Following the EU membership rowsm The SNP's post-independence plans for a currency union with the remainder of the UK have been attacked as unworkable.
There is unlikely to be much Christmas cheer in the official residence of the Scottish first minister, Bute House; no sooner had the president of the European Commission, Jose Manuel Barroso, made crystal clear an independent Scotland would have to apply to rejoin the European Union than the next major plank of SNP policy has been knocked down, writes Ed Jacobs
Under plans by the nationalists, an independent Scotland would retain the pound with a guaranteed seat on the Bank of England’s Monetary Policy Committee, this despite such a move being rejected by the Treasury. Indeed, in September, the chancellor concluded that if Scotland decided to go it alone it could not keep the pound without the remainder of the UK approving its tax and spending levels.
In a report on the issue, however, Mark Allan – a specialist with AXA who at one time gave advice to the Monetary Policy Committee – has questioned the premise of the SNP’s policy.
The document, a briefing paper for investors, is quoted in the Herald as concluding:
“An independent Scotland almost certainly means a new currency.”
The Scottish government’s proposals to enter a currency union, the briefing adds, would:
“…surrender almost all fiscal sovereignty to London.”
The paper also warns an independent Scotland would have to take on £120 billion of national debt at a time of falling North Sea oil production, a point previously made by the Institute for Fiscal Studies.
Allan is quoted in the paper as saying:
“First minister Alex Salmond said an independent Scotland would continue using sterling, effectively giving birth to a ‘sterling zone’. I doubt this will be possible.”
Arguing the Bank of England would place strict conditions on Scotland as the price of currency union, he continued:
“Given the Scottish Parliament already has substantial autonomy on domestic issues, if the first act of an independent Scotland was to surrender almost all fiscal sovereignty to London in order to continue using sterling, one could reasonably ask: what was the point of independence?
“Facing such a choice, an independent Scotland would surely have to issue its own currency and make its own way in the global financial markets.”
It comes as the Bank of England has denied suggestions by the Scottish government it is engaged in a sustained dialogue with ministers at Holyrood on the issue.
Addressing the House of Lords economic affairs committee on Tuesday, finance secretary John Swinney spoke of a “very helpful dialogue” with the Bank on the SNP’s plans for a monetary union, declaring “points raised by the bank” would “inform the model we bring forward”.
His comments, however, have been roundly rebuffed by the Bank, with a spokesman explaining:
“The Bank of England did no more than answer technical questions from representatives of the Scottish government.
“We have not entered a dialogue about the possibility of changing monetary arrangements for Scotland in future.”
Accusing ministers of “wilfully misleading the public”, shadow Scottish secretary, Margaret Curran, said of Swinney’s remarks:
“He tried to mislead not just the House of Lords but the people of Scotland when he claimed he was in dialogue with the Bank on an independent Scotland keeping the pound.
“The Bank of England has now made clear that no such dialogue has taken place.
“They misled the people of Scotland on whether they had EU advice. They misled the people of Scotland on our membership of the European Union. Now John Swinney has joined Nicola Sturgeon and Alex Salmond in wilfully misleading the people of Scotland on something as basic as the currency we should have.”
Challenged on the issue during First Minister’s Questions yesterday, Alex Salmond told MSPs:
“The SNP government has pointed out – and I quote exactly – that:
“As indicated by Mr Swinney, the Scottish government has engaged with the Bank of England to discuss factual and technical matters around proposals for a macroeconomic framework.”
“That is exactly what has happened.
“The Bank of England does not – clearly – take a position on the question of independence for Scotland; that is not its job. However, it has responded, as it should as a public body, to a request for factual information, and it has engaged with a fiscal commission that – I remind the Labour Party – contains eminent economists, including two Nobel laureates.”
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• Swinney on Scotland currency – more questions than he answers? – February 2nd, 2012
• Bain: Salmond has questions to answer, because the evidence doesn’t support him – January 24th, 2012
• Questions multiply over financial status of an independent Scotland – January 20th, 2012