BoE’s Mark Carney in currency sovereignty warning

29/01/2014, TSPL, Scotsman, Mark Carney, Governer of the Bank of England visits the Scotsman offices at Barclay house Holyrood Road, Edinburgh. Pic Ian Rutherford

Bank of England governor Mark Carney, pictured at The Scotsman offices. Picture: Ian Rutherford — 29/01/2014, TSPL, Scotsman, Mark Carney, Governer of the Bank of England visits the Scotsman offices at Barclay house Holyrood Road, Edinburgh. Pic Ian Rutherford Bank of England governor Mark Carney, pictured at The Scotsman offices. Picture: Ian Rutherford

Mark Carney gave his warning during his first official visit north of the border since he succeeded Sir Mervyn King as the head of the UK central bank.

Mr Carney came to Edinburgh for his first meeting with the Mr Salmond amid controversy over the First Minister’s proposal that an independent Scotland would share the pound with the rest of the United Kingdom.

In a speech at a lunch hosted by the Scottish Council for Development and Industry in Edinburgh, Mr Carney emphasised that it would be up to the Scottish and UK Parliaments to work out how Sterling could be retained in Scotland after independence.

“If such deliberations ever were to happen, they would need to consider carefully what the

economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place,” Mr Carney said.

“Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance. The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources.”

He added: “In short, a durable, successful currency union requires some ceding of national sovereignty.”

Alex Salmond: Meeting Bank of England governor Mark Carney tomorrow. Picture: Ian Rutherford

In his speech, Mr Carney spoke of the “costs” of a currency union in terms of giving up independent monetary policy and a flexible exchange rate, which could protect jobs if exports fall.

He said that being in a currency union could “amplify fiscal stress, and increase both the risks and consequences of financial instability”.

Earlier Mr Carney and Mr Salmond met for private talks at the First Minister’s official Edinburgh residence Bute House.

Afterwards, Mr Salmond said: “I was delighted to welcome the new Bank of England Governor to Edinburgh on his first official visit to Scotland since his appointment. We greatly value our strong working relationship with the Bank and its commitment to operational independence and impartiality in political debate.

“The discussion was private but I welcome that the Governor has confirmed his willingness to continue technical discussions, inaugurated by his predecessor Lord King, between the Scottish Government and the Bank of England in advance of the referendum.”

The technical discussions have been to help the Scottish Government commissioned Fiscal Commission Working Group with their work, including the publication of their report on a macroeconomic framework for an independent Scotland, which includes proposals for a shared Sterling area.

• Scotsman Cartoon on today’s meeting