Independent Scotland to stick with sterling

John Swinney: Urged to rethink college cuts, Picture: Dan Phillips
John Swinney: Urged to rethink college cuts, Picture: Dan Phillips
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JOHN Swinney claims today that an independent Scotland would keep the pound for the foreseeable future, pushing membership of the euro back until at least the middle of the next decade.

In a marked hardening of the SNP’s position on its choice of currency, the SNP finance secretary declares he “cannot foresee the set of circumstances” that would lead a Scottish Government to call a referendum on joining the euro.

Mr Swinney said that in effect ruled out any membership of the euro for “the medium term”, pushing the SNP’s consideration of euro membership well into the mid-2020s.

The claim is certain to send ripples across Europe, with EU states watching keenly as Scotland sets out the terms for a potential negotiation after independence. SNP ministers argue an independent Scotland would inherit the UK’s opt-out of the single currency and therefore be able to choose if it wants to opt in.

The claim will be seen as a further attempt by the SNP to win over the thousands of undecided voters across Scotland who may back independence if their concerns about the economy, and the thorny issue of an independent Scotland’s currency, can be assuaged.

However, it contradicts warnings by some European legal experts who say Brussels would demand an independent Scotland agrees a binding deal to sign up to the euro within a specified timetable as the price for EU membership.

It also follows a report by the House of Commons Library last year which said it was “by no means clear” whether Scotland would inherit membership of the EU – thereby forcing it to join the euro as a new member state. In an interview with The Scotsman, Mr Swinney was asked whether the SNP’s default position for the future was that it would now retain sterling.

He said: “I can’t foresee a set of circumstances that will see the economic conditions being correct for the euro for some considerable time,” he said. “It would be difficult to define that but it feels neither to me like the short term or the medium term.”

Mr Swinney said that, instead, he was planning for a lengthy and solid agreement with the Bank of England which, he envisages, would act as Scotland’s new central bank, and as its lender of last resort.

He also revealed he would enter into a “dialogue” with the Bank of England about his spending plans before pressing ahead with them, in order to provide reassurance that they would not get out of control.

The UK government would not, however, be given a say over those plans, he insisted.

His comments come amid warnings from economists that a sterling-based Scotland could lead to a similar situation which developed across the eurozone, where countries such as Greece took advantage of the single currency to order a wave of profligate spending. Mr Swinney said: “In whatever scenario you look at there would have to be the function for government engaging in dialogue with an independent monetary function – a Bank of England, or in a euro context, an ECB – to make sure there was fiscal order to the plans . . . you must be prepared to sign up to fiscal discipline.”

He went on: “That is not something I think is in any way an imposition. That is a strength.”

However, Mr Swinney said he would not discuss his spending plans with the UK government. He also scotched claims that borrowing rates would be higher in Scotland than in the rest of the UK because it was borrowing in a “foreign” currency. He said: “It’s the currency we operate today. It’s the currency that is backed by the Bank of England.”

Turning to the relationship with Europe, the finance secretary also said he believed that EU attempts to create a fiscal union were effectively doomed to failure, as he hit out against attempts to impose a “federal” system on individual member states across the continent.

Scotland would uphold fiscal discipline, he said, but it would not accept having its tax-rates set by Brussels as the price of EU membership.

Such a move could set Mr Swinney on a collision course with European Commission chiefs and EU leaders who are pressing for a tight fiscal bond across the EU to prevent a re-run of the current eurozone crisis.

He said: “I don’t think the federal agenda has got a prospect of advance because it requires the diminution of flexibility within individual jurisdictions and I just don’t think that is a proposition.

“I don’t think you can get to the position of fiscal union in the EU and I don’t think it will be desirable.”

Mr Swinney said that, instead of a fiscal pact across the EU, there should be an agreement by member states to observe a tight discipline over spending.

“What there has to be, and what I think there will be, is a prerequisite about fiscal discipline. I think that is entirely desirable. Countries should be able to run themselves as they see fit, but they cannot do that in a fashion that lacks fiscal discipline. Whoever you are – Greece, Germany or an independent Scotland – you must have fiscal discipline,” he said.

Mr Swinney said it was such “indiscipline” that had led to the eurozone crisis – not the fact that the single currency had brought together such different economies as Greece and Germany.

Mr Swinney will set out his case on independence and the economy during a lecture tonight at the David Hume Institute in Edinburgh, arguing that, at a time when the UK government is coming under fire for cutting “too far and too fast”, an independent Scotland would pursue a different course.

He accuses George Osborne of “lacking a vision” or a growth plan for the country, and argues that a Scottish Government would relax the UK government’s austerity measures.

Asked whether he would like to be known as a “chancellor” in an independent Scotland, he said: “I think the terminology of the post that I hold would be essentially a finance minister’s post. We don’t tend to preoccupy ourselves with the baubles of life.”

And pressed on whether Scotland could still issue its own bank notes, given that it would be taking its currency from the rest of the UK, he said: “I think there’s a pretty clear legal basis on which the banknotes are currently issued and I cannot foresee any circumstances that would change the ability to issue those banknotes.”

On the question of Scotland’s currency, the House of Commons Library report last year said Scotland could retain or lose the UK opt-out, depending on the political negotiations that would follow Scottish independence. “It is by no means clear whether or not Scotland would retain membership of the EU automatically if it gained independence,” the report stated. It said that the matter was likely to boil down to a “political” decision.

“Member states with their own domestic concerns about separatist movements might argue that Scotland should lose its membership on independence, and hold up or even veto its accession,” it warned.

Such a move would see Scotland having to reapply for EU membership, and forced to accept the euro as its currency in time