There’s been a lot of hot air and printer’s ink spilled over the past few days over the contentious issues of Scotland’s future currency and its membership of the EU.Even the London media seemed to agree in part that the Chancellor, George Orborne, came to Edinburgh to “bully” the Scots. His message was unequivocal – if you leave the Union, you leave the Pound as well.
There was a similar message from the EU. Commission President, José Manuel Barroso, told the BBC’s Andrew Marr that it would be ‘extremely difficult’ for an independent Scotland to join the European club because it would need the unanimous approval of all existing members.
The Chancellor’s speech had been thoroughly trailed well in advance. He argued that there was no legal reason why Scots should keep the pound if they voted for independence. The trouble with this is that any decision on whether Scotland uses the Pound or not may not be his to take.
What he CAN do is block any move towards an official currency union. But he cannot stop any other country using the Pound as its currency without fundamentally changing the nature of the Pound itself.Sterling is a reserve currency. It is the third most popular such currency in the World. It is also one of the most traded currencies globally. Both politicians and civil servants in London have stressed time and again their commitment to open markets and free trade. There’s no way they could stop Scots using the Pound without undermining this principle.
Even the Financial Times accepts that no-one in England can stop an independent Scotland from using the currency for transactions and savings. “The country would simply have an informal currency union like Panama or Hong Kong do with the US,” it explained, adding: “Scotland could circulate uncollateralised sterling. Alternatively, it could use Scottish pounds exchangeable at parity and backed by sterling reserves.” In other words, business largely as usual.
However, it’s worth asking if a formal currency union is actually worth the effort and perhaps the heartache. Just remember what the Governor of the Bank of England said a short time before – that such a union would require “some ceding of national sovereignty”.If there has to be a ‘Plan B’, could it not be such an informal union? It would mean that John Swinney or his successors would have the control over the financial levers that he so desires – or at least much more control than he’d be allowed under a formal agreement.
Even with a seat on the Bank of England’s top table, the Scots would have to accept the monetary and fiscal restrictions imposed on them which, as now, appear to depend more on conditions in the South East of England than any other part of the country.
And one of the real concerns about a formal union would quickly turn into reality if Holyrood pursued social democratic policies while Westminster (now permanently Tory perhaps?) followed a diametrically opposite path. As we saw when the old Czechoslovakia split in two, a currency union can’t work when two countries pursue very different political and economic solutions.So an INFORMAL currency union could have benefits.
And might other options not be considered? What if Scotland were to move to a cashless society? What if Scotland were to adopt more than one currency – both the Pound and the Euro for instance? Might the country decide on the ‘Bitcoin’ as an alternative? With electronic trading, these solutions need not be so far-fatched!
Then there’s the on-going question of EU membership. This has been a bone of contention for months.
The Scottish Government has argued that both successor states after separation would be members. However, the Commission President clearly disagrees.It is probable that José Manuel Barroso is worried by the growing number of secessionist movements around Europe, especially in Spain and Italy. He will be concerned that, with the EU already in a fragile state after the financial crisis, nothing else should undermine the Union as it currently exists.
But once again, shouldn’t Scotland be thinking laterally? Norway appears to be Alex Salmond’s favourite Scandinavian country. It is not a member of the EU – and although some Norwegian ministers have acknowledged some disadvantages, there are also advantages and the lack doesn’t seem to have done the country any harm.
One could argue that NOT being a member of the European club could have some positive results for at least some Scottish sectors.Fishing for instance has been hard done by as a result of the Common Fisheries Policy. One could imagine Scotland making common cause with Norway and Iceland to declare a controlled, more protected zone in the North East Atlantic and the North Sea.
Unlike England where there’s a strong movement to leave the EU, most Scots would prefer to remain within the club. But if that offer is not on the table, would it really matter? Trade is carried out between companies – not countries. That would continue unabated.
There may be advantages for business. The European Commission has long been blamed for imposing excessive regulation and red-tape and making corporate administration more costly. An independent Scotland outside the EU could choose more freely what it needed to adopt.
The First Minister will deliver his speech to ‘deconstruct’ George Osborne’s arguments shortly. He also expected to deal with the European issue, something ministers have already dismissed as ‘pretty preposterous’. But it may be worth throwing other ideas into the mix. After all, there are still over six months before Scotland goes to the polls – and an awful lot can happen in that time.