A FEW EVENINGS before the STV referendum debate, I shared a platform in Portree with Professor Ronald MacDonald, distinguished son of Skye and a globally recognised expert on currency and exchange rates, regularly listed in the top 1 per cent of the world’s economists.
The 60 souls who had foregone the joys of a summer evening to worry over Scotland’s constitutional future heard a prescient message, soon to be shared by 1.7 million viewers. In the professor’s view, the Scottish Nationalists’ decision to insist there would be a currency union with the UK (continuing) was their “biggest mistake of all” and “will be their ultimate undoing”.
The least that can be said of Ronald MacDonald’s economic credentials is that they make his analysis worthy of serious consideration. Eleven books about currency and exchange rates, 92 articles in peer-reviewed journals, adviser to the European Central Bank and EU Commission, Adam Smith chair of political economy at Glasgow University, and so on.
Even the most self-regarding politician might concede that this should be someone, here on their own doorstep, worth consulting on currency issues. A suitable chairman, perhaps, for a Scottish Fiscal Commission if one was looking for objectivity? But in today’s Scotland, there are none so deaf as those who do not wish to hear.
The professor went on to spell out, with great clarity, why it would be wholly against the interests of the UK (continuing) to enter into currency union with an independent Scottish state. As he wrote in The Scotsman in June of last year: “History clearly demonstrates that fixed exchange rates that are not tied down by a political union and do not offer an appropriate adjustment mechanism will only survive if the country is prepared to accept prolonged economic disruption…”
Now, let us be incredibly generous to Alex Salmond who, self-evidently, is not one of the world’s leading experts on currency and exchange rates. Let us work on the premise that there is a 50 per cent chance of him being right, while Professor Ronald MacDonald et al are wrong. The statistical corollary is fairly obvious and that, in a nutshell, explains why the corner Mr Salmond has painted himself into is not only politically suicidal, once fully exposed, but also shamefully irresponsible.
The question of currency is not an abstraction or one of these argy-bargies over process which are so beloved of our First Minister. This is for real – real jobs in huge numbers, businesses, pensions, savings. Yet Salmond’s calculated gamble has been to brassneck it and rely solely on the assertion that a currency union would exist because it would be in what was left of the UK’s interests to have one.
It took a sceptical studio audience of normal people to cut through the absurdity of that position. Whatever else Mr Salmond might be in a position to determine now or in the future, the best interests of the state from which he is seeking to secede scarcely qualifies. Sharing a currency would be “the sovereign right” of those who remain within the UK to decide, devoid of Scottish input or influence. And if they say “no”, what happens next? It it not an unreasonable question, or ever has been. Ronald MacDonald, while convinced that currency union would not happen, is at least prepared to contemplate the alternative. If it did, he predicted in Portree, then it would “unravel within weeks” driven by the financial markets, leading to “austerity measures far more dramatic than anything we have seen from the coalition”. In the face of such economic turmoil, he suggested that “the civil consequences would be very serious”.
That’s heavy stuff, so let’s apply once more the 50 per cent test. Even if there is a 50-50 chance that Prof MacDonald is wrong and Mr Salmond is right, what possible justification can there be for not setting out a clear fallback position? In other words, what’s Plan B? That question will not go away because the implications are so profound for every Scottish household and the audacity of refusing to recognise that has been rumbled.
Mr Salmond’s new war cry is to say, over and over again, that “it’s Scotland’s pound too” – a far cry from his previous position that sterling was “a millstone round Scotland’s neck”. The nation is supposed to rise up in outrage: “They’re trying to take our pound away from us”. But it really is puerile stuff. Of course, it’s Scotland’s pound as long as we are inside the UK. But if we choose to leave, it will still be the UK’s pound. Or maybe Mr Salmond has “legal advice” to the contrary?
One small danger is that if this deteriorates into an argument about being denied a “right” to currency union, sight is lost of what we are actually demanding to be part of. It does seem astonishing that the highest ambition of a secessionist leader is to have his country’s currency and economic parameters dictated by the central bank of the state from which he is so desperate to secede – without a clue what would happen if this disintegrated “within weeks”.
While Mr Salmond denies the need for a Plan B, others are filling in the blanks. Jim Sillars continues to tour the country telling anyone who will listen that his former leader’s plan is “stupidity on stilts”, for much the same reasons as advanced by Prof MacDonald.
Mr Sillars favours a separate Scottish currency, and Prof MacDonald thought that would have been the most rational option for the Nationalists to adopt. But it sure ain’t the one on offer, and Mr Salmond can hardly change that now.
Meanwhile, the National Institute for Economic and Social Research has helpfully described the implications for the financial services sector if we end up using the pound on an informal basis without the underpinning of a central bank. In the absence of a lender of last resort after a “financial border” had been created, the banks would be forced to move their head offices to the country in which the central bank was located. The longer Mr Salmond refuses to name his Plan B, the more certain it becomes that every institution and business in Scotland with options is organising theirs. But the vast majority of us who simply want to stay here have only one means of defence at our disposal and it is to say in decisive numbers: “No thanks.”