Alf Young: Double blow for future of the UK

Alex Salmond and David Cameron may be masters of the put-down, but jibes won’t help fix this economic mess

AS 2011 draws to a close, David Cameron and Alex Salmond dominate their respective parliaments. If prowess in modern politics is to be gauged by who can deliver the most devastating put-downs to opponents, or who commands their chosen arena with uncontested ease, the UK’s Prime Minister and Scotland’s First Minister are ending this year on undoubted highs.

Wednesday’s weekly question session at Westminster and Thursday’s at Holyrood made that much luminously clear. A week ago, having delivered his veto in Brussels, Mr Cameron suddenly cut a rather isolated figure. One against the 26. But as I argued in this space last Saturday, two things could happen to alter that initial impression. Both did.

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Support for the planned stability compact has already frayed around the fringes of the 26. And confidence that the seventeen eurozone members have the collective will to address the single currency’s inherent contradictions has suffered yet another troubling reverse. The UK, far from being cast into outer darkness, has even been offered a place in the ongoing talks.

In the meantime, the remedy for the most indebted EU member states remains sustained doses of austerity. To be followed, if agreement can ever be reached, with tighter fiscal integration, centrally policed and enforced if need be. But long before that proposal becomes reality, the outcome of the current crisis, as IMF managing director Christine Lagarde has just warned, could be rising protectionism and, potentially, western capitalism staging a rerun of what happened in the 1930s.

Cheered to the rafters by his own troops, David Cameron is still the butt of continuing French jibes about which country should be next to have its AAA credit rating slashed. He knows that will simply strengthen his position at home. And, within the coalition, he also knows Nick Clegg and his Lib Dem ministers are clinging on in there because, on the other side of the exit door, political extinction beckons.

So, however vulnerable he might have looked days before and with UK unemployment hitting a 17-year high, the Prime Minister was able to swat Ed Miliband’s attacks at Wednesday’s questions away with ease. How he would have coped with Alex Salmond’s broadside on his “irresponsibility” the next day, in answer to Scottish Tory leader Ruth Davidson, is anyone’s guess.

If only some silver-tongued promoter could persuade the two dominant figures in British politics to get into the ring together in Olympics year. Verbal gymnastics. Home and away. In London and Edinburgh. Mr Salmond now claims – although no-one has yet asked us, even in an opinion poll – that more and more Scots prefer “independence in Europe to isolation in Britain”. Let’s have them soundbite that proposition to a conclusion, face to face. Now. Then we can decide.

Fat chance of that happening this side of the promised independence referendum, still three or four years away. Some London commentators, like Phillip Stephens in the Financial Times, think the die is already cast. Historians may look back on 2011, Stephens suggested this week, “as the year in which two great unions began to fracture”. However, a double fracture, as far as Scotland is concerned, is not even in Alex Salmond’s current constitutional script.

On Wednesday’s Today programme on BBC Radio 4, the First Minister repeated the SNP’s established line – if Scotland becomes independent it would remain part of the sterling area until such times as economic circumstances dictate otherwise. And were we to join the euro in the longer term, that would only happen with the assent of the Scottish people in another referendum.

The previous evening, on Newsnight Scotland, Mr Salmond suggested: “The case is now overwhelming for Scotland finding its own way to the heart of Europe. We can’t be part of some Little England mentality.” Let me try and deconstruct what the First Minister is actually getting at here. Despite the jibes about being isolated if we stay in Britain and that Little England mentality, there is no fracture in the UK’s existing monetary union, at least in the short to medium term. Unless, of course, the First Minister has a much looser relationship with sterling in mind, one that avoids the Bank of England continuing to set our interest rates.

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We could conceivably shadow the pound, as Ireland did before it joined the euro. But that would require our own currency and central bank apparatus. And in a world where global imbalances are growing, that would pose another set of risks.

A recent Bank of England paper suggests that, unless the volume of capital flows subsides and become less volatile, “it is likely some countries will choose to introduce capital controls”. Not the easiest environment in which to float a new currency, even one that vowed to shadow sterling.

And no fracture in the European Union, or more precisely the eurozone. Given that 45 per cent of our trade is with it, Mr Salmond says it is “vital” the zone is stabilised, whether we are in it or not. Eventually he wants us to find our own way to Europe’s heart. But here is the biggest challenge of all. One over which neither David Cameron nor Alex Salmond has much control.

Only the eurozone, as currently constituted, can resolve its current problems. A new draft of the proposed agreement on a reinforced economic union was circulating yesterday. But it’s far from a done deal. Meanwhile, the economic climate is deteriorating fast – witness a much deeper than expected contraction in Ireland’s GDP in the third quarter, announced yesterday.

Across the UK, redundancies in the public sector are not being offset by the promised surge in new jobs in the private sector. After this week’s figures showing 25,000 more Scots out of work, the shine has been taken off claims that Scotland’s labour market is more resilient than the rest of the UK, so with a new round of retail closures expected after Christmas and more welfare cuts coming in April, things look like getting much worse.

It’s not so much a choice between independence in Europe or isolation in Britain. It’s more like misery all round. For a considerable time to come. If the eurozone fails to sort out its problems and some member states are forced out of the single currency, the knock-on impact on trade and growth here could prove grave indeed.

Yes, 45 per cent of Scotland’s trade is with mainland Europe. But the lion’s share of the rest is with the rest of the UK. If we are all caught up in another synchronised collapse in demand, even parliamentary titans, whether in Holyrood or Westminster, will increasingly be called to account by hard-pressed voters, concerned not just for their own jobs and standards of living, but about the future for their children. It’ll take more than smart soundbites to win them round.