Tuesday, February 18, 2014

Scotch mist - Occasional reflections on a referendum. No 1 - Currency Union.

I wrote ages ago that I was not impressed by the leader of the Scottish National Party, one A. Salmond and now that the debate about the Scottish referendum is hotting up, I am bound to say that not a lot has changed. Mr. Salmond is now not simply the only man who knows what is best for Scotland, he is (according to his own statements) the only man who can speak for the future of the UK. He wants his country to be independent but simultaneously wishes to dictate the currency and, by implication, general economic policy, to the rest of us. He has decided that his country should continue to use the Pound sterling and wants a "currency union" with the rest of the UK. The trouble with this is that it makes no sense whatsoever. Currency unions throughout history are precursors to full political union. Countries surrender sovereignty in such arrangements and it generally follows that they then recognise it formally. The history of the unifications of Germany and Italy, and the expansion of the United States across the North American continent show us this.  Equally, when for other political reasons, and there is nothing wrong with having such reasons, countries separate, then they also separate their currencies so that each may take full control of its monetary and fiscal policies. Otherwise there is not much point in being independent. The first act of the Bolsheviks in seizing power in 1917in Russia was to take over the state bank. Communists they may have been but they knew where the power lay.

So, now that all main political parties at Westminster, backed by the Treasury and the Bank of England, have ruled out a currency union ("bullying" apparently, according to Mr. Salmond; I expect his next soundbite will be "It's not fair") the choice for the Scots is simple. If the EU permits it then join the EMU (Economic and Monetary Union) of the EU and move swiftly to adoption of the Euro. Or make the Scottish Pound legal tender. Actually the first choice is probably out because like all other applicants, Scotland may have to wait a while to show that it it is fit to join the EMU. So something else must be done in the interim. Therefore it has to be the Scottish pound. But can this work on anything other than a 1:1 parity with Sterling and fully convertible balances? I doubt it. So the Scots will end up with a shadow currency and no fiscal independence to speak of, because if they do anything to spook the markets the resulting run on the Scottish pound could empty the coffers overnight (cue bitter memories of the Northern Rock fiasco). And they will be bound by whatever economic polices the Government in Westminster sets.

The solution to all of this is obvious - stay in the UK and avoid the hideous mess of splitting up. The only people who do well out of divorce are the lawyers.

1 comment:

  1. Classic reason?

    Am surprised you do not reference the work of Python M. (1979) who defined the problem thus:

    "What have the Romans done for us?"