Given that the Bank of England was set up by a Scot, Alex Salmond may expect that an independent Scotland would be automatically eligible to use the pound. Not so, George Osborne has replied, in fact it’s unlikely that England would let it. The Chancellor takes a surprisingly keen interest in the campaign to save the union, and has chosen today- St George’s day – to travel to Glasgow and release a paper saying that the pound will remain property of Her Majesty’s Westminster government. And if Scots want to keep using it, post a 2016 secession, they’ll have to allow financial control to remain in London. Given that Barroso has warned that Scotland would not be automatically eligible to stay in the EU either – let alone join the Euro – it raises an awkward question as to what these independent Scots would use to pay the bills.
The SNP want to stay in the sterling zone. ‘Our preference is to use sterling”, says John Swinney, the SNP finance spokesman, “and no one can stop us.” True; no one can stop the Russians using it either. No one stops us using the rouble. Or Bitcoin. As Osborne says, no one stops Panama using the US Dollar. But it’s better, of course, to use a currency over which there is some degree of national control.
This morning, Osborne had this to say to BBC Radio 4:
Britain has taken a decision not to join currency zones like the Euro. Britain has had a poor experience with things like the ERM where it has tried to lock its currency to other currencies. So it’s not clear that it would be in the interests of the rest of the United Kingdom to enter into a Euro-style currency zone with the rest of Scotland…. It’s unlikely that we could make it work. There are some very big questions as to whether the rest of the United Kingdom would want to tie itself to what would have become a foreign government, why it would want to tie itself to an economy very dependent on the price of oil and a very large financial sector. These would be questions for England, Wales and Northern Ireland.
Note how Osborne refers to the ‘rest of Scotland,’ leaving open the option of Orkney and Shetland secceding and becoming the Dubai of the north. If you do a Salmond, and draw an imaginary line into the sea, their claim (right) would be no less logical than that of Scotland as a whole.
Anyway, today’s Treasury paper will say there is a “need to agree a negotiated set of constraints on its economic and fiscal policies”. Here’s its case:-
“In practice this would be likely to require rigorous oversight of Scotland’s economic and fiscal plans by both the new Scottish and the continuing UK authorities. Even with constraints in place, the economic rationale for the UK to agree to enter a formal sterling union with a separate state is not clear. The recent experience of the euro area has shown that it is extremely challenging to sustain a successful formal currency union without close fiscal integration and common arrangements for the resolution of banking sector difficulties.”
Normally, the EU is all for weakening the power of nation states so you’d expect it to hawk the Euro as keenly to Scots as it did to the Icelandics. But Barroso is different: he’s from Portugal and is mindful that if he gives the nod to the Scots then he’d end up encouraging the Catalonians. Salmond’s line of argument is that independence would be a tiny, almost bureaucratic step: the correction of an anomaly.
The idea of Scottish separation is, to me, such a nonsense because it creates a thousand problems and solves none. Scotland’s problems are dire economic growth, the worst poverty levels in Western Europe, appalling life expectancy etc. None of which will be resolved by having more Saltires flying over hospitals, or cutting back the military. Osborne is right to highlight the currency issue, as it’s one of many to which the nationalists really do have no convincing answer.
Osborne is, of course, continuing a long tradition of currency games. There have always been Scottish pound notes in issue – I’d always try to change them for English ones at Edinburgh airport en route back south – and I knew the political tide was turning when this became very easy. I was told by a cashier that London-bound Scots wanted to swap any English notes they may have for Scottish ones so they could annoy London taxi drivers and shopkeepers. Strictly speaking, the Scottish notes (like Ulster notes) are legal currency and issued by Threadneedle St. But in recent years London cabbies have refused to take them almost out of principle. These low-level currency wars are seen as “part of the sport” by some people. By George Osborne is showing that the English can play this game too – suggesting the 306m Scottish banknotes may be left to stand on their own value. Whatever that may be.
This post was updated to incorporate Osborne’s interview.