A FORMER Bank of England chief has warned that a pound-sharing pact between Scotland and the “rump” UK after independence “does not work”, and has described Alex Salmond’s plans for the economy after a Yes vote as “vague” and “unconvincing”.
Professor Brian Quinn, a former deputy governor at the UK central bank, warns that locking Scotland into a monetary union dominated by the UK would “frustrate” the countries involved, leading to “serious tensions” as the two new countries’ interests diverged.
Over time, he says, it would be certain that Scotland would “not agree” with the rest of the UK on the key issue of interest rates policy. However, he said, the Scottish Government’s White Paper had “not explained” how such disputes would be resolved.
Scotland could be left with rates of interest “unsuitable” to its own economic situation, leaving Scottish representatives at the Bank of England in an “impossible position” of being unable to act in the new country’s interests.
He writes in Scotland on Sunday today, following the publication of the Scottish Government’s White Paper last month which confirmed that the SNP would like to keep the Bank of England as Scotland’s central bank, with complete control of monetary policy over Scotland and the remainder of the UK.
Quinn also says the White Paper failed to specify the emergency procedures if, as in 2008, a Scottish-based bank were suddenly to crash.
“Real problems could arise if a major Scottish bank were to report that serious difficulties had unexpectedly emerged and the views of the two governments on what should be done diverged,” he writes.
He also warns that it is “fanciful” for the White Paper to claim that Scotland would get a top credit rating. He writes: “Past performance within an economic union with a strong credit history is no guide to a new country without a proven record of prudent fiscal behaviour as a sovereign state, and with the size and structure of Scotland’s inherited public debt yet to be settled.”
The White Paper, published last month, claims that “the expectation would be that Scotland will receive a top credit rating”. On the size of the debt burden, the White Paper suggests that interest payments alone will be a minimum of £2.7 billion a year – more than the Scottish Government’s current capital expenditure.
Quinn is currently honorary professor of economics at Glasgow University and began his career as an economist with the International Monetary Fund. He is also a former chairman of Celtic FC.
In response, a Scottish Government spokesman said: “The Scottish Government has put forward sensible proposals for a formal monetary union that would ensure both governments had full flexibility over their fiscal policies.”
He added: “The findings of the Fiscal Commission Working Group – which includes two Nobel Prize winners – show that, as an independent country in a sterling area, Scotland would have the powers needed to exploit areas of comparative advantage and also tackle those areas where we need to improve performance.”
But the leader of the Better Together campaign, Alistair Darling, said last night: “This is a significant intervention from a well-respected andindependent economist with experience of working around the world.
“As Professor Quinn says, the SNP’s manifesto for breaking up the UK offers more assertions about what they would like to happen rather than facing up to the reality. People in Scotland need to know what Alex Salmond’s plan B is on currency. He must have one, so he should tell us what it is. Would we have to join the euro? Or would we have our own currency?
“It’s simply not credible to tell us that everything will be fine because everybody else will fall in line with what Alex Salmond says.”