First Minister Alex Salmond has argued that the pound should be kept
because it is Scotland's money but has the euro also belonging to Greece
made life better for Greeks?
Scottish independence: Man's limitations and Scotland's money
by Alex Porter
Recently, First Minister Alex Salmond penned an article for The Mail on Sunday, in which he 'debunked' the myths surrounding the debate over Scotland retaining the pound sterling immediately after independence.
The SNP leader pointed to the Isle of Man as a shining example of "a territory that is not part of the UK but which is effectively in a currency union with the UK."
The model of Man has won some adherents - one 'yes' campaigner's tweet recently referred to the Isle of Man as being "in a currency union with the UK!" Interesting how myths are borne. If you look more closely at what Salmond said you start to get nearer reality. He said "’effectively’ in a currency union” - meaning that it isn't at all.
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I thought the tweet striking as said campaigner is also a senior lawyer - you'd have thought he'd have been alert to Salmond's nuancing but alas.
Another tell-tale sign of rhetorical gymnastics with the Man parallel is the use of the word "territory". Is independence about becoming a "territory"? The Isle of Man is not a sovereign state and so does not enjoy the international influence of even San Marino or the Vatican. It has the status of a 'dependent territory' meaning it does not possess full political independence or sovereignty.
Indeed, it is the very same status which nations enjoyed as part of the British Empire. Colony is the word. Naturally, Alex did not venture this far into the Manx parallel. However the underlying logic is not lost – Man has far more power over its own currency than Salmond’s post-independent Scotland would so does deploying this example effectively mean Salmond’s Scotland would be a colony?
Comparing Scotland to a colony of course would be a controversial move by Salmond. Not long ago one of Scotland's greatest thinkers, Alasdair Gray, shook up Scotland's wannabe intelligentsia by suggesting that English arts administrators who work in Scotland as a means to later further their careers in London are colonists. Another of Scotland's greatest thinkers Jim Kelman recently suggested that Britain is characterised by an Anglo-Saxon racial supremacism or "colonised by wankers...effete arseholes" as Renton succinctly put it in Trainspotting.
A recent Scottish Times poll found that a surprising number of respondents (42%) believe - for whatever reason - that Scotland is indeed a colony (see chart). Another ST survey showed a majority of respondents felt their Scottish identity suffered from being part of the Union (see chart 2).
Now there's a debate that would set the campaign heather alight but as ever we sovereign Scots cannot be trusted to think for ourselves about such subjects – there are those among us who apparently know when the rest of us should speak when we’re spoken to.
If Scotland is a colony, as many believe, wouldn't the infamous Scottish cringe be a symptom of that? And is there no surer sign of that cringe than the fear of being ridiculed over debating an independent currency? Does the independence debate not offer Nationalists the opportunity to shake off that cringe by showing inspirational leadership and self-confidence? Indeed is this not the very principle point of an independence movement?
Is the Manx currency "effectively" in currency union with the UK?
The SNP's version of independence is what some others call 'DevoMax' as it envisages Scotland using the Bank of England as its central bank.
Salmond is a man for the horses and so ought to be aware that the BoE form book is appalling. During Sir Mervyn King's watch it failed before, during and after the 2008 financial crisis to effectively regulate the banking sector. Indeed, it itself was implicated in the Libor fraud scandal.
Yet, despite its highly questionable role in what has been described as “the biggest financial crime in history” the alarm bells are not ringing inside Salmond's cabinet.
Responding to a question from a Scottish Times reporter, Finance Secretary John Swinney recently raised eyebrows by appearing to believe that all the banking problems that caused the UK financial crisis ended in 2008.
News relating to regulatory fines given to UK banks for money laundering, Libor-rigging, 'mis-selling' of financial products and other scams conducted post-2008 appears not to have reached our finance secretary’s office.
If the notion of having such a compromised institution controlling our money supply doesn't scare you witless, at least the Man example shows that having the Bank of England as a lender of last resort is an example of a currency union working in practice, right? Wrong. The Isle of Man's currency is not guaranteed by the Bank of England and unlike most currencies in the world is printed by their own government rather than a central bank.
Scratching your head yet?
Alex Salmond's Mail on Sunday article was designed to 'debunk' Unionist rhetoric: "The Isle of Man is living proof that the recent scaremongering by George Osborne and others in the anti-independence campaign amount to just that – scare stories without a shred of credibility."
Living proof of?
None of these problems are insurmountable you might argue as the Man currency lives up to the most vital part of being in a currency union which is that bank notes are mutually exchangeable in participating member 'territories'. Depressingly, this is not the case. Man's currency cannot be used anywhere on mainland Britain!
It's Scotland's Pound!
