27 May 2013
The launch of the SNP’s case for an independent Scotland last week was overshadowed by Alex Salmond’s threat that his independent Scotland would not take its share of the UK’s overall debt unless Scotland was allowed to keep using the pound as part of a “Sterling zone”
According to Mr. Salmond , this would mean “starting on day one of independence with a clean sheet – with no debt, and all of Scotland’s huge natural resources at our disposal as we set about creating a wealthier and fairer country.”
However, others would see this act as one of worst possible starts for an independent Scotland as a new member of the international community.
Mr. Salmond has stirred further controversy for claiming in a radio interview that, he has supported the use of the pound sterling for “more than a decade” .
However, four years ago , it was the Euro that Mr. Salmond was praising, not the Euro, saying ,
“I think the argument for having strong fiscal powers, powers over revenue, powers to expand the economy within a monetary context, within a European Euro context, will prove to be a very strong one for the people of Scotland.”
And former SNP John Swinney had previously voiced his support for the Euro in 2004 saying, “ Scotland is being held back by not joining the single currency.”
Before that in 1999 Mr Salmond had already made the case for Scotland joining the Euro and ditching the £ :
''I think that being outside the euro area is already penalising the Scottish economy. In the medium-term, the longer we stay out, the more damage will accumulate.
“The euro is an example of why Scotland needs membership status so that it can take a decision on entry into the single currency,'' he said.
Now, after austerity in the Eurozone , the £ returns once more as the SNP’s favourite currency.
The SNP ’s case for an independent Scotland is light on important details such as a clear, credible fiscal policy for their independent Scotland.
At the moment, they assert that Scotland will retain the £ and be a member of a formal “currency union” with the rest of the UK.
( This has not been agreed to by the UK Government.)
They assert that the Bank of England would become not only become Scotland’s central bank but will also act as “the lender of last resort”
(These assertions as well have not been agreed to by the UK Government)
However, the remainder-of-the-UK government would drive a very tough bargain for allowing sterling to be used as the currency of an independent Scotland.
This would extend to stringent controls over monetary and fiscal policy which in turn would determine the scope of an independent Scotland’s economic policy, and so give a Scottish Government less autonomy over its policy decisions.
(And of course that alleged "UK –control" or "London – control "or "Westminster – control" or "South East of England–control " over Scotland ‘s economy is why the SNP say that there needs to be an independent Scotland in the first place )
The UK Treasury has examined the lessons to be learned from the currency union that the Euro-zone has been.
It has cast serious doubt on the benefits of a Scotland – remainder-of- the- UK currency union that the SNP assert, saying :
“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.
“In particular, an agreed set of euro area ﬁscal rules proved insufﬁcient to prevent funding problems arising for smaller, and I n many cases ﬁscally prudent, members of the euro area.
“These difﬁculties have also spilled over to other members of the currency union.”
So what of North Sea oil revenues, upon which much of the SNP’s case for independence rests?
Any proper discussion of them has to acknowledge that much of the wealth from the billions of pounds made from North Sea Oil activity flows away from Scotland as it is made by foreign companies registered abroad operating in the North Sea
This regime is likely to continue under an SNP government.
Furthermore, a recent study by the respected Glasgow –based Centre for Public Policy for Regions revealed that the average family in Scotland was unlikely to witness any sudden increase in living standards in a post-Referendum independent Scotland.
It concluded :
"The important point to take from this analysis is that allocating North Sea activity to Scotland is unlikely to result in any immediate change, post-independence, to the standard of living of Scottish households.”
The heavyweight Institute for Fiscal Studies has added its own share dose of much -needed realism :
“ Although the exact numbers depend on the bargain struck with the rest of the UK, a newly independent Scotland is likely to inherit a debt level of at least a good two thirds of national income.
“To keep borrowing costs down it would need to establish a credible fiscal policy.
“Like the UK as a whole, and most other developed nations, an independent Scotland would face some tough long term choices in the face of spending pressures created by demographic change.
“If, as is likely, oil and gas revenues fall over the long run then the fiscal challenge facing Scotland will be greater than facing the UK.”
And of course, there is the leaked report of John Swinney in which the Finance Minister recognises the fallibility of relying on a diminishing reserve of oil revenues to support Scottish society for a very long time.. (download the leaked report )
So with around 16 months to go to the Referendum , the transition to independence that was supposed to be have been easy is becoming more difficult as more searching questions are being asked of the SNP on their economic policies.
The Referendum will be won or lost on economics and the SNP’s campaign for independence is poorly served when answers to difficult questions put to them by the pro-UK campaign are labelled as “scaremongering”, “talking Scotland down” or “talking negative”.