A break with sterling?

 

Scotland’s independence debate is not really about casting it adrift to run its own affairs, but, in an age of interdependence, about how many ties it should retain to the UK and what form such curbs on its sovereignty should take. In part that’s about the SNP reassuring the wavering middle ground over retaining precious things like the Queen and, in part, it’s a pragmatic acceptance that Scotland depends on its trading and open borders.

Given the importance of its trade with the rest of the UK – Scotland is the latter’s second most important trading partner – the maintenance of a currency union and sterling is crucial even if that means accepting that the Bank of England will want to impose budgetary disciplines in the same way that Brussels is now keeping its eye on our own budgets. The SNP puts the cost to business of creating and using a new Scottish currency at some £500 million in bureaucracy and transaction costs.

But it takes two to tango, and the message from London from all three unionist parties, is a definite No. They say they will not entertain, in whatever shape the next government emerges, a currency union in which Scotland’s economy, as they see it, gets a free ride on the back of sterling and in which Scottish politicians get even a marginal influence over UK budget policy . Guarantee Scottish banks? Act as lender of last resort? Bail out a potentially fiscally irresponsible Scotland? And in return for what? No way. You want to go it alone, they ask? Stand on your own feet. Don’t expect handouts.

The London argument, crafted by the Treasury’s top official, Sir Nicholas Macpherson, is based on a critique of the euro and its failings, precisely because it has not gone far enough in integrating EU economies. It’s a familiar case made more usually from Berlin, and strange emanating from eurosceptical London. It sets out four key requirements if there was to be a currency union with an independent Scotland: a banking union, sharing of fiscal risks, both countries having the same monetary and exchange rate policy, and that such a deal be permanent. Chancellor George Osbourne bluntly warns that “the logic of a currency union would mean that Scotland would have to give up sovereignty over spending and tax decisions”. A pooling of fiscal resources with the UK similar to the US (26 per cent of GDP), for example, would see Scotland sharing some £31 billion of its tax take every year. That prospect would be unpalatable to both sides.

But London is positing a false choice – the fraught idea of a “currency union-max” stands only at the far end of a range of workable possibilities for Scotland, from continuing to use sterling without any role in its governance – as Ireland did from 1922 for 57 years – to the sort of complex fiscal, monetary and political union currently beyond reach for even euro-enthusiasts. Scottish voters should not be fooled.

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