The Mail on Sunday piece, as a read, does offer insight into the intellectual health of the 'yes' campaign. The case rests overwhelmingly on patriotic appeal.
Salmond argues: "An independent Scotland will keep the pound because, first and foremost, Sterling is Scotland’s currency every bit as much as it is that of England, Wales and Northern Ireland."
If the SNP are not careful their supporters might take to the streets chanting 'It's Scotland's Westminster'. The British parliament belongs to Scotland as it does to England, Wales and Northern Ireland.
Ownership of shared institutions is irrelevant to what drives the independence cause though. It is Scotland's lack of influence in Westminster that is the central argument for a 'yes' vote. However, post-independence Scotland will have as much influence over the Bank of England as Ireland does over the European Central Bank (ECB), if not less. So, if the case is that Scots should settle for a token presence in their central bank, why not also settle for token representation in Westminster? At least be consistent.
Taking the logic to its conclusion, can we expect 'yes' campaigners to take to the streets with saltires painted on their faces demanding our share of UK debt? That belongs to Scotland too afterall and we do want our freeeeeedum..
Collective Trauma: reality of currency unions
As with the pound the euro belongs to its members. That includes Ireland, Spain, Portugal, Italy, Cyprus and Greece every bit as much as it does Germany. However more and more Greeks, for example, now wish it did not.
Just ask the swelling numbers of young Greek teenagers forced to turn five-euro tricks in order to feed themselves about the benefits of a currency union.
One German psychotherapist, Georg Pieper, recently reported that the climate in eurozone Greece is now akin to that of a civil war.
Stories leak out beyond the Troika controlled press of pregnant women rushing from hospital to hospital, begging to be admitted to give birth. We see the insidious development of debtors’ prisons and also the rise of extreme forms of politics.
Currency union may go down well in Scottish focus groups but in the case of Greece it has visited what Pieper calls "collective trauma" on Greece and other countries are heading in the same direction including now France which hitherto has been at the centre of the EU project but which is now poised for ‘periphery’ status.
As the eurozone lurches from crisis to crisis, are Scottish businesses blind to what currency union is doing to Ireland and Spain? Do our economists not know that currency speculators may already be salivating at the prospects of profiting from the division they can drive between the two economically divergent 'independent' states in the sterling zone?
The risk of a currency union can be said to be higher for Scotland than for eurozone nations. This is because the City of London is perhaps the top location in the world for asset speculation. Wouldn't the fledgling Scottish state be like a lamb to the slaughter?
Many independence supporters follow the principle that you can leave adopting an independent currency until after independence. No need to frighten the horses goes the logic. On this issue they could not be more wrong.
For instance how can they get round the following quandary: what would there be to stop the Bank of England printing money and City banks leveraging that money up into a war chest worth trillions of pounds to then buy up every business and property in Scotland? The 'It's Scotland's pound' strategy doesn't answer this question - a question which is of material interest to millions of Scots.
How unlikely is this scenario? It's not unlikely at all. It would be in the City's interest to seize that opportunity. Overnight, we would experience rampant inflation over which Scotland would have little control. Plus all industrial decision making would migrate south which is surely the opposite of independence.
The Scottish economy would take decades to recover and a future Scottish government may be left scrambling to build an emergency monetary infrastructure but the damage would be done.
This year, leading Scottish economist Jim Cuthbert warned the Nationalists' economic strategy on keeping the pound should be rethought and reversed before the referendum to avert the "high likelihood of a potentially catastrophic crisis in the not-too-distant future".
There is no doubt that there are merits to Scotland keeping the pound. However for that case to stack up the realities of the UK economy have to be ignored. This is why some economists 'in principle' back the idea – the case has general appeal if specific circumstances are overlooked.
On the surface, it would be ideal for Scottish businesses to continue using the same currency - continuity with our largest trading partner lends ostensible comfort to Scottish businesses.
This month Professor Ronald MacDonald, the Adam Smith professor of political economy at the University of Glasgow warned that there could be “unpleasant consequences for employment and output in Scotland” should the new state opt for a currency union.
Then there is the matter of how accommodating Westminster would be. The eminent Scottish economist Prof John Kay - a former member of the Scottish government's council of economic advisers - said "The currency issue is crucial - Scotland would be right to seek agreement on monetary union with the remaining United Kingdom, but it would be difficult to negotiate an agreement that would be consistent with the fiscal freedom sought through independence." He added: "Scotland should be ready to adopt an independent currency.”
Even if Westminster plays ball setting up a currency union is a hugely complex task and even if it works there remain pros as well as significant cons.
