The SNP appear finally to have woken up to the threat posed to the referendum by their support for Scottish membership of the Eurozone – given the incessant diet of Eurocrisis stories – and John Swinney has this week made a brave effort to kick it into the longest grass he could find. Leaving aside the debate about whether an independent Scotland would have to reapply to join the EU, or conversely would be compelled to join the Euro, what would be the best approach to the currency question for Scotland?
There are four basic options. Let’s call them Ireland, Montenegro, Norway and Sweden.
Ireland joined the Euro at the start, back in 1999, and it’s fair to say it seemed like a good idea at the time. Initially the Irish enjoyed an economic boom, built on low interest rates and low corporation tax, but as we know, it proved unstable to say the least. If the good times had kept rolling, it would have been hard to argue with, but more than a decade in the single currency has demonstrated the serious downsides to Euro membership. They surrendered control of monetary policy first, and now, with the new treaty, are about to surrender some control over fiscal policy too. Austerity is biting hard, the bond markets may again try to pick them off the back of the herd, and only the most diehard Euro-enthusiasts see joining their Euro woes as the way forward at this point. To get to this point we would in any case need to operate for a period with our own currency.
Montenegro uses the Euro, having previously used the Deutsche Mark (in the same way much of the former Yugoslavia did, de facto) but is not a member of the Eurozone. They have no true central bank of the form familiar from other independent nation states, and no say over monetary policy, and their fiscal policy is only limited by their desire to join the EU and become a full member of the Eurozone. A country in this position retains the option to start their own currency up (and, as the Velvet Divorce shows, this is easier than might be assumed), but their economic independence is limited to say the least.
Norway remains fully independent, having rejected EEC (as was) membership in a 1972 referendum. They run their own currency, and retain complete fiscal and monetary freedom (aside from any bowing and scraping to the markets they feel obliged to engage in). Through membership of the European Economic Area they gain access to EU markets as if they were members, and must comply with almost all single market requirements. The downside here, clearly, is the Norwegians have no formal input into those rules, and, oddly, they are required to contribute more than a billion Euros towards social and economic cohesion funds despite being ineligible for any funding in return.
Sweden is a full EU member, but has retained the krona despite being notionally committed to Euro membership, and despite not having an optout. As yet, though, they haven’t even gone into the ERM2 convergence zone, the essential next step if they were to join the Euro: and in 2003 moves towards the Euro were rejected in a referendum. The country’s economic policy is largely in domestic hands, both monetary and to a lesser extent fiscal (hence the decision to stay out of the latest treaty, or at least not to be governed by it while outside the Eurozone), but either way they retain all the advantages of EU membership.
John Swinney’s preferred short- and medium-term option, retention of the pound, has no direct current parallels in Europe, but the closest comparison is with Montenegro, with the Bank of England playing the part of the European Central Bank. We’d have no control at all over monetary policy, without even MPs at Westminster to lobby the Chancellor or any reason why Scottish interests should be considered by the Monetary Policy Committee. We’d have no true central bank, no ability to consider policies like quantitative easing.
it’s all the currency downsides of the Union with none of the input. It sounds reassuring, though: “we’ll retain the pound”. Not scary. No change. Like “we’ll retain the Saxe-Coburg Gothas“. But no amount of flannel from Mr Swinney about hopes for “lengthy and solid agreement with the Bank of England” alters the fact that any such agreement would have to be entirely on the Bank’s terms. It’s not even clear why that’d be better than adopting the strict Montenegin approach and just circulating the Euro.
The Irish example is perhaps even more unappealing, for reasons that have become obvious to to the SNP as well. For me, this leaves only our two Scandinavian neighbours as possible role models. Personally I’m still on balance in favour of EU membership, although the way the Eurozone crisis has exacerbated the Union’s centralising tendencies is gradually putting me off. For now, it looks like those in the EU but not in the Eurozone have the best of both worlds, but there may come a time when true independence outside the EU was clearly in Scotland’s best interests. Sweden for now, in other words, but with an eye on Norway.
Don’t make the discussion about Scotland, and leave aside the economics for now. Just ask Family Fortunes contestants what the characteristics of an independent country are. It seems likely that having your own currency and your own head of state would be pretty high up their list, whatever the experience of living next to the Eurozone and in the Commonwealth may tell us. It’s not a bizarre and outlandish thought.
And that’s the kind of independence I want. One where Scotland genuinely runs her own affairs. Plenty of other small countries have their own currencies – in fact, apart from Montenegro and Eurozone members, that’s the norm. Let’s do the same (and let’s have no Queen on it either: the idea that a new and notionally progressive state should choose the hereditary principle is surely absurd).
The Nats have a decent starting point. Yes: London’s control over our economy doesn’t benefit us. Yes: it’s remote and undemocratic. Yet Swinney’s plan would leave future Chancellors at Westminster and the Bank of England in charge of Scotland’s economy, while actually reducing the influence we have over them. And he’s still retaining the option of handing those policy levers over to the even more remote and undemocratic European Central Bank.
This economically incompetent position feels like it’s driven by focus group, like so much of the SNP’s trimming and tacking, motivated by a desire not to alarm the public who the SNP presumably believe care more about what the money in their pocket looks like than they do about the actual economic merits of a particular position. It’s a soft spot for the Unionist campaign to attack, though, and surely won’t hold up to intense scrutiny during a referendum campaign. Time to reconsider.
Note: this is my position, not Scottish Green Party policy, which remains to oppose membership of the single currency and to support independence. Technically that could mean support for either an independent Scottish currency or, ironically, John Swinney’s approach. I have no doubt that this will be discussed at Conference prior to any referendum.