just policies will depend on ultra high deficit budgets. So long as you can make your economy work and keep debt under control, if you can persuade people to vote for them (higher taxes perhaps), you can introduce policies which move steadily towards a fairer society. (Norway, Denmark etc.) Happy to hear comments, corrections, questions and objections - although I reserve the right today to delete comments which I think are grossly unfair or uncivil to YES. You can post them on your own page.
Posted on: Thu, 11 Sep 2014 13:48:27 +0000
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