It was the defining moment in referendum campaign; an event that will resonate through history; a milestone in Scotland’s relations with the rest of the UK. A Tory chancellor, George Osborne, riding into town, laying down the law, and then riding out again without even giving any TV interviews made even many unionists feel they had been slapped in the face. You shall not use the pound, end of. Scots always knew they were the junior partners in the UK, but it was a shock nevertheless to have it confirmed in such a blunt way.
Telling people they can’t have something they already partly own, the pound, may win applause in Westminster and the London media, but it is bad politics in Scotland. And as if George Osborne wasn’t enough, there was the gleeful face of Labour’s shadow chancellor, Ed Balls, on TV backing him to the hilt. Tories and Labour, united in telling the Scots to take a hike if they vote yes. How’s that for a sure fire vote-winner.
The pools-win cry of celebration from Scottish Labour tweeters on the internet was also curiously short-sighted. Osborne deployed all the diplomatic subtlety of a British governor general talking down the leaders of an independence movement in an African colony. I hate to draw such antagonistic historical comparisons, but how else were people to take it, which ever side they vote on?
This was a diktat – allowing no room for negotiation. Osborne was saying: don’t think you can vote for self-government and expect England to cooperate. We will make you change money at the borders. You will be treated as aliens. We will disrupt trade rather than let you use the pound in Scotland.
Not even Ireland was treated this way by the UK after the civil war. In 1928, when the Irish Free State came into being, a new Irish pound was minted. But this held party with the English pound, and remained convertible on a one-to-one basis for the next half century. The UK pound remained legal tender in the Republic, even during a trade war in the 1930s. George Osborne may lack any sense of history, but surely the Liberal Democrats – who used to stand for Irish home rule – are aware of the historical resonances.
And before the twitterati start quoting me out of context, I am NOT saying that Scotland should be compared with Ireland. Precisely the reverse. The governments of Eamon de Valera in the ’30s were insular and separatist. They defaulted on their debt to the UK in 1933 and tried to raise the drawbridge against the rUK. That kind of introverted nationalism is not something any responsible party would wish to emulate. Which is partly why the Scottish goverment has been so reluctant to spell out the nature of Plan B.
Scotland does not want to cut itself off from trading links with the UK; does not want to be accused of reneging on its debts, or seeking currency isolation from the rest of Britain. The Scottish government has bent over backwards sideways and upside down to insist that it wants to maintain economic continuity – even agreeing to cede sovereignty to the Bank of England over interest rates and debt. One of the more bizarre sights last week was the unionist, Danny Alexander, on Scotland Tonight chiding the Scottish government for not being nationalist enough.
Having said that, the SNP and the Yes Scotland cannot continue to behave as if nothing has changed. They can’t go on dismissing the Osborne threat as bluster and bluff, even though it almost certainly is. This is a new situation, and while it is understandable that the nationalists don’t want to raise alternatives for the press to take a pop at, the Scottish people will rightly supporters voters whose minds have been changed by last week’s monetary lock out. They are grown up enough to understand that this isn’t what the SNP want and that any arrangement is subject to negotiation. But they also want to hear someone fight Scotland’s corner.
Anyway, plan B isn’t so scary when you look at it. Nicola Sturgeon suggested last week that the Scottish pound would “shadow” sterling – use the pound without a formal monetary union. This has contemptuously been called “dollarization” – the kind of currency arrangement you see in South America. But there are similar arrangements in Europe. Denmark has its own currency which is pegged to the euro, and has one of the most advanced economies in Europe. Norway has its own currency which floats against the dollar and euro. Switzerland has its own currency which isn’t pegged to anything. Many central european countries like the Czech Republic have their own currencies shadowing the euro. The point is that no currency, in the modern world, except perhaps the dollar, is completely independent. That went out with the gold standard.
An independent Scotland “barred” from sterling would would announce on day one that it would continue to mint a Scottish pound on the basis of one-to-one parity with the pound. It would set up a central monetary authority to regulate the banks and authorise the printing of notes – which already happens. It would come to an arrangement with the UK for a share of coinage which would continue to circulate. It would not have to start issuing bawbees, though I suspect that many Scots might start using that term ironically.
This is all the Scottish government needs to do at this stage – the rest is negotiation. Forget the jargon about ‘lender of last resort’, fiscal sovereignty, optimal currency zones. What matters to voters is that they won’t have to change currency at the border. George Osborne could come back and try to reject parity, but it would be silly. Even if it were possible it would undermine trade with Britain’s main trading partner. His complaint about the Bank of England underpinning the Scottish currency would no longer apply. It would be clear who was being unreasonable.
As the Governor of the Bank of England Mark Carney said a fortnight ago, Scotland’s economy is very similar to the rest of the UK’s, in terms of GDP per head, labour productivity etc.. An independent Scottish economy would not be like Greece – in fact it might be more like Switzerland, with a currency that it too strong rather than too weak. Relieved of the burden of UK debt, a Scottish pound based on extensive petroleum and renewable energy resources might tend to suck in funds, causing the Scottish pound’s value to rise. Provided Scotland received an advantageous rate of exchange, therefore, eventual euro membership might be worth considering to mitigate the tendency for the Scottish currency to rise.
It would be at least two years anyway before a Scottish currency would be eligible to join the eurozone, by which time the EU may have changed out of all recognition. Not least because England without Scotland will almost certainly be in the process of leaving it after the 2017 in/out referendum. Scotland would almost certainly want to rejoin the EU, but a newly independent Scotland should do so in its own time. The EU would not want Scotland to stay out for long – it might give other countries ideas – so a Scottish government would have a strong negotiating position.
The Scottish government just needs to have the courage of its convictions. It doesn’t have to go into too much detail; it just needs to offer some models, like Norway, Denmark, Switzerland, to reassure voters that Scotland would not collapse just because Gideon says No. Unionist politicians will jeer and rant, but they’re going to do that anyway.
The problem with the UK political parties is that they mistake Alex Salmond for the Scottish people. They regard the First minister as a devious and wily so-and-so who jolly well needs to be put in his place. Can’t have his cake and eat it, oh no. We’ll show him. But what they fail to appreciate is that they are also addressing the voters who elected him FM by a landslide in 2011. Not all of them, by any means, are nationalists. But none like being scolded like children caught with thier hands in the cookie jar.
The Scottish government were taken by surprise last week. Perhaps naively, they believed the implicit assurance in Section 30 of the 2012 Edinburgh Agreement that both sides would play fair and would seek consensus. arrangement. It’s not going to happen. We are in a new era. Who’s afraid of Big Plan B?