Independence: Unionists warn against pound move

Danny Alexander has argued that a post-independence move to keep the pound would provide little 'freedom'. Picture: Reuters

Ahead of a UK government paper on monetary policy and Scotland to be published next week, Chief Secretary to the Treasury Danny Alexander used a speech in Stirling to state that the rest of the UK would want to impose tight spending constraints on Scotland as the price for a new “monetary union”.

He said: “It is extremely challenging to combine monetary union with full fiscal independence. And the lessons learned from the eurozone have been clear for all to see – that while such arrangements can appear successful in a period of stability, they can lead to brutal re- adjustments in times of economic stress and uncertainty. Fiscal rules are complex to design and difficult to enforce among independent countries. One must also question what ‘independence’ really means if fiscal policy had to be so tightly constrained.”

At the Scottish Labour conference today, Alistair Darling, leader of the Better Together campaign, will also use the example of the eurozone to predict who would hold the balance of power in such a UK monetary pact.

However, the pro-independence side has already begun its counter-attack, arguing that a pact between Scotland and the UK on sharing the pound would be in both nations’ interests.

Economics experts in the Fiscal Commission Working Group, set up by First Minister Alex Salmond, concluded earlier this year that keeping sterling would be both “sensible” and an attractive choice for the rest of the UK.

Writing in The Scotsman today, Crawford Beveridge, who chaired the commission, said he could not see why the UK would want to place so many restrictions on Scotland after independence, adding that it would want Scotland to grow for its own interests.

The issue has become central to the independence debate after SNP ministers declared they would want to keep the pound indefinitely after independence. They argued that would ensure stability, as Scotland and England were well-matched economies, but others have said London would demand Holyrood obeyed tight limits on spending and borrowing to ensure it did not tip the currency zone into difficulties.

However, Mr Beveridge claimed Scotland was in a “relatively stronger position” than the rest of the UK and would therefore have no problems in meeting any fiscal rules.

“As the recent financial crisis has highlighted, risks also have to be managed – as they do under any macro-economic framework, including remaining in the Union – and in my view, the balance of opportunity and risk is enhanced, not inhibited, by a currency union,” he wrote

Deputy First Minister Nicola Sturgeon claimed the UK would want to keep oil-rich Scotland in a currency union.

She said: “An independent Scotland will keep the pound because it is in everyone’s best interests, and to try and suggest otherwise simply flies in the face of the facts.

“For a start, the pound is every bit as much Scotland’s currency as it is that of England, Wales and Northern Ireland, and, as such, it is simple common sense that we should continue to use it as an independent country.

“But that common-sense argument is backed up by overwhelming economic arguments.”