Ruling out a currency union. Locking the horse inside the stable?

This post first appeared on Liberal Democrat Voice

The currency in an independent Scotland has been the subject of much frenetic debate in recent months. The Scottish Government's White Paper on independence is clear that their preferred option is to continue to use sterling within a monetary union with what would remain of the UK:

The Commission's analysis shows that it will not only be in Scotland's interests to retain Sterling but that - post independence - this will also benefit the rest of the UK.

Under such an arrangement, monetary policy will be set according to economic conditions across the Sterling Area with ownership and governance of the Bank of England undertaken on a shareholder basis.

The SNP has this unfortunate habit of thinking that just because it wants something to be the case, that it'll happen. In any relationship, the views of the other parties have to be taken into consideration. Over the past few months, expert after expert has said that Scotland would have to cede its newly won independence and submit its spending plans to the will of the Bank of England and would have arguably less influence over its fiscal policy than it does at the moment.

Just the other week, the Governor of the Bank of England, Mark Carney, laid out the conditions which would be necessary for a successful currency union:

The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources. In short, 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.

But despite all of that sage and expert advice, Alex Salmond told the FT that he has no intention of ceding any power at all over fiscal policy:

Mr Salmond said an independent Scotland would be happy to cede sovereignty on monetary policy but on fiscal policy it would only have to accept aggregate limits to state debt and borrowing.

He added on that the currency union might be the trade for Scotland agreeing to take on a share of UK debts:

In the interview, Mr Salmond refused to consider a “Plan B” on the currency, warning that refusal by the remaining UK to accept shared use of the Bank of England would free Scotland of any responsibility for the UK debt.

“You’ve got a negotiation where the UK government will want to persuade the Scottish representatives that they should take on a share of debt which is the legal liability of Her Majesty’s Treasury,” he said.

 So, you have a Scottish Government doing it's usual false reassurance and asserting that it'll all be fine despite growing evidence to the contrary. What should the UK Government do? Well, one option is to stand by while yet more experts demolish the SNP's arguments. The other significantly riskier option is to take the whole idea of a currency union off the table. This, we are told, is what George Osborne is going to do tomorrow, with the backing of Ed Balls and Danny Alexander.

Why the risk? It makes the UK Government sound reactionary, petulant and unwilling. This could alienate the very people that Better Together needs to vote No in September. These are the people who respond to the Yes pretty picture narrative. They will even say that it doesn't matter if we're poor as long as we're free. However unpretty not having a viable currency would be, Osborne's gamble runs the risk of sounding like more of the macho posturing we've had on both sides of this debate. It's not a good look. It feeds those who view the Union as some great oppressive tyrant.  But, and it's a big but, if a currency union just isn't going to work, is it not better for the UK Government to be honest about it? How would the voters in the rest of the UK feel about sharing its currency with a country that's just left that union? Would a government of any flavour be able to get that through the House of Commons? I can't see it. If it's a political, fiscal and economic non-starter, is it not best to say so now, rather than let Scotland vote yes on the basis of false reassurance. Saying no then would be locking the door after the horse had bolted. I just hope saying no now isn't locking the poor beast in the stable in the dark for months on end.

Bluntly, Scotland needs the currency union a great deal more than the rest of the UK. Nicola Sturgeon goes on about transaction costs for business. Well, the other UK countries may well be Scotland's biggest trading partner, but Scotland isn't the rest of the UK's, not by a long chalk. You have the 600 million people in the EU and US way ahead of our 6 million people, and nobody's seriously suggested we join the Euro for a while, or the dollar ever.

Reaction from the SNP so far has been either that the UK Government is bluffing or that it's bullying. Well, they can't have that both ways.

I'm still not convinced that this is the best tactic. A lot will depend on what Osborne actually says tomorrow. It's not the time for rhetoric and passion. If he's going to set out this stall, his language will have to be rational, reasoned and measured. He'll have to set it out very carefully and logically, with no rancour. He has a lot of convincing to do, and, let's face it, he is not the most popular politician as far as Scots are concerned. Already the execution of this has been incredibly cackhanded. If David Cameron had kept his mouth shut at that press briefing yesterday and just let Osborne make his speech on Thursday, we could have had the judgement done on his actual words, not conjecture, for 36 hours before. Cameron did this last year, too. He made some comment about the timing of the referendum not being an issue to journalists before it had been agreed between the Governments.

