Mark Carney, the likeable Canadian Governor of the Bank of England, ventured north today to opine on the economics of currency union and provide some much needed intellectual rigour to the political hot potato that is Scotland retaining Sterling as its currency. It’s worth noting that many in Scotland would like to see a Scottish pound and others, myself included, would like to see the Euro being introduced, though I’d personally only like that to happen if rUK joined at the same time. The point is, Scotland is spoiled for choice when it comes to currency options and the SNP’s vision of holding onto Sterling is but one option that the public would ultimately decide at subsequent elections and/or referendums.
For Governor Carney, the scope of his speech was simply on the workability of Scotland and rUK sharing the pound. There was nothing in the speech that prospective Yes voters should fear, though the unionist opposition and media will likely say otherwise. I thought therefore that I would seek to shoot down a few currency union scare stories that may arise as a result of certain phrases that Carney used that could be misrepresented.
It is self-evident that even an independent Scotland will not hold 100% sovereignty in the event of a Yes vote. We would likely remain a member of the European Union after a relatively short negotation period and, subject to any future referendums on the matter, that ceding of sovereignty would be with the blessing of the Scottish public. We would still be as sovereign as Denmark or Austria, so this seemingly negative charge should be disregarded.
Tight fiscal rules
This sounds like a blow for the Yes campaign until you realise that the precise same point was made in by the Scottish Government’s very own Fiscal Commission. The Yes Scotland campaign is not pretending that there won’t be constraints within a currency union in the same way that it isn’t promising that a post-Yes world will be a land of milk and honey. These tight fiscal rules would basically be a sensible working arrangement between the Chancellors and economic advisers of the respective Governments to ensure both countries share mutually beneficial policies.
The obvious comparison to be made with a British currency union is to the Eurozone. However, despite having a relatively strong economy, Scotland is no Germany and England is no Greece. Our large companies, particularly the banking giants of RBS and Lloyds, already span the British Isles so that market risk is already geographically spread. Our economies are interlinked and we shall fail or succeed together, irrespective of whether we vote Yes or No to independence.
Lender of last resort
Mark Carney made it very clear that within a currency union Scotland can rely on the Bank of England to be a “common fiscal backstop” in the unthinkable scenario that a large company goes bust and the Scottish Government cannot bail it out on its own. A clear process would be required to be set up to ensure controls are adequately in place, but the silver lining of the recent worldwide crash is that this is a scenario that is impossible to overlook.
It’s worth noting that Mark Carney didn’t need to venture north to share his view on the details of independence, and Scotland should be grateful that he did. Who knows, where the Governor of the Bank of England led, perhaps David Cameron shall one day follow and these same issues can be debated between the First Minister and the Prime Minister.
One can but hope but, for now, it’s good to see that there is nothing to be worried about in how sharing the pound may work after a Yes vote.