Tuesday, 26 August 2014

Why Is Alex Salmond Against Scottish Independence?


In 3 weeks, on 18th September, people in Scotland will vote to decide whether to stay in the United Kingdom or leave the union and create an independent Scotland. One of the biggest questions is about currency - should Scotland keep the Pound, have its own new currency, join the Euro, or something else? I want to say a few things on that specific point.

The Scottish National Party's plan is to remain in a currency union with the rest of the United Kingdom, sticking with the Pound Sterling issued in London. Alex Salmond has been pressed for a "Plan B" in case that isn't possible, for instance if Westminster refuses to join a formal currency union. There has been furious debate about this Plan B, but I think the focus should be on Plan A because it's barmy. 

Plan A is the situation we see in the EU with the euro - 18 countries in the eurozone are part of a currency union but (in theory) not in a political union. What's the result? Economic chaos, massive arguments about who's liable for the debt, endless calls for bailouts, stern demands for countries to control their spending, and in the background the quiet hum of officials building a political union. 

If countries are going to share a currency, they have to stick their noses into each others' domestic politics. Countries can't be allowed to run up deficits nor be allowed to let their debts grow too large, because of the risk that other countries in the union will have to bail them out. That's why the EU set up the Growth and Stability Pact, which didn't work, then the Fiscal Compact, which tries to do the same thing but with a bigger stick. It's too early to say whether that's working, but right now 22 out of 28 EU countries fail the criteria.

If Scotland wants a fiscal union with the rest of the UK, we're going to face exactly the same problems. So leaving aside whether Westminster would agree to it, why would pro-independence Scots want it? 

Just as the eurozone is dragging the EU towards political union, so Scotland would be dragged back into de facto political union with the rest of the UK, in order to manage these questions about spending and borrowing. Given the unequal sizes of Scotland and "rest of UK", it would basically come down to Westminster telling Scotland how much it can spend and borrow. It could probably be made to work, but it wouldn't be Scottish independence. If we've learnt anything from the euro crisis it's that if countries share a currency, they are bound together by spending, borrowing and debt so they aren't really independent.

Anyone who wants Scottish independence should also be calling for an independent Scottish currency. You could call it the Pound, but it would need to be independent from the Pound Sterling with a floating exchange rate and Scotland would then need to issue its own debt in that new currency. Just as the USA, Australia, Canada, and New Zealand all use independent currencies called the Dollar, an independent Scotland should have an independent Pound. 

Any plan for Scottish independence in which it shares someone else's currency, whether it's the Pound, or the Euro, is independence in name only. Plastic separatism. So the interesting question isn't why Salmond hasn't spelled out a Plan B, it's why Salmond's Plan A involves keeping Scotland tied into a union with the rest of the UK. I thought he wanted independence.

2 comments:

  1. Why the heck would Parliament allow Scotland to use the pound after they've voted to break the Union? Ridiculous. Ingrates.

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  2. Hello Anonymous, thanks for your comment. I agree, the rest of the UK wouldn't want to create a currency union with an independent Scotland - it would mean taking on a lot of potential risk for no benefit. But my point here is that an independent Scotland shouldn't want a currency union either. That's what makes it so odd that this is "Plan A".

    One of the big arguments for Scottish independence is that Scotland could end the so-called austerity imposed by London and instead run a bigger deficit to stimulate its economy. Leaving aside whether that's a good idea, it would be impossible if Scotland were in a currency union with the rest of the UK because there would have to be agreed limits on borrowing, and (given the relative sizes) these would be controlled more by London than Edinburgh.

    Just as the euro currency union has rules to control borrowing and spending in member states - and it was governments ignoring these rules that landed the Eurozone in the mess it's in, so you can't choose not to have them.

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