Former Salmond advisor casts doubt on currency union

Alex Salmond’s plans for a currency union should Scotland vote for independence have suffered another setback.

Alex Salmond’s plans for a currency union should Scotland vote for independence have suffered another setback as one of his former economic advisers admitted that the difficulties in establishing such a union with the rest of the UK would likely prove too difficult to achieve.

Speaking to the Scottish Parliament’s Finance Committee, professor John Kay, a former member of the first minister’s Council of Economic Advisers, noted that conventional wisdom, particularly in the eurozone, is that there can only be currency union if this leads to fiscal backing.

He told MSPs on the Committee:

“Personally I don’t think that’s true but there’s almost not much point in our debating whether that’s true or not, because people in markets and political circles believe it’s true.

“The result of that is that if Scotland voted for independence and we were to have negotiations over monetary union, you would be getting conditions laid down by the UK Treasury in these negotiations which I think would be very difficult for a Scottish Government to accept.”

He continued:

“The rest of the UK would be demanding control over the banking system in Scotland and over fiscal policy in Scotland which it would not be willing to concede.

“That’s the almost intractable problem on which these negotiations would fail.

“If Scotland agreed to the UK demands it would be giving away most of the “economic policy levers it hoped to gain by independence.”

The Committee, currently taking evidence about what Scotland’s finances might look like if it votes for independence, also heard from Gavin McCrone, a former chief economist at the Scottish Office, who was equally pessimistic about the prospects of the SNP securing a currency union.

Telling MSPs that he felt it was “more likely in the end” that Scotland would adopt its own currency “even though it may start with an attempt to keep the same currency”, McCrone continued:

“On the whole, I think that a separate currency but one pegged to sterling is the probably the long-run answer, that’s what the Irish did for a long time, then they unpegged it when they went into the European exchange rate mechanism.

“Smaller countries very often do that, the Danes for example have kept their own currency but it is pegged to the euro, but that means they can alter it if they really have to.”

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