George Kerevan has an excellent article in The Scotsman today asking the following:
"CAN a country be politically independent yet still use the currency of another nation? And, if so, what limitation does this place on the economic policy of the new state?"
For me they are fairly easy questions to answer, almost to the point where the issue of Scotland's currency after independence is something of a red herring for debate.
Can Scotland continue to use the pound after independence?Yes, of course it can. There are no reasonable objections that could be raised as far as I can see.
Scotland keeps the pound forming a 'British zone' similar to that of Euro zone but it is effectively the status quo with Scotland accepting rUK interest rates in the short term before a referendum on joining the Euro could be held. Consequently, to answer the second question, there would be no limitations on Scotland's economic policy. Or it would at least be no more limited than it currently is.
A referendum on the Euro would almost certainly pass and then we're off on our own, an equal partner in Europe.
I do find it odd that Lithuania, Slovakia, Portugal and all the other smallish Eurozone countries can come to a beneficial arrangement that many in the UK balk at.
Similar to the non-sensical suggestion that independence would mean border checkpoints and difficulties in seeing your auntie in England, we have to separate the important considerations from the insignificant ones, something that Mr Kerevan has done an excellent job of today.
Carla in bronze
36 seconds ago
20 comments:
If we join the € then we agree to a common fiscal policy and have a seat at the board.
If we stay with the £ we have no say in interest rate policy and are constrained in our ability to borrow and spend. We would basically be competing with the UK to borrow £s from the market.
So we can choose between joining a currency that will complicate trading with our biggest trading partner - never mind all the people who work in Scottish Branches of UK organisations - or having no say in our fiscal policy.
These issues are utterly at the core of the independence argument. It is yet another of the issues that would need to be aired in a referendum, and would inevitably point out how weak the economic case for independence is.
Lithuania, Slovakia and Portugal joined the Euro at thse same time as their major trading partners. For them there was a clear benefit in doing so as it reduced costs and barriers.
As the UK looks highly unlikely to join the Euro, which it ought to do, then it becomes a much more difficult decision for Scotland.
Neither of the two choices is as stable as the status quo. Neither choice makes independence impossible: it merely burst a hole in many of the supposed advantages e.g. higher public spending
Tiny things matter to people, so I think questions like "will I need a passport to cross the border?" are valid enough, but it's very simple to answer "of course not, just like you don't need a passport to cross the Irish border" and they'll be satisfied. I think it's much more important to concentrate on eradicating the complete red herring questions and downright lies, like "Scotland is too poor to be independent" (even though all the Balkan and former Soviet states have managed just fine) and "but we'll have less of a say in the EU" (even though countries of similar populations to ours have 12-13 MEPs compared to our seven MEPs).
Fine points Tar, I would suggest Scotland adopting the Euro would open more doors than it would close. English companies will largely pay for goods in any currency if they get a satisfactory enough service and any drop off would be covered by exposure to new markets.
Anyway, for me the UK joining the Euro is long overdue with the harmonisation of economic policy being one of the EU's greatest success stories.
I'd bet UK adopts the Euro before Scotland is independent which would your fine points moot.
To be honest, I'd be just as happy if we joined the Euro or setup a Scottish Pound. There are arguments on both sides of the table for that.
Keeping the rUK round long-term is obviously not a good idea, since we'd be hostage to English bankers, which is kinda why we want independence in the first place…
In the short term it wouldn't be a problem though, but I'd say Euro is probably the better of the two options going forward.
A Scottish Pound would give us a great deal of flexibility but would lack long-term stability. What might be best would be to switch to a Scottish pound ASAP, then slowly transition to the Euro over the space of 5-6 years, since it'd take a few years after independence to stabilise everything, since independence would cause a lot of flux…
Merry Christmas, Happy Yule etc. to everyone btw.
"A referendum on the Euro would almost certainly pass and then we're off on our own, an equal partner in Europe."
No, we will not be an equal partner in Europe. We will be one of the small fry with far less influence than we have now, either as part of the UK or within Europe. And I would be surprised if a referendum on the Euro was passed easily, for a party that bangs on about our national identity and independence to advocate taking away our currency and the very independence we hold now is a total mystery to me.
