Newton Emerson: Will a return to the pound be the price of Irish unity?
As in Scotland, nationalists can win that vote if they persuade a relatively small chunk of the electorate that their money is safe
In the past month, the euro has varied against the pound by 13.2 per cent. The exchange rate is the real hard border. Photograph: Paul Faith/AFP/Getty Images
There is agreement across Scottish nationalism and unionism that the 2014 independence bid was lost on the currency question. The SNP had proposed a “shared pound” – that is, continuing to use sterling with UK treasury co-operation. When the treasury demurred, the SNP threatened to press on without its permission. A critical chunk of the electorate found this alarming or implausible.
So, for the next independence referendum, the SNP will have a proper plan. It has commissioned a review that will reportedly ditch the shared pound for a new Scottish pound, pegged rigidly to sterling by an independent Hong Kong- style currency board.
The exchange rate will be one to one to preserve the value of current assets and facilitate cross-border transactions. This will offer stability to individuals and businesses, but it will also require honesty with voters. Maintaining a fixed exchange rate means balancing the books, which in Scotland will mean sharp tax rises, spending cuts or both.
Cleverly, this approach does not require honesty with Brussels. Joining the EU is supposed to mean joining the euro, but there is no penalty for a country that deliberately fails to meet the convergence criteria, as Sweden has chosen not to do since 2003.
“Swedish liar” will probably not be joining “reverse Greenland” in the SNP’s Scandinavian lexicon. However, with some careful presentation, the Scottish pound could be pitched as a currency that solves related questions of EU membership and economic sovereignty – two other issues that did the nationalists no favours in 2014.
Rigidly fixed exchange rates are normally associated with micro-states shadowing the US dollar or the euro. A Scottish currency board would need huge sterling reserves to make its peg robust: roughly £50 billion (€59.6 billion), about a third of the new country’s GDP.
Poundzone BritainMuch of the credibility of this arrangement comes from the unusually large and enduring example of Hong Kong, which has maintained a dollar peg since 1983. That system was designed by a Scottish economist, John Greenwood, who has given his blessing to a Caledonian version. Should any of this come to pass, the island of Britain would become a “poundzone”, or poundland, as it would inevitably be called.
What, then, for the island of Ireland?
It is intriguing that the currency question has not arisen here pre-Brexit, at least in all-Ireland terms. The only two practical manifestations of crossing the Border today are a roaming mobile phone signal and the need to change money. The former has provoked vigorous campaigning all the way to Brussels; the latter never seems to enter public debate, despite being a far more significant nuisance.
Even normal currency fluctuations swamp the savings from the EU single market, which has a weighted average external tariff of 6.7 per cent. In the past month, the euro has varied against the pound by 13.2 per cent. The exchange rate is the real hard border.
Brussels has policies to make international banking simpler, faster and cheaper within the EU. But it struggles to enforce them, and nobody in Ireland seems to care, happily paying enormous fees to move cheques between branches of the same banking brand in Belfast and Dublin. In fact, moving money across the Border has only become more awkward since 1979, when Ireland dropped out of a previous poundland.
As the SNP’s currency plans were leaking last weekend, Micheál Martin was telling the MacGill Summer School of his hope that Brexit will lead to a referendum on a united Ireland.
As in Scotland, nationalists could win that vote if they persuade a relatively small chunk of the electorate that their money is safe. Is “come and join us in the euro zone” the best way to make that case?
Euro zone appealUnder the Belfast Agreement, a majority for Irish unity must be secured separately in the North. For those not in the euro zone, membership is not an attractive prospect; the SNP considers it political poison.
Might joining Scotland in a new poundland be more appealing overall, to North and South alike? Or if the South cannot be persuaded, should unity trump its objection?
Even if the answer to these questions presently seems to be no, so much could change drastically in the years before a Border poll takes place that it is wise to prepare plans for different options.
The Republic of Ireland would be an EU “continuing state” in the event of a united Ireland, and there is no Article 50-type mechanism to leave the euro. That also means there is no mechanism to prevent it. Like Scotland departing the UK, you print your own banknotes and go.
If nationalist Ireland is as serious as nationalist Scotland, perhaps there will be some proposals.