Monday, 11 August 2014

The Bad Politics of Sterlingzone

Since the debate between Salmond & Darling on Tuesday, Sterlingzone has become front and centre of the Independence debate.  Darling’s win has even seen a swing in support towards the no camp in the first post debate poll (though the usual caviats apply – we need to see if other polls follow this pattern).  What the arguments disguise though is the bad decision making on both sides over this subject.
Osborne delivering what is now known as "The Sermon on the Pound"

In this week’s Sunday Herald, Salmond makes clear that according to his Fiscal commission, “retaining sterling in a formal currency union” is the best option for Scotland and for r-UK. Salmond’s arguments for the currency union range from it being “as much our pound” to the various trade related issues.  What Salmond doesn’t mention is the sovereignty that would have to be surrendered should I-Scotland’s proposal for “Sterlingzone” come to pass.  Mark Carney, while not saying that Sterlingzone will not occur did flag up that a fiscal pact would need to be negotiated between r-UK and I-Scotland – “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.

With that in mind, I simply do not understand the one-eyed dogma surrounding this issue from pro-Independence supporters.  We would have to surrender some of the economic levers of power were we to go into Sterlingzone, we would surrender some of our powers not just to one of our biggest competitors but also perhaps a neighbour with a grudge.  We simply do not know how r-UK will react if there is a “Yes” vote.  For pro-Indy supporters to claim that everything would be ok displays a sort of complacency.  Then again pro-Independence supporters seem to be blithely unaware of the consequences of Sterlingzone.

Considering that one of the key arguments for Independence is that decisions about Scotland would be made in Scotland & that we would be able to use all the economic levers in the best interests of Scotland.  Surely this argument is all rather disingenuous?

I had rather hoped that when it came to the currency issue, the pro-Indy groups would have advocated a “Scottish” Pound – initially tacked to Sterling but with no currency union agreement.  I had hoped that this arrangement would be a short to medium term currency in the timeframe it would take for us to set up a central bank/lender of last resort.  The option of a Scottish Pound is infinitely more preferable to Sterlingzone – with the fiscal straightjackets that presents.  In short, I do not believe that Sterlingzone would be in the best interests of I-Scotland.

More understandable though is the stance taken by the Westminster mandarins regarding Sterlinzone.  Their implacable opposition can be read as an opposition towards any form of currency union & in a sense is a refighting of the arguments possibly deployed when the debates raged in relation to the UK’s possible membership of the Euro in the 1990’s.  Blair when he was leader of the opposition was keen on the UK joining the Euro.  Arguably the person that kept us out of the Euro was Gordon Brown’s economic advisor – Ed Balls.

The civil service mandarins that wanted to keep Sterling out of the “ghastly” Euro would in no doubt be equally perturbed at Swinney’s back of a fag packet plan for a currency union when it surfaced a couple of years ago.  What is strange though has been the response of the finance ministers/spokesmen of the three Westminster parties.  Their motives are understandable, but their actions can be best described by quoting Michael Portillo on the subject “bad politics”.

From the point of view of R-UK, rejecting Sterlingzone does not make good sense.  The chance to hinder a potential competitor by putting it into an economic straightjacket, while keeping Sterling as a petro-currency – these arguments for Sterlingzone have been brushed aside because of Whitehall’s aversion to currency unions.  What is worse is the form that this decision has been put across.  Osborne’s now infamous “Sermon on the Pound” will go down in infamy as how not to talk to an electorate.  It was the most condescending & deeply patronising speech delivered by a senior British politician since…  well Thatcher’s own “Sermon on the Mound” in 1988.  That Balls & Alexander could not help themselves and rushed to support Osborne has tarnished their credibility in Scotland.

Instead of gleefully talking down to us and telling us that we will not be able to use the pound after Independence, Osborne should have set out his terms for a fiscal pact – and set high eye watering terms that would have shown the folly of Sterlingzone. The constraints on public spending & debts that the treasury would alow before agreeing to a currency union.  That would have torpedoed the folly that is Sterlingzone under the waterline.  Instead we have this argument where Westminster politicians claim that there will be no Sterlingzone if there is a Yes and nationalists stick their fingers in their ears, dismissing it as bluff – pointing to Nick Watt’s story in April. 

This techiness has infected the pre-negociating process already – witness Swinney’s threat that no Sterlingzone means we walk away from the UK debt free should we vote yes. Cue pro‑union politicians outraged at this blatant attempt at…  er…  negotiating (straight from the UK playbook of bullying tactics too…).  Milliband’s outrage on GMS on Friday morning did not have the desired affect as I kept on giggling at is faux outrage, I mean come on – what did you expect?

The Sterlingzone issue does seem to be the whole Independence debate in microcosm.  Pro-Indy supporters shun the common sense approach for an option that is not necessarily in the best interests of I-Scotland, when challenged on this, they display dogmatic behaviours.  In the mean time, the pro-Union supporters just get the wrong end of the stick entirely.  Once again, it shows that the pro-Indy camps have made bad policy choices that will come back time and again to haunt them.  The dogma may well be unedifying but they are tied to Sterlingzone – sink or swim.

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