That is why I think that the SNP are selling a false prospectus on Independence. That is why I will never be able to vote SNP. To me true independence is just that, not becoming another minor dot in the EU map. At least right now we have a more powerful hand to play both in the UK, and as a part of it in the EU.
This is the SNP's single biggest weakness in their arguments and policy on the issue of Independence, and one that will be exploited by the other parties.
Fitalass-
Your argument about an independent Scotland having no influence would only hold true if it could be demonstrated that Scotland did hold great influence in the UK and that this was deployed effectively in the EU. Find me a fisherman that says this is the case - all too often, the Scotish dimension across a range of policy areas is either overruled or just plain overlooked. When Scottish and wider UK interests don't coincide, there's only one winner, and it isn't Scotland.
If you have a seat at the Council of Ministers, you have a direct voice, and are free to build alliances in your own interest. The idea that independent Denmark or Austria has less influence in the EU than devolved Scotland within the UK is just nonsensical, I'm afraid.
The SNP isn't arguing to win powers from London to hand them over to Brussels - it's arguing for Scotland to have the same top table status as every other member state. If an independent Scotland in the EU isn't 'independent' in your view, then neither can be the UK presently.
You can't have it both ways.
I always love it when either Indy or Richard Thomson comment.
They must give the Unionists nightmares.
Richard Thomson v Fitalass
Game,set and match to Richard :-)
What about Edinburgh as a financial centre?
Edinburgh has made a living out of being a satellite to the City in London. At present we can attract financial companies that want to do business with London, not just though being marginally cheaper and a short flight away in the same time zone but also because we share the same currency and economic conditions as London. This is even more relevant in the aftermath of the financial crisis where Scottish institutions are now tied into London.
If an independent Scotland has a different currency to London, (I can't see the UK joining the Euro any time soon), what effect would that have on Edinburgh? What advantage would Edinburgh now have over other financial centres in Europe?
Hilarious Hootsmon propaganda!
They say we have no control over interest rates and so could do nothing about inflation.
Mervin King has printed hundreds of billions of pounds which will cause serious inflation and he won't be able to do anything about it because putting up interest rates will not leave any money left from the budget for public services.
By keeping interest rates low high street banks have borrowed hundreds of billions/trillions. This is is inflationary madness.
Yet we allow this madman to talk down to us on the subject of inflation? His policy is that of the Weimar Republic.
Scotland needs to be in the position to get out of the pound rapidly. Under the Union we are supposed to have our own mint. It's time we moved towards building institutions which can issue currency and credit.
When the inflation hits we need a plan B!
Mervin Shmervin!
Anonymous @3.46pm
What advantage would Edinburgh now have over other financial centres in Europe?
It would be an English speaking city, with a workforce experienced in financial services, inside the Eurozone.
I think you do a huge disservice to Edinburgh's financial base, by just comparing it to a mere by-product of the City. A comparative advantage - particularly in Life Assurance and banking - was built up long before the Casino Capitalism and Big Bang of 1986.
English speaking seems to be less of advantage these days considering the vast numbers of graduates from around the world who can all speak English.
I agree we have a strong base in Edinburgh. But it is predominately based around Scottish institutions.
I was thinking in terms of expansion by attracting foreign institutions seeking a presence near London/EU. At the moment, we can present ourselves as an alternative to London if you want a presence in the UK/Sterling - because we are biggest alternative.
But if we join the Eurozone, we lose some of the advantage of being close to London while on the hand facing greater competition for Eurozone business from Zurich, Geneva, Paris, Amsterdam, Dublin and so on. Dublin had a similar issue with Sterling trade when we backed out of joining the Euro.
Would a pre-credit crunch RBS (i.e. at its might and with previous independence) have been able to justify being based in Edinburgh if Scotland had the Euro v London and Sterling?
Dublin has a large financial services industry, and is in the Euro. But its not a good time to mention that because its a millstone for them too just now. So the Edinburgh Satellite argument is debunked.
