Even if George Osborne is right about the problems of a currency union between an independent Scotland and the rest of the UK he possesses the uncanny knack of being right in such a disagreeable fashion that one’s loath to give him any credit at all.

Still, as an attack dog he has his uses and he has picked an interesting day – St George’s – to come to Scotland to noise up the Jocks. I don’t know if the SNP will mind this too much. The nationalist view, I think, is that people will concentrate more on Osborne’s manner than on the substance of what he is saying. This may be correct but it is also the case that it does remain possible for something to be said by George Osborne and still have some measure of truth.

Even so, the bank note question is a red herring. The problem for the SNP, I think, is that their currency position is so obviously a triumph of political expediency.

That’s the subject of this week’s Think Scotland column in which I argue:

In truth, there is a good deal of posturing from both sides. It would be in everyone’s interests for the currency arrangements after independence – if that day ever arrives – to be worked out sensibly, quietly and with the minimum of fuss. In other words, there is a difference between campaign rhetoric and what would likely happen in the aftermath of a Yes vote. In that respect, the Yes campaign’s accusation of Unionist “scaremongering” is not wholly at odds with reality.

And yet it is also the case that pointing out some of the difficulties inherent in unravelling a 300 year-old Union cannot always be so simply dismissed as “scaremongering”. These matters are complicated. Resolving them will not always be simple. Sometimes it may even be that some things in an independent Scotland might be less satisfactorily arranged than they are at present. To insist otherwise is, in the end, to retreat to childishness. This may be a comfortable place to live but it’s not good enough for a country that aspires to take its “full” place in the community of nations.

By my count, the SNP’s present desire for a “sterling zone” comprising, well, the rump UK, the Channel Islands, the Isle of Man and Scotland is the third currency position the party has adopted in the past twenty-five years. This is not in itself evidence it’s a foolish preference. It may be that, having exhausted all alternatives, the SNP has inadvertently, or perhaps reluctantly, stumbled upon the least bad option available to an independent Scotland. Nationalists say a currency union is a sensible response to changing economic circumstances and perhaps they are right.

It might, however, be more accurate to say that their support for a sterling zone is a hasty response to changing political circumstances. This is hardly shameful, but nor is it quite the principled stand the party would have us believe. Expediency has its uses but let’s not sing its praises too fondly.

[...] The currency question has long been a problem for the nationalists. At various points in recent political memory, the nationalists have favoured an independent Scottish pound, been enthusiastic cheerleaders for the euro and now, for the time being, have settled on retaining sterling as the answer to Scotland’s currency dilemma. And it is a dilemma. For any number of reasons none of these three options have proven politically and economically plausible. Consequently the party is forced on the defensive and tasked with making the best case for a sub-optimal policy.

[...] Now perhaps currency unions can work even without political union but the eurozone has not yet made that case and, indeed, deeper political integration seems the outcome most likely to emerge from the present crisis. At which point, of course, even a nationalist Napoleon (the pig, not the emperor) might look from the UK to the EU and wonder which was which.

Of course, there would be differences. An independent Scotland would have a “seat at the table” (and a place in the United Nations). Nevertheless its independence would be severely qualified and restricted in ways that, even making allowances for the inter-dependence of the globalised world, would end up compromising the very goal the SNP had fought so long for.

So you can see why, what with the eurozone looking pretty ropey these days, the party needed to reverse ferret pretty quickly.

[...] There are sensible reasons for this reappraisal. A separate Scottish currency bobbing about alone on the international markets might be a vulnerable thing, liable to be buffeted by the economic weather. Meanwhile the euro is, at least for the time being, politically impossible. So a Third Way needed to be found. Hence the suggestion that Scotland will keep the pound even if the Bank of England might prefer us not to.

[...] Of course there would be costs to an independent Scotch pound just as there would be costs to joining the euro. It is silly to deny these even if it is also silly for Unionists to suppose that these costs must necessarily prove prohibitive. But it is also, and more seriously, silly for nationalists to suppose there are no costs to a sterling union either.

At the very least remaining subject to the Bank of England must diminish Scotland’s real independence. This is so even if you accept that Scottish contributions to sterling’s balance of payments might prove useful. Even if the terms and conditions of a currency union are worked out, it remains hard to see how Scotland would have significantly more control over monetary policy than it does now. The Scots voice might, in the best case scenario, be heard but it will rarely if ever prove decisive.

Nationalists may ask – not altogether unreasonably – how this differs from the present arrangements. But it does so in at least one key respect. Scotland is a full part of the United Kingdom. Independence within a sterling zone would in some ways make Scotland a ward of the remaining parts of the United Kingdom. There would be the appearance of independence but in actual fact the purse-strings would be tightly controlled and Scotland’s actual independence would be severely constrained.

You might still think that preferable to the present situation. Be that as it may, it is a queer kind of independence that leaves another country effectively in charge of such a large part of the political and economic machinery.

The problem for the SNP, I think, is not so much that its currency proposals are unworkable (they may not be!) but that they compromise the nationalist’s core message. That is to say that the SNP spends so much time falling back to freshly dug defensive positions that it is in danger of conceding so much ground to Unionists that one begins to wonder just what the nationalists will not sacrifice in their pursuit of a victory – the worth of which must be diluted by the concessions they are making. Independence on these terms may be achievable but is it either necessary or sufficient? This, not the details of economic policy, is the uncertainty that damages the SNP.

Whole thing here. Avoiding exchange controls at Gretna and Coldstream is fine but it does not end the problem, it merely swaps it for another one.

 

Tags: british politics, Currency, Eurozone, George Osborne, Scotland, Scottish independence, sterling