THREE leading Scottish economists have cast doubt on whether an independent Scotland could be part of a sterling zone with the rest of the UK and said the nation’s best option would be to create a new currency.
Ronald MacDonald of Glasgow University, Dr Angus Armstrong of the National Institute of Economic and Social Research, and David Bell of Stirling University also warned of “25 years of misery” for Scotland as it adjusted its economic levers to independence.
The three economists were giving evidence to the Scottish affairs select committee at Westminster yesterday.
Their claims were dismissed by a Scottish Government spokesman, who said that a sterling zone is in the rest of the UK’s best interests and that Scotland would be in a healthier economic position than the rest of the UK.
Prof MacDonald attacked a threat made by First Minister Alex Salmond that an independent Scotland would not take on its share of UK debt if there is no sterling zone.
He said: “I don’t think this is a very credible statement, I think it is a poor statement for a policy maker to make.”
But he added: “The consequences would be that we would be paying an even bigger premium on our debt than we would be if we were financing or willing to accept the debt levels which most people agree would be Scotland’s share.”
Prof MacDonald said that a sterling zone would not work because Scotland would have oil and gas revenues and the rest of the UK would not, meaning that Scotland would be subject to financial “shocks”.
He said: “That means you would have to have your own currency which recognised the significance of oil on Scotland’s competitiveness and that would mean some flexibility.”
He said that without its own currency Scotland would not be able to protect itself from shocks, which would “mean you would see greater unemployment”.
Prof Bell warned of “a long period of adjustment” ahead of an independent Scotland. Asked what long term meant, Prof MacDonald said “a generation”.
Committee chairman Ian Davidson asked: “Do you mean 25 years of misery?” Prof MacDonald replied: “Possibly, yes.”
Prof Bell added that “adjustment means either more taxes or less spending”.
Dr Armstrong said that Scotland “would want to avoid a non-credible currency option”.
He said: “Because you can’t tie a country down and because one is very much bigger than the other then a [currency union] is very difficult to be negotiated.”
He added: “It is no surprise that when you look round the world countries the same sort of size as Scotland, the same sort of wealth as Scotland ,they have their own currency.
“It is imperative to have the discussion on what the different system would be before the referendum, not after. You don’t want to have this discussion the day after a referendum.”
A spokesman for SNP finance secretary John Swinney said: “An independent Scotland will keep the pound, which is in the overwhelming economic interests of the rest of the UK, and Scotland will start off in a better financial position than the rest of the UK.”