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Scottish independence: Currency deal ‘intractable’

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  • by SCOTT MACNAB
 

An independent Scotland keeping the pound in a formal currency union could not happen because of hardline conditions laid down by London, a former economic adviser to Alex Salmond has warned.

Professor John Kay, an ex-member of the Council of Economic Advisers, told MSPs that negotiations over a currency deal would prove “intractable” for Scotland.

His remarks came as a former chief economist for Scotland warned that no UK chancellor would put “taxpayers at risk” in such an arrangement.

The SNP government would want to keep the pound in a monetary union with the UK after independence, but this idea has been rejected by Chancellor George Osborne and his Labour shadow Ed Balls.

Prof Kay told Holyrood’s finance committee that the conventional wisdom, particularly in the eurozone, is that there can only be currency union if this leads to fiscal backing.

He added: “Personally I don’t think that’s true but there’s almost not much point in our debating whether that’s true or not, because people in markets and political circles believe it’s true.

“The result of that is that if Scotland voted for independence and we were to have negotiations over monetary union, you would be getting conditions laid down by the UK Treasury in these negotiations which I think would be very difficult for a Scottish Government to accept.

“The rest of the UK would be demanding control over the banking system in Scotland and over fiscal policy in Scotland which it would not be willing to concede.

“That’s the almost intractable problem on which these negotiations would fail.”

If Scotland agreed to the UK demands it would be giving away most of the “economic policy levers it hoped to gain by independence”.

The committee was taking evidence on Scotland’s public finances after the referendum.

Gavin McCrone, a former chief economist at the Scottish Office, added: “I can’t imagine a chancellor of the exchequer for the remainder of the United Kingdom, with no responsibility electorally for Scotland, being prepared to put taxpayers at risk in the rest of the country for the sake of Scottish debt or bad debt in Scotland.

“I just don’t think they would do that and I think that’s probably the main reason we’ve been hearing from George Osborne and others that they won’t contemplate currency union.

“But of course, negotiations would take place.”

 

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