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Blogs Coffee House

George Osborne gives Alex Salmond a lesson in power politics

12 February 2014

3:26 PM

12 February 2014

3:26 PM

Politics is about power. It is surprising how often this is forgotten. Power and the application of power. Sure, there’s policy too and noble aspiration and all that happy-clappy stuff but, in the end, politics is a question of who gets to wield the big stick. Lyndon Johnson knew this; so does George Osborne.

In the long and sometimes unhappy history of these islands that has more often than not meant power has resided with the English. As Osborne is reminding us, it still does.

Osborne, who has little to lose in the popularity stakes north of the border, is being quite brutal. The idea, much insisted upon by Alex Salmond, that an independent Scotland could enter a currency union with the remaining parts of the United Kingdom is fanciful. Poppycock. Daft. Not happening.

This is not merely Osborne’s view but that of Ed Balls too. (And, for that matter, the opinion of many of the country’s more respected economic commentators.)

The Scottish government’s response? Whining, chiefly. According to a government spokeswoman:

“This is nothing more than an attempt by the Westminster establishment to bully Scotland, now that they have started to lose the argument on independence.

“It is a sign of panic that will backfire badly.”

This is humiliating stuff. Scotland, poor wee Scotland, being bullied? And all because the nasty English won’t play ball or agree to the rules imposed upon them by Alex Salmond. Come off it. Nowhere does it say that Mr Salmond or even Scotland has the sole right to determine the outcome of post-independence negotiations. The other party has a right to its opinion too.

So the other ploy is to pretend that Osborne and Balls don’t really believe what they are saying. You see, according to the Scottish government:

 “No one will credibly believe these threats.

“People know that the Westminster establishment will say one thing before the referendum but behave far more rationally after a yes vote when it’s self interest will lie in agreeing a currency union with Scotland.”

[Alt-Text]


Oh really? Those lying bastards –  who hate Scotland and have it in for us, remember – are lying now but will change their mind – and do everything to accommodate us – after we’ve put them to the sword on referendum day. Because, well, because obviously it will be in their interests to do so.

But what if their estimation of their own best interests differs from yours? What will you do then, Jock? Well, we’ll cock a snook at them and adopt sterling anyway. It’s our currency too, you know. And we’ll no’ be taking on any share of the national debt either. See how they like that. 

Which is fine. An independent Scotland could take that approach. It is worth observing, however, that this is hardly a risk-free alternative. There are, after all, reasons, why the Scottish government has rejected an informal sterling zone in which Scotland simply adopts sterling in the same manner as Montenegro uses the euro.

Over to Ronald MacDonald, Adam Smith Professor of Political Economy at Glasgow University:

It seems the Scottish Government’s response to not being allowed to participate in a formal sterling zone, which as we have shown would actually be ruinous for an independent Scotland, is to say that it would not accept responsibility of its fair share of rUK liabilities and particularly its fair share of UK public debt. Presumably in that case it would not be given the share of assets relating to the sterling monetary union, such as, crucially, its share of the foreign exchange reserves held at the Bank of England. How then would they be able to operate a sensible foreign exchange rate policy absent foreign exchange reserves? Where would these come from? Perhaps the answer would be by borrowing from foreign countries.

But who is going to lend to a country where its political leader has already said that it is going to renege on a substantial and significant portion of its debt? Such a statement means that an independent Scotland would only be able to borrow on international capital markets at penal interest rates – if at all – with the consequences that that would have for an independent Scotland’s fiscal deficit, public spending and taxes. One wonders how the Icelandic public feel about the governments of both the UK and the Netherlands currently seeking reneged debt that amounts to about around two thirds of Iceland’s GDP. And of course Argentina is still being pursued in international courts for debt it reneged on many years ago and is highly restricted in what it can borrow in international capital markets. The unpleasant arithmetic of reneging on ones share of debt is it seems long lasting and profound in terms of its economic consequences.

Aye. These are rather more than technical fripperies. What happens if England says no is, whether we like it or not, an important and awkward question.

So is Osborne sowing fear in Scotland today? To an extent, yes. He is reminding Scots where power really lies. This is annoying, even exasperating and the kind of thing that stirs the blood, but it is also an unfortunate reminder of the way things are.

Because the obvious truth is that Scotland would have much more to lose from post-independence negotiations than would the rest of the UK. (Yes, yes, yes: oil and balance of payments and submarines. Not enough, old boy.) That is, the downside to negotiations going badly is vastly greater for Scotland than for the rump UK. Scotland’s position is relatively weaker.

I would hope that common sense and good will would, more often than not, prevail. It would indeed be in both party’s interests to reach sensible accords on any number of matters (pensions, for instance). But common sense and good will may not always be enough.

Moreover, the Scottish government’s expectation that, having been rejected by the Scots, the rest of the UK will, far from smarting at this rejection, do everything they can to help the Scots on their way out the door is, shall we say, an expectation that defies the accumulated evidence of a million marriage break-ups.

Perhaps this divorce would be different. We should hope so. But it seems odd that the SNP think a Westminster establishment incorrigibly hostile to Scotland will suddenly accede to Scottish demands after independence. Perhaps they would! But I would not wish to wager too much on that proposition.

So, yes, this demonstration of power – or reminder of the reality that a currency union is not Scotland’s to guarantee any more than Dublin could, hypothetically speaking, promise the Irish people it would be welcome in a sterling zone – is designed to sow uncertainty and apprehension. Not just on the currency question but, implicitly, in other areas too.

That is: if the Scottish government’s promises on something like the currency unravel how much value should be granted to their other commitments? Could it really all be as easy as they suggest or might it just be more complicated than they suggest?

This is the problem with elephants. Even the nicest of them can squash you.

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