BoE’s Mark Carney reiterates currency union doubts

Bank of England governor spoke during Q&A at annual TUC Congress in Liverpool. Picture: AFP

Mark Carney was asked about the effect of independence on Alex Salmond’s plans to share sterling in a formal currency union during a question and answer session at the TUC Congress in Liverpool today.

Mr Carney used his TUC speech to repeat a warning made during his first official visit to Scotland earlier this year, when he warned that the SNP’s plan for a Sterling-zone after independence will see Scotland surrender some national sovereignty.

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However, the governor today stated that the Bank of England “take note of the positions” of the main Unionist parties, which have ruled out a formal currency union - a stance first set out by Chancellor George Osborne in February this year.

The governor suggested that an independent Scotland would fail to meet the criteria of a successful currency union, as he said a proper union would require free trade, banking union, and a fiscal backstop.

Mr Carney said that “You only need to look across the channel to see what happens if you don’t have all of those components in place” as he highlighted the crisis-ridden Eurozone.

The Governor cited the refusal of the main Unionist parties to agree to Mr Salmond’s plans, which he suggested would make creating the conditions for a formal currency union impossible.

Mr Carney’s intervention confirmed that the Bank would not help an independent Scotland to use the pound, leaving Yes campaigners with few options on currency.

“That’s just the economics of it”, Mr Carney said as he delivered the speech to the TUC, which has not taken a formal position on independence, despite a large chunk of its member union being affiliated to Labour.

Mr Carney repeated comments he made in Edinburgh earlier this year about the need for the same regulations on standards as well as fiscal arrangements.

He said: “We take note of the positions of all the major Westminster parties to rule out a currency union between an independent Scotland and the rest of the UK.

“In that context, a currency union is incompatible with sovereignty.”

Mr Carney added: “Well, you know, I went to Edinburgh in January, and I gave a speech on this subject, on the economics of currency unions. And basically, in that speech I said there are three components of a successful currency union.

“First, you have to have free movement of capital and labour and goods and services, trade, across the various parts of the currency union. Secondly, you need something called a banking union, in other words you need the same regulation, same supervision, same standards in the banking sector.

“And you very importantly need the institutions that stand behind those banks, the lender of last resort, which is a central bank, deposit guarantee scheme that is credible. You need all those institutions to be calm. And thirdly, you need some form of fiscal arrangement.

“So it needs tax, revenues and spending flowing across those borders to help equalise to some extent the inevitable fluctuations, differences in the various economies.

“I think we likely have to look across the channel what happens if you don’t have all those components in place. So that’s just the economics of it, you know.”

No campaign leader Alistair Darling claimed the governor’s latest intervention reflected the weakness of Mr Salmond’s position on a currency union.

Former Chancellor Mr Darling said: “Mark Carney has confirmed what we have been saying all along – a currency union is not compatible with sovereignty.

“It would mean what would then be a foreign country having control over our economy. That’s why a currency union would be bad for Scotland, as well as the rest of the UK.

“What Scots deserve now from Alex Salmond is honesty about what his Plan B is. Would we rush to adopt the Euro? Or would we set up a separate unproven currency?

“This really matter to families in Scotland. The reaction of the markets yesterday showed just how damaging the uncertainty over currency is for Scotland. It puts jobs at risk. It means a weaker economy and less money to spend on our NHS.

“We don’t have to take on all these risks. We can have more powers for Scotland guaranteed, without taking on all the risks of separation. It’s the best of both worlds.”

Unions in favour of Scotland staying within the UK welcomed the governor’s latest intervention over the SNP’s currency union plans.

Paul Kenny, general secretary of the Labour-affiliated GMB, said: “The comments were a breath of fresh air.

“People keep talking about whether there is a Plan B or Plan C, but there aren’t any, because it is incompatible, as the governor has made clear.”

However, the Scottish Finance Secretary John Swinney does not believe that Carney’s recent comments should have any impact.

A spokesman for John Swinney said: “Governor Carney made a full statement back in January on the arrangements that would be required to establish a successful currency union - including reaching shared agreements on certain elements of sovereignty such as overall debt levels.

“All of these issues were considered in detail by the Fiscal Commission, which includes two Nobel Laureates, and concluded that a currency union was in the best interests of both an independent Scotland and the rest of the UK.

“The Governor has made clear that the bank is ready to implement whatever is decided.

“Successful independent countries such as France, Germany, Finland and Austria all share a currency - and they are in charge of 100 per cent of their tax revenues, as an independent Scotland would be. At present under devolution, Scotland controls only 7 per cent of our revenues.

“The political position of the three Westminster parties - which Governor Carney noted today - will of course change after a Yes vote. And as the momentum builds behind the Yes campaign, their currency bluff has well and truly been called.”

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