Scottish independence: what is the next step in the currency union debate?

When I wrote a post, trying to put the currency ‘Plan B’ debate in context, I got two main replies about the UK Government strategy: (1) to state unequivocally, ‘there will be no currency union’; and (2) to show the markets, and the public, that it is prepared to take on all of the UK debt if no deal can be done with the Scottish Government. The first often seems like a masterstroke, since it has put the Yes campaign, and Alex Salmond in particular, in a tight spot – and it has been exploited to great effect by the No side. I’m not so sure about the second strategy, which might provide reassurance about its economic responsibility, but also gives a little bit of light to the Yes campaign.

This side of the indyref debate, the aim is to win the vote – and the rejection of a currency union seems, most of the time, to be a very clever way to do so, even if there have been times when it had the potential to backfire. Let’s try to put this in order of appearance:

  1. The initial rejection. George Osborne announced the ‘no currency union’ line in Edinburgh in February. At the time, it seemed like a good strategy, and I was surprised at how effective the rebuttal – this is ‘bluff, bluster and bullying’ – often seemed to be – or, at least, how confident the SNP was about making such statements (see also Scheffer in the New Statesman).
  2. The cross-party agreement. Osborne’s statement was made all the more powerful by equivalent statements by Labour and the Liberal Democrats, which suggested that no UK Government would accept currency union. This time, the message came from people often seen as less objectionable than Osborne.
  3. The Salmond/ Darling debate. This issue became Alistair Darling’s most effective resource, particularly when he pressed Alex Salmond on his apparent lack of a ‘Plan B’.
  4. The media coverage, since the debate, has focused primarily on the ‘no Plan B’ issue.
  5. The No campaign has produced some rather striking campaign material to reinforce the point.

So far, so good for the No campaign, particularly if the currency issue continues to dominate the media coverage.

I’m not so sure about the debt issue, for two main reasons. First, no one ‘owns’ this decision in the same way. There is not the same sense of clear, decisive, decision making. Instead, we are piecing together a strategy from background discussions, some intelligent speculation (e.g. by John McDermott and Joseph Cotterill in the FT) and bitty replies to media questions – such as when Darling described being ‘phlegmatic’ about writing off Scotland’s share of the UK debt, amounting to approximately £120b, or £5b per year (10% of a new Scottish budget?). It has yet to be a key feature of the currency debate, and people are starting to ask questions.

Second, there is much more unresolved doubt about the effect of this aspect of the debate on voters. If you lose the pound, oh No. If you don’t have to pay a huge debt, oh Yes.

The assumption, so far, has been that a decision to refuse to pay the debt is ‘not in Scotland’s interests’ because ‘the markets’ would punish the Scottish Government, or lend only with high interest. Scottish Government debt would be expensive and our mortgage payments would go through the roof. If true, everything falls into place: if Salmond and his colleagues complain, and threaten to walk away, it seems like an empty promise or a remarkably irresponsible threat. Why would you entrust an independent Scotland to such fools?

Yet, on the other side of the coin, is an argument that could become persuasive to many voters: the UK Government refuses to negotiate. It rejects a currency union and it has already decided to pay the equivalent of Scotland’s share of the debt. The UK regards itself as the ‘successor state’ and, as such, has agreed to maintain its control of all assets and liabilities. In this context, Salmond and colleagues have not made irresponsible threats. Rather, the Scottish Government has not been given a choice, since the UK Government has decided not to share. More importantly, the Scottish Government would not default on its share of the debt, because it has no share on which to default. It ‘loses the pound’ but is remarkably debt free, and shoulders no blame for the outcome. No assets, no liabilities.

I’m not saying that this is a likely outcome. Nor am I saying that I am good at predictions (indeed, to show how bad I am at predictions, note that I still think there would be a currency union after a Yes vote). What I’m saying is that, if the currency debate continues to dominate, and people want to hear something new in the next Darling/ Salmond showdown, maybe this is what they’ll get. And maybe, next time, the debate won’t be so one-sided.

Update 25.8.14: this topic made the news in the lead up to the second debate:

Scotland ‘should not take on UK debt’ unless it can keep the pound (The Telegraph)

Nobel economist: Scots would be right to refuse to share UK debt if London won’t share pound (The Herald)

26.8.14 Scottish independence: John Swinney says ‘No currency, no debt’ (BBC)



Filed under Scottish politics

6 responses to “Scottish independence: what is the next step in the currency union debate?

  1. refusing liabilities in this area makes the obligations of any Scottish Government incredible. To conflate a currency with a discussion of debt is at best irresponsible at worst deliberately misleading the Scottish electorate.
    I think an accountancy body has already totted up the assets and liabilities, pound sterling isnt on the list because its a currency, not of itself an asset.

  2. KJH

    The entire debate is, essentially, about who blinks first. The question is whether the FM can carry Scotland to the negotiating table.

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