Thursday, 30 January 2014

The Pound In Your Pocket

A London Cabbie investigates "Toytown Money" yesterday
You may have noticed that the Governor of the Bank of England, Mark Carney, was in town today.  This appears to have caused the twittersphere to explode with claim & counter claim.  The funny thing is, Carney’s speech was – on reading of the edited highlights – remarkably dry and neutral.  There is something for the Yes campaigners to be happy about, and there is something for the No camp to be pleased with too.

Yes campaigners will be happy that Carney did not come north to say there would be no “Sterling-zone”.  Indeed Carney echoed many of Salmond & Swinney’s arguments in favour of going down this particular route.  Sharing a currency can promote investment by reducing uncertainty about currency movements and giving businesses access to deeper, more liquid financial markets. It can also reduce borrowing costs for countries with a history of high inflation and currency devaluation. By tying themselves to the mast of the monetary policy of others they can import credibility

By some curious twist of fate, these passages somehow passed the Better Together side by.  As if there were no benefits of a shared currency.  Of course, a large amount of the politicians speaking for “Better Together” would have taken us into the disastrous Euro project… so no disingenuousness there.  Just an awful lot of re-writing of history.  In a similar fashion, the passages outlining the cons of “Sterling-zone” seem to be absent from the minds of “Yes Scotland” backers.

As the Presidents of the European Council, European Commission, Eurogroup and European Central Bank argued in their report, European monetary union, which has so far relied on fiscal rules, will not be complete until it builds mechanisms to share fiscal sovereignty…  Whatever is ultimately chosen, the degree of fiscal risk sharing will likely have to be significant. 
Similarly, in a monetary union between an independent Scotland and the rest of the UK the two parliaments would have to agree on whether fiscal rules were sufficient or whether similar risk-sharing mechanisms were necessary.  a durable, successful currency union requires some ceding of national sovereignty.  It is likely that similar institutional arrangements would be necessary to support a monetary union between an independent Scotland and the rest of the UK.”

What this means is that there would have to be some sort of fiscal pact, with rules potentially governing tax, government spending, borrowing and debt.  The SNP’s “flagship” policy of a 10% Corporation Tax rate would be destined to remain in the launch silo for as long as this arrangement was in force.  As for other possibilities, Osborne’s  liking for a Eurozone fiscal treaty (which would not apply to the non-Eurozone UK) could be seen as a sort of dry run for Sterling-zone negotiations.

Much of the “Better Together” campaigners have claimed that Carney’s speech torpedoes any chance of there being a “Sterling-zone”.  I don’t think it does, but this policy – daft as it is – is being diminished by a thousand cuts.  It might be in the best interests for the post “yes vote” British Isles, but I don’t think it’s in the best interests for post Indy Scotland.  Except when “Better Together” unfurl this argument, they somehow miss this point.

This illustrates perfectly the problem with Salmond’s campaign.  There are common sense & credible policy positions on the EU – that it is an aspiration to join the EU but that we would not be joining until the Scottish people consent to it.  The equivalent currency position would be to continue to use the Scottish Pound – tacked to the Pound Sterling – and to seek to establish a lender of last resort at the earliest possibility.  All of the “yes” camp’s troubles come from the bad policy decisions taken over these issues.  For Better Together, these issues are the gift that keeps giving.

What is symbolic is that Carney has somehow managed, among all the heat and bluster, give a sober assessment of the pros and cons of Salmond’s Sterling-zone wheeze.  Yet without really trying, Carney has shown up the inherent prejudices and preferences we all have on the subject of Scottish Independence – supporters, politicians and of course the Media.  He’s also shown what a blinkered lot the zealots on both sides are. No wonder the undecided’s – like myself – are growing.  In short, in nearly three years of campaigning, Carney’s speech was the first sensible contribution to the debate.

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