Banking experts Rod MacLeod and Hamish Patrick from Scottish law firm Tods Murray argue that the rUK (remaining UK nations) would be "unlikely" to reject a currency union however argue that it would be "a difficult and complex undertaking". They conclude: "Whilst some would view issuing a new currency as a high-risk alternative due to the inevitable uncertainty over the new currency's exchange value on the international money markets, if Scotland issued its own currency it would at least guarantee a greater degree of fiscal autonomy than under the other options."
Clearly, any agreement on the terms of monetary union would mean effective Westminster control over Scotland's key economic powers which are setting interest rates and quantitative easing aka money printing. Furthermore, any deal over monetary union would mean Scotland did not have autonomous control over setting taxation policies.
It seems incongruous for a nationalist politicians to cede powers to the party it seeks independence from. Indeed, at the time of writing the SNP have issued a press release entitled: '“LONDON IS NOW BACK IN CHARGE” OF SCOTTISH LABOUR PARTY'. Can we expect to see headlines in October 2014 announcing "LONDON IS NOW BACK IN CHARGE OF SCOTLAND"?
Financial expert Ian Fraser, himself in favour of independence, finds the SNP's position curious telling Scottish Times: "It's an odd thing that Salmond wants to keep it [BoE] as Scotland's central bank...We should have our own".
Fraser warns that retaining the pound would effectively leave an independent Scotland with "a monetary policy dictated by another country where we are unable to set interest rates". Fraser added: "I can't think of another country which has kept the currency of the nation it is separating from"
Sachs in The City
Speaking about Wall Street recently, Professor Jeffrey Sachs told a high-powered audience at the Philadelphia Federal Reserve: “I am going to put it very bluntly: I regard the moral environment as pathological...I’ve not seen anything like this, not felt it so palpably...They have no responsibility to pay taxes; they have no responsibility to their clients; they have no responsibility to people, to counterparties in transactions,”
Sachs, of Colombia University, has twice been among Time magazine’s 100 Most Influential People in the World. He is also an adviser to the World Bank and IMF.
He added: “They are tough, greedy, aggressive and feel absolutely out of control in a quite literal sense, and they have gamed the system to a remarkable extent.”
Indeed the problem goes to the very heart of the western financial system. Former Senior Council of the World Bank and now whistleblower, Karen Hudes, recently warned “Think of the World Bank as ENRON.”
You would have to be either blind or heavily reliant on the financial sector for advertising revenues if you thought the City of London is any different. The UK financial system is every bit as corrupt and precarious as it was before 2008.
The recent scandals involving UK banks (mentioned above) are the smoking gun - however much of this crime spree has gone unreported, so much so that Scotland's own finance secretary is either unaware of them or pretending not to notice.
Take the Bank of England, as the SNP would have us do; It is to set post-independence Scotland's interest rates yet it was itself implicated in the Libor rate rigging scandal. Incredibly, despite the BoE failing to prevent the UK's financial crash and still failing to police it properly, the British government has given the BoE increased powers and these 'reforms' have been welcomed by John Swinney as robust - a view which may come back to haunt him politically and all of us financially.
The SNP has used the argument that everyone knows the Bank of England is independent – the idea here is to counter the conclusion that Westminster would retain power over Scotland’s economy. Swinney and Salmond know only too well that the Bank of England is a creature of Westminster legislation. Indeed, new governor Mark Carney was appointed by the UK government. And it is no secret that Canadian central banker – no domestic British banker was untainted by Libor and so could not be considered for the role – was politically appointed because of his penchant for printing money – a further sign of the desperation within the UK treasury.
In relation to quantitative easing, Jim Rogers, former partner of George Soros and famous international financier, said last week: "We’re getting to that point where either one of two things are going to happen; either central banks are going to stop all this [money printing], or the market is going to force them to stop it.”
There are good reasons why both Scotland and rUK would benefit from monetary union, however who could now argue with any conviction that the UK's economic policy is currently exercised in the interests of its citizens?
The UK economy is being hollowed out to feed a financial system which is completely out of control. The debasement of sterling continues unabated in order to conceal these failures and feed the rampant greed of City speculators.
Are lifeboats for before or after the ship sinks?
In support of the SNP's currency message is Gordon McIntyre-Kemp, founder of the pro-independence Business for Scotland campaign who argues that without Scotland, the pound sterling will crash and that, he argues, would not be in the best interests of Scottish businesses.
Swinney appears to follow this peculiar line of thinking: "An independent Scotland using the pound will mean sterling's balance of payments will be massively supported by Scotland's huge assets, including North Sea oil and gas – which alone swelled the UK's balance of payments by £40bn in 2011-12."
