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Independence: UK says no to formal currency union

Picture: Getty

Picture: Getty

  • by DAVID MADDOX
 

SCOTTISH INDEPENDENCE: THE UK government will not agree to allow an independent Scotland to use the pound, Chancellor George Osborne is to say tomorrow in a major speech in Edinburgh.

In a watershed for the referendum debate, Mr Osborne is set to be joined by his Labour shadow Ed Balls and Liberal Democrat Chief Secretary to the Treasury, Danny Alexander, who will also say they are ruling out a sterling zone.

That means that even after the 2015 General Election, whoever is in power is likely to block a formal currency union with an independent Scotland.

The move is a blow to the Scottish Government, which laid out its plans for a formal currency union using the pound in its white paper on independence. Yesterday Deputy First Minister Nicola Sturgeon retaliated by warning that Scotland would not take on its share of the UK’s national debt if an independent Scotland was excluded from formally using sterling.

She also accused Mr Osborne and the other UK parties of trying to “bully” Scotland and insisted they were “bluffing”.

But the decision by the men in charge of the main UK parties’ economic policies to rule out a sterling zone torpedoes the policy which underpins the SNP’s economic plans for independence and will add to the pressure on the Scottish Government to come up with a Plan B before the referendum.

While the rest of the UK cannot stop Scotland using the pound informally in a process known as dollarisation – which is used by Panama and El Salvador with the US dollar – it means that unless there is a Scottish currency, interest rates would be set in London on the basis of the needs of the rest of the UK.

In extracts released overnight, Mr Osborne will herald the way the UK “works together in good times and bad”, adding: “Together, we have faced the worst economic and financial crisis since the Great Depression.

“But we avoided the economic collapse other nations around us in Europe faced. Because together, we had the strength to confront our problems and overcome them.”

Pointing to the way the economy is turning round, he will go on: “The UK economy is growing faster than any other advanced economy in Europe.

“And within the UK, Scotland is growing faster than the rest. We’ve had six consecutive quarters of Scottish growth. Growth not just in services, but in manufacturing and construction, too.

“Over a hundred thousand new jobs have been created in Scotland in the last four years; 65,000 fewer people unemployed compared to 2010.

“Today, Scotland is one of the most economically successful parts of the UK with growth per head the same as the smaller independent European states the nationalists would like Scotland to join, but with far more stability and less volatility, thanks to being part of the wider UK.”

But Ms Sturgeon said that the co-ordinated announcement was a sign that the “Westminster establishment is losing the argument”.

She noted how Prime Minister David Cameron tried to “love-bomb” Scotland in a speech in London last week but now his Chancellor was trying to “bully Scotland from a charm offensive to just plain offensive”.

In a pre-emptive attack, she said: “This is a panic move which will backfire spectacularly. People won’t take kindly to the Westminster establishment ganging up to try and bully Scotland in the decision that we are being asked to take on the referendum.”

She insisted that the position laid out by the Chancellor was “a bluff”. She said: “For him to stick to this position after a Yes vote would put Westminster vastly at odds with majority of public opinion across Scotland and the rest of the UK; it would cost their own businesses hundreds of millions of pounds a year; it would blow a massive hole in their balance of payments; and it would leave them having to pick up the entirety of UK debt.”

On the threat not to take on the Scottish share of the UK debt, she noted the Treasury had already said it would take responsibility for that, and Scotland would not pay if it was denied important assets like the pound and Bank of England. She said: “All the debt belongs legally to the Treasury, as they confirmed just last month – we can’t default on debt that’s not legally ours. However, we’ve always said we think Scotland should meet a fair share of the costs of that debt – but assets and liabilities go hand in hand.”

Mr Balls and Mr Alexander are expected to confirm after the Chancellor’s speech that they agree with ruling out the sterling zone.

Mr Balls said: “There is a fundamental intellectual problem for Alex Salmond. He wants to break from the UK but also keep the pound even if that means a closer relationship to the UK. You can’t have your cake and eat it.”

The issue was also raised in Westminster yesterday in a debate called by Labour’s Edinburgh South MP and shadow business minister, Ian Murray. Mocking the SNP over its options, he noted that the currency museum in Edinburgh included items such as feathers which were used in the past as a version of coinage. He said: “We need something better than empty ginger bottles.”

Meanwhile, Tory Treasury minister Sajid Javid insisted Scotland was much more dependent on the rest of the UK for the bulk of its trade than the other way around and cautioned against the risks of copying the eurozone model in the British isles.

However, SNP Treasury spokesman Stewart Hosie said: “The rest of the UK sells £60 billion in to Scotland. If we were forced to use a foreign currency and transaction costs were applied to that, that would imply a catastrophic loss to English businesses, additional costs the No campaign never mentions.”

MONEY CHOICES

ONE currency option an independent Scotland could embrace would be to join the euro, formally or informally.

To join formally would see interest rates set by the European Central Bank in Frankfurt.

An ad hoc arrangement could see Scotland adopt the euro without being a member of the eurozone.

Adopting a new Scottish currency, perhaps called the groat, might prove simpler.

SEE ALSO

Leaders: Currency union deserves equal response

Andrew Whitaker: Anti-Tory strategy may backfire

Bill Jamieson: Scotland can’t bank on the pound

Analysis: Benefiting the UK is most logical option

 

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