Yesterday, the Leader of the SNP, Alex Salmond launched what he billed as an economic strategy for a successful independent Scotland. He ended up threatening to turn Scotland into an economic pariah.
The nationalists have been under pressure on economic issues recently. A leaked Cabinet report written by Scottish Finance Secretary John Swinney revealed he was examining the affordability of paying pensions. A report which looked at the currency options for an independent Scotland undermined their claim that we could automatically keep the UK pound. There would be strict terms and conditions. A report from Scotland's accountancy profession forced the nationalists to admit they had no plan to deal with funding problems in cross-border pensions. And on Monday a Treasury report analysing the impact of independence on financial services raised the prospect of higher mortgage costs and job losses.
The SNP paper needed to answer some big issues. What we got was, in Salmond's own words, a "booklet". A flimsy document with no answers on currency, on finance jobs, on pensions. All they offered were unfunded corporation tax cuts for big businesses. Their policy is to undercut the UK by 3% regardless of what the UK rate is. If, as they plan, we were in a fiscal pact with the rest of the UK why would the UK sign off a Scottish budget that undercut their economy?
Salmond had attacked those who voiced doubts about how a separate financial system would work as "scaremongers." Embarrassingly, the man who introduced him at the booklet launch was asked whether he thought independence would be good for his business. He responded that he couldn't make a judgement because there was no detail on how finance and banking would work. Whatever this booklet was, it wasn't a serious attempt to set out an economic plan.
Without a credible story to tell, Salmond reverted to his default position. Create conflict with London. Blame everything on the people down-South. He made an extraordinary threat. He would default on Scotland's share of UK debt if the rest of the UK didn't agree to create a monetary union. His strange argument is that the UK currency and central bank are assets which Scotland would be entitled to a share of. If the UK won't establish a monetary union then Scotland is relieved of our share of the debt.
No-one doubts that there would be negotiation over assets if we go it alone. But the UK pound is not a physical asset. It is the UK's monetary system. If we leave the UK we leave that system. To keep using the pound would mean establishing a new cross-border system. There is no continuity option that sees Scotland using the Pound. Whether a currency union, setting up a new currency or joining the Euro - all options mean big change.
Scotland could lay claim to a share of the assets of the Bank of England, our share of desks and computers, but we can't demand that the people there continue to work for us. In everyday terms: after a break-up you can argue over the division of your CD collection but you can't demand that your ex continues to share a bank account with you.
For a separate Scotland to start life by defaulting on our debt obligations would be disastrous. Scotland's economy outside the UK would already be exposed to economic shocks such as a fall in oil price. We should not be seeking to create a new one.
As this week's report set out, Scotland's banking sector could be 12 times the size of our economy. Cypriot banks were 8 times the size of theirs before their recent crisis. We would be reliant on volatile oil taxes for about 20% of our revenues, compared to around 2% of current UK taxes. These risks are currently spread across the whole UK and they are real. The memory of 2008 is fresh in the mind.
Salmond thinks that suggesting a debt free start is good politics, but people understand there are consequences. If you declare yourself bankrupt you don't start anew with a fresh slate, your bad credit history follows you around for the rest of your life. The consequences for borrowing, business and mortgages would be dire.
Behind the bluster of Salmond's threat is a revealing truth. He acknowledges that keeping the UK Pound is not something he can promise. Establishing a Eurozone-style Sterlingzone would be something that the rest of the UK would have to do for our benefit. The Chancellor has already said that is unlikely, the Welsh First Minister has set himself against the idea. The Yes Campaign supports a new currency or joining the Euro, but Salmond has been silent on his currency plan.
His outburst on debt makes sustaining that position even more difficult.
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