The SNP must now state their Plan B

One thing that's absolutely for sure is that the SNP has nowhere to hide now. They'll try, for a while, to just lob accusations of nasty Westminster bullies into the air but that won't count for much if, having been told they won't get their currency union, they don't produce an alternative.  Otherwise, they will be asking the electorate to play the biggest game of chicken in history. Currency is fundamental to everything we do, so we need to know exactly what's going to happen. It would have been wrong of the SNP to keep making promises it was in no position to keep on something as important as this. It's interesting that nobody really cared about the currency a few months ago, but now polls are seeing it figure quite highly.

So, everyone, to the tune of "Donald where's your troosers", Alex, where's your Plan B?

The three pro UK parties are taking a huge risk here. It will be some time before we see if it pays off, but I'd say it has a pretty good chance. That doesn't mean I have to like it, though.

SNP Councillor calls Alistair Carmichael a "supposed Scot" as furious debate over shipyards continues for too long

It's been a fairly depressing couple of days for anyone watching the independence referendum campaign north of the border. Both sides would do well to remember that people are losing their jobs in Portsmouth, Glasgow and Rosyth after the BAE Systems announcement yesterday. It would have been appropriate, I think, for the main focus to have been on support for the people who were going to be out of work, but, no. Sadly and predictably, there's been a big row about what would happen if Scotland votes for independence next year.

It stands to reason that if Scotland votes to stay in the UK, the UK's warships will be built on the Clyde. That's a certainty. If Scotland votes for independence, the rest of the UK has 3 options.

• Open their own shipyard, maybe that might involve re-opening Portsmouth;
• Keep the contracts in Glasgow
• Look elsewhere

The SNP Government, as it always does when questioned, just kind of shrugs its shoulders and says it'll all be fine,  that it makes sense for the work to continue in Glasgow for skill and cost-effectiveness reasons. They might well be right on that, but what about the politics? Would a rUK government which has just had to do a major restructuring job want to pay a foreign country to do a job it could and would normally do within its own shores? How would its electorate react if it did?

This argument continued through the late night political shows last night and through First Minister's Questions (answered by Deputy FM Nicola Sturgeon as Alex Salmond is in China) this afternoon. By the end of her exchange with Labour leader Johann Lamont, I was, frankly, over all the wrangling. There is no need to make quite such a meal of a self-evident point. All the pro-UK parties need to do is say that the work is certain to stay in Scotland if we stay in the UK, not so certain if we leave. We don't need 20 minutes of sabre-rattling when it's not the most pressing issue about all of this. This pudding has about 10 times more eggs than it actually needs.

I will at least give Willie Rennie credit for asking the most concise and pertinent question which completely undermined the argument Nicola had been trying to develop using that old trick of quoting her own words from several years ago back at her. He said:

The big problem for the Deputy First Minister is that what she has said to Johann Lamont today is not what she has said in the past about procuring ships. Let us look at what she said about a fisheries protection vessel before she was a minister. She said:
it should be reclassified as a grey ship in order that the work can simply be given to a Scottish yard.”
The Sturgeon shipbuilding doctrine, powerfully put, was that warships should be built inside the national boundary. She wanted the then Scottish Government to pretend that our fishing patrol ships were warships so that they could be built here, but now she wants the UK Government to do the opposite. Does she see no inconsistency between what she said then and what she is saying now?

Elsewhere, Alistair Carmichael, Secretary of State for Scotland, said that Portsmouth would be well placed to build the frigates if Scotland voted for independence. It's understandable, but I wonder if it's fair to give Portsmouth false hope given the current state of the polls which show a clear majority against independence.

A couple of months ago, Carmichael called out Alex Salmond after the First Minister inferred that the case against independence was the case against Scotland. We all have to live with each other come 19th September next year so keeping that sort of divisive and unnecessary language out of the debate is essential. Everyone, on both sides of this debate, has Scotland's interests at heart and to pretend otherwise is, as Alistair said, "ludicrous and offensive."

Sadly, there's no shortage of SNP elected representatives ready to make such jibes. SNP Fife Councillor David Alexander, called Alistair a "supposed Scot" on another Fife Councillor's public Facebook page:

It's nasty stuff and, sadly, we are likely to see more of it as the referendum gets closer. The SNP is highly disciplined and very hierarchical. If a message went out from the top that these sorts of comments should not be made, it would probably be obeyed. The problem is that the First Minister himself has not set the best example.

Questioning the Scottishness of the Secretary of State is not acceptable. Sure, there a couple of parliamentarians on the pro-UK side (not Liberal Democrats) that I'd love to send on a fact finding mission to somewhere with no broadcast or internet signal till after the referendum, but the Yes side has a much wider problem with its supporters expressing such unpleasant views.