Ed Balls deciding to join the the Tories and LibDems and apparently writing off the possibility of an Independent Scotland sharing a currency union with the rest of the UK is a low point for the Labour party.
The proposal for iScotland (Independent Scotland) and the rUK (rest of the UK) to share a currency union does not originate from the Scottish Government. In 2012, the Fiscal Commission Working Group was established to help to shape the development of a robust fiscal and macroeconomic framework for an independent Scotland.
This group contains world renowned economists such as Professors Andrew Hughes Hallett, Sir Jim Mirrlees, Frances Ruane, Joseph Stiglitz and Crawford Beveridge. It is this group of world renowned experts that believed that a currency union between rUK and iScotland would be the best solution for all parties. In fact, they said that this was an 'attractive' proposition for the rUK. Bank of England governor Mark Carney has since reiterated their point by stating that a currency union can work to the benefit of iScotland and rUK.
A currency union is not the only option for iScotland and it is not my preferred option. I would like to see Scotland have her own currency; a Scottish pound pegged to Sterling.
The practice of currency substitution is common across the globe. A substitute currency brings stability and flexibility while allowing iScotland to have access to the full fiscal levers of the Scottish economy.
A criticism of iScotland not having her own central bank is the fact that iScotland would not have a central Bank and thus susceptible to bank bail outs and economic uncertainties. This argument is countered by American economist, George Selgin, who points to the implied promise of a bailout from the European Central Bank and that "it seems that not having a lender of last resort has proved to be something of a boon to dollarized economies, because, by doing away with, or at least greatly limiting, any prospect of a bailout, it has caused creditors and banks to behave more prudently."
A prime example of a country successfully using a substitute currency is Panama. Panama uses the dollar without permission from the USA and, to quote the World Bank, Panama "did relatively well during the global financial crisis" when compared with "other countries in the region. Panama is also "the most competitive economy in Central America, and second in Latin America" according to the 2013-14 World Economic Forum Global Competitiveness Report.
With all that in mind, why am I so angry with Labour?
- Westminster refusing to negotiate on a currency union with iScotland would not be viewed favourably by the markets. A currency war would weakening the rUK's credit rating and subsequently increase borrowing costs.
- It would be viewed as anti-business as it would increase transactions and administration costs for companies that are based in Scotland and rUK.
- But more significantly, the rUK's balance of payments would be damaged by the loss of Scottish exports. This would have wide-ranging negative effects for the rUK's economy.
Labour are saying that they are willing to put people through economic turmoil to fulfil their ideological objectives. In this case, Labour's belief that the Union must be maintained is, in their opinion, worth the pain and poverty that years of economic chaos will bring. Which begs the question: Are they any better than the Tory/LibDem Government which are blatantly blinded by an ideological drive to implement austerity?
What happened over the last few days should not come as a surprise. Only last week a Scottish MP, Jim Hood, said:
"Even if the SNP was right and there was a grand, great thing at the end of the rainbow for the SNP and its debate for independence, I would still be against it. If the Scottish people are going to be better off economically and so on, I would still be against breaking away from the Union. That is part of my history. I was proud to be born into a mining family in a mining community, where it was not about self-betterment, and where judgments are not made about people on the basis of which side of the road or of the bed they were born on."
The Labour people who I meet in my political travels are, in general, fantastic people who passionately care for social justice. I cannot understand why the Parliamentary Labour party is so out of touch and disconnected to their grassroots supporters.
In the last week we have had the Labour leader confirming that a Labour Government would cut more public services if they win the General Election in 2015. We have had the Shadow minister for the DWP that wants to out-Tory the Tories. and now we have the Shadow Chancellor willing to cut his nose of to spite his face in respect of the currency in iScotland.
Most people are aware that the rhetoric emanating from Westminster is merely political posturing to intimidate/scaremonger Scottish voters into voting No in the Scottish Independence Referendum and that makes Labour's stance even more depressing. Rather than present a positive case for the Union, the Labour Party has sunk to the depth of the Tories and LibDems. Duplicitous, devious and disappointing.