If we had our own currency, the value of it would be inflated by Oil. That is why Norway is so damned expensive. We would have even less industry left if we had our own currency. Of a peg to the Euro or to Sterling, they both have merits, but the Euro at least lets us have some say at the ECB. It will eventually be England's currency too. I am glad I don't have to choose, but the worst option is our own currency. Between the other two? Our future is likely in Europe.
We would have disciplines imposed upon us by the ECB too. I know countries like Greece cheat, but I suspect that the price extracted to rescue them shortly will be that they toe the line forever after. It is maybe a factor in favour of independence that fiscal policy is abrogated to the Bundesbank rather that the Labour idiot maffia that many people fear the post independent government of Scotland may descend into.
Join Schengen and we only need passports to go to England. I wonder why England resists Schengen, since they don't appear to have much control over their borders outside it anyway.
Well of course we could us the English (as it would then be). We could use the Swiss Franc if we wished & it would be more stable. However one SNP complaint has always been that UK finance policy has been to London centric & it seems a strange justification of "independence" that we shopuld be handing over one of our economic levers to a foreign country (though I grant no stranger than saying we will depend on thet country to kep our lights on).
As to whether a referendum would go for the Euro - it would depend on whether it was Hobson's choice. Seeing how well Norway has done outside the EU & seeing how much our fishermen would benefit there must be some doubt whether the people of Scotland actually agree with the SNP's anti-independence from the EU stance at all.
Richard T,
Show me a fisherman anywhere in the UK or even Europe who is satisfied with the common fisheries policy? Other than leaving the EU altogether, there is not much we can do about it either within or outwith the UK.
The main issue here is control over currency. If Scotland were to choose to join someone else's currency (either the £ or the €) then we would have to stick to someone else's spending and borrowing plans. This could either be done as part of the Euro criteria or we would have to shadow UK borrowing and public spending in order to be able to borrow at the same interest rates as the UK.
If we stayed in the £, I can't see how we would get by without a central bank or effectively a shadow Scottish £ that we would need to spend a lot of time maintaining parity with the UK pound. Our dependency on oil and whisky as foreign currency earners would mean that our currency would have a lot of pressure to fluctuate both ways against the UK Pound.
If we could simply make the UK pound our currency without a central bank and with no control over public spending and borrowing then some of the difficulties I outlined above would disappear. However we would be in a worse situation than now as we would have absolutely no say in these matters, as opposed to being part of an overall UK average.
Tarantella,
It is possible to continue to use Sterling post-independence without having to establish a 'shadow' currency. For info, each member state within the Eurozone retains a central bank, which reports to the ECB and has responsibility for oversight of financial regulation, domestic price stability etc.
It's debatable how much regard is taken of Scottish economic conditions when determining UK interest rates at present anyway - think Eddie George's notorious comment that unemplopyment in the north was a price worth paying to control inflation in the south.
However, as I think Mr Kerevan argued in the original article, the Bank of England would be an asset to be divided upon Independence, and as such, a Scottish Government could expect to have pro-rata influence on the board of the BoE.
I'd be happy to swap our present status of a parliament funded by block grant and a Scottish seat on the MPC, for a 10% stake in the BoE and maximised control over Scottish taxation and public spending.
Scotland is about 8% of UK population & maybe 7.5% of GNP so I doubt we would get more of a role in the BofE, particularly when it would be us not England that would be asking.
Being stuck in the Euro has turned out to be pretty disasterous for the small under-performing countries like Ireland and Greece, etc.
I think the SNP's previous Pollyana-ish attitude to joining the Euro is no longer going to sell with voters.
As an Edinburgh-based employee of an English-based company I'd be very wary of Scotland joining the Euro and introducing my bosses to the hassle and complexity of exchange rates, or me to the a randomly fluctuating pay packet.
I am sure we would have to use the English pound for the foreseeable future.
Ans swapping a notional partial control of our interest rates for complete lack of control... an interesting idea for sure...
I'm not sure by what definition Ireland is an "underperforming" country. It has gone from 60% of our per capita GNP to 140% & is now down to about 135% purely because we are borowing 12.55 of GNP to fake prosperity & they aren't.
However you are right that the fact their currency can't fall as ours is has done them considerable damage & would do an independent Scotland much more since we are so much depedent on a busted financial sector.
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