Britain's GDP is circa £1.5tn and so comparatively speaking, Scotland has a very small economy. If McIntyre-Kemp believes that the UK economy is so perilously close to crashing that Scotland adopting an independent currency would precipitate said crash then surely the appropriate advice would be for Scotland to opt for the controls and protections that an independent currency, central bank and regulatory system offers, no?
In terms of the British economy, the banking-sector-led recovery industry has been selling 'returning growth' and ‘dip recessions’ ever since we smoked them "green shoots of recovery" back in 2009. The banks benefit hugely from the ‘recovery’ meme as it generates appetite for more quantitative easing (money printing) and QE keeps them in business.
Now however, it appears to be dawning on Salmond and Swinney that the UK is in a long term credit contraction and there is no recovery at all. Consequently they are slowly starting to exploit the reality of Britain's economic decline in relation to having an agreement on monetary union.
Salmond argues that it is in the rUK's interest to have Scotland keep sterling: "For George Osborne, who is presiding over a flat-lining economy, whose overoptimistic forecasts have been blown away and whose borrowing is piling up at a huge rate, it would be cutting off his nose to spite his face."
A cursory glance at the UK debt figures proves this to be true. The real question though is why is it in Scotland's interests to keep the pound?
Politics of persecution
People are not daft and they know that independence means a significant degree of disruption - pretending otherwise only raises suspicions.
Salmond's continuity doctrine, aimed at not frightening the horses, has the downside that the party's ardent supporters find it difficult to sell a compelling vision of an independent Scotland to the undecided voter. Without a coherent, believable and compelling case for comprehensive constitutional change many voters will just not see the point in taking an unnecessary risk.
This is the default thinking of many Scots who feel uninspired by the debate - that it's just another reality tv show.
Indeed, Salmond himself came out to reassure his flock, after a series of poor poll findings, by announcing that the campaign was still in its "phoney war" phase and promising that the voters would engage positively once the campaign started proper.
The campaign for a ‘no’ vote smelled panic – the soundings are that they already believe they’ve won.
The 'yes' camp's output is widely viewed at soporific. Instead of vision there are brand messages, instead of conviction there are focus groups and instead of a national campaign there is a digital strategy.
To motivate the SNP's grassroots and in order to avoid the thorny question of why keep the pound Salmond frames, in his Mail on Sunday piece, the issue as one of patriotism pointing to the "high-handed arrogance" of Westminster which, out of pure badness, wants to take Scotland's pound away. How dare they?
Pushing the Scottish victim button may help distract from a weak intellectual case however it creates problems of its own.
By defending the currency policy as another example of victimhood, many grassroots 'yes' supporters will and do rush to defend SNP policy as if it were the same as defending Scotland's very existence.
Sadly, this tactic may only serve to harden the already self-righteous and tribal atmosphere across the campaign landscape which spreads the dispiriting sense that the independence referendum will result in much the same kind of 'bolotix' that is served up from the House of Commons. Meet the new boss, same as the old one.
For pro-independence figures outside of the SNP leadership the sense that there is something sad and counter-productive about this political 'strategy' is palpable. When feelings of persecution are stirred they damage self-confidence – the very ingredient nationalist movements need to exude in order to realise their ambition.
This hard-done-to approach to referendum issues comes over, rightly or wrongly, as intellectually lazy and amateurish. The SNP have many disadvantages in the referendum campaign - a hostile press being the obvious example. However it does have one key advantage - a long-neglected activist base.
Many Scots are highly motivated to work for 'the cause' however their leaders appear to be marshalling them into a tribal force tasked with parroting policies with patriotic zeal rather than extoling a vision with real political conviction.
Turning such an asset into a liability is an extravagance an independence movement cannot afford one year from a referendum.
Currency goes to the very heart of the independence referendum. It is about confidence, leadership, credibility and above all – as recent events in Greece and Ireland have shown - sovereignty.
Some are now calling for Greece to launch a parallel currency. This currency system was used as the members of the eurozone were in transition from having their own currencies to using the euro. The euro was used for transactions across the eurozone and the traditional member currency was used for domestic transactions. It worked very well.
The strategy has many political and economic advantages for Scotland however the SNP appears to be in a rhetorical corner for now and the worry is of the likelier outcome of a dog’s breakfast after a forced U-turn.
Salmond carved out the Man example because he knows there are genuine examples of monetary union all over Europe and they are ugly. It has become increasingly obvious that there are extreme problems in the eurozone between nations with less divergent economies than those of Scotland and the rUK.
So much so that some independence supporters are now considering voting ‘no’ because the risk of having a monetary union without a fiscal union appears socially, politically and economically fraught with danger and ample evidence of these dangers across Europe will be broadcast daily into Scottish living rooms as the independence referendum vote draws nearer.
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