Leaders: Scotland’s currency | Flodden

MANY futures for an independent Scotland can be imagined, and economists Jim and Margaret Cuthbert are better at imagining these than many others.

First Minister Alex Salmond. Picture: PA
First Minister Alex Salmond. Picture: PA

Their latest paper, published yesterday, contains several interesting ideas for how new economic policies might work. But there is an underlying problem that they think needs to be resolved first: what the currency will be.

This, they acknowledge, is a difficult choice. It is clear from this, and their previous writings, that they are unconvinced, if not opposed, to Alex Salmond’s policy that Scotland should be in a currency union with the rest of the UK, and prefer that Scotland should have its own currency.

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At one level, it is understandable that for nationalists (which the Cuthberts are), not having your own currency does not look like independence. The view is a little simplistic – no-one would argue that France and Germany are not independent and yet neither has its own currency. Other smaller European countries of the same size as Scotland and which do have their own currency are also keen to join them in this non-currency-owning statehood, despite all the evident drawbacks of the euro.

Maintaining a sterling union has one big advantage. It doesn’t introduce a currency barrier for the 60 per cent or so of Scottish exports that go to the rest of the UK. But it also means Scotland would not be able to operate its own monetary policy and would have to accept the interest rates set for 90 per cent of the currency zone and curbs on its ability to run a different fiscal policy.

Having your own currency, while it can free up monetary and fiscal policy, introduces a currency handicap for exporters. Moreover, limits to fiscal freedom of manoeuvre still remain, particularly because of the volatility of oil revenues. Realigning Scotland so that it can deal with the volatility by parking “surplus” oil revenues into a fund for the future, as Norway does, also means making changes to the public balance sheet, either by cutting spending or raising taxes.

This does not look particularly attractive either. While ameliorative measures such as pegging a Scottish currency in value to sterling can be adopted, it does not seem that there is a “with one bound, Scotland is free” solution.

The Cuthberts appear to understand this. Their preferred course is for Scotland to keep its currency options open. Whether this is possible in the modern world is debatable. If people decided they did not like Scotland’s prospects, or those of the rest of the UK, large amounts of money might start flowing across the Border, destabilising the financial system and the economy.

However, we can draw one firm conclusion from the Cuthberts’ work. Alex Salmond needs to get a grip of this debate soon. Letting it flow on does not just risk undermining the Yes campaign, it also raises more uncertainty, which could be damaging for the fragile economic recovery.

Flodden worthy of quiet reflection

FLODDEN is a name that is buried deep in the Scottish soul. Unearthing it requires digging past the rightly commemorated victory of Robert the Bruce at Bannockburn some 200 years earlier, but behind the pride in the national freedom won from the English monarch then, lies the melancholy at the death of James IV, a clutch of earls, lords, and bishops amid perhaps 10,000 Scottish dead.

Scotland would be an odd sort of nation if this enormous bloodbath and defeat was celebrated as the Bannockburn victory is. A bit of quiet mourning, such as that which takes place annually at the Common Riding in Selkirk, seems more appropriate. But that does not mean that it should be forgotten.

The battle, which occurred 500 years ago, is generally reckoned by historians to have been an end to an unnecessary war. James IV certainly began it, but what his purpose was is still hotly debated. Was it in support of the French, with whom Scotland was allied? Or was it simply an attack on the English monarchy (with whom a Treaty of Perpetual Peace had been signed just ten years previously) by an over-confident Scottish establishment? Whatever the reason, it profoundly affected Scotland. Debate about union with England sprang up within a few years, with the publication of John Major’s History of Greater Britain. A great irony is that

intermarriage between the Scottish Stuart and English Tudor dynasties when James IV married Margaret, Henry VII’s daughter, (before Flodden) led to the Union of the Crowns in 1603.

Many conflicting lessons can be learned from Flodden, but surely all can unite in some quiet reflection on the lament: “The Flowers of the Forest are a’ wede away.”