Alex Massie

Alex Salmond remains trapped in a currency quagmire with no way out in sight

Alex Salmond remains trapped in a currency quagmire with no way out in sight
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It has not been a happy few days for supporters of Scottish independence. It remains too soon to say whether - unusually - last week's debate between Alistair Darling and Alex Salmond has had any long-term impact on the race but the short-term impact has certainly been bad for the nationalists.

Not just because the tone - and detail! - of the press coverage has reinforced the idea that Darling won the debate (an idea bolstered by the fact it's true) but because every day that passes in this fashion is another day in which the Yes campaign is not getting its message across.  Every day that's spent talking about the things your opponents want to talk is another day not spent talking about the things you want to talk about. It's like bogeying a hole in golf at the same time as your opponent makes a birdie.

Campaigns rely on oxygen and, right now, the Yes campaign is being suffocated.

Even if you allow that YouGov's polling has generally frowned on the nationalists there's no way you can put a smiley face on a poll that puts the No campaign 20 points ahead. Perhaps YouGov have somehow got it all horribly wrong but it's not in their interests to do so.

The problem for the SNP is that there's no good way out of their currency dilemma. A sterling zone makes some sense - a lot of sense, politically speaking - but it's not something that Alex Salmond can guarantee. Because it is something that would need to be agreed by Westminster.

Yes, that Westminster. The place that Alex Salmond and his fellow-travellers tells us is unavoidably hostile to Scottish interests. The place that threatens Scottish prosperity now. The place that frequently acts in ways both short-termist and stupid.

After independence, however, that place, populated by the same people, will miraculously see the light and realise that its own interests are best served by, well, by agreeing with Alex Salmond. Which is why they will agree a currency union. Because they are not stupid. Even though they are stupid at the moment.

Now it might happen. It might be that Labour and the Tories (and even the Liberal Democrats!) are bluffing. Perhaps they will concede that, yes, a currency union is the sort of thing with which they can live. That concession, mind you, must come with a price tag attached during any post-independence negotiations. So a formal currency union could happen even though manifesto commitments to the contrary plainly make it less probable than would otherwise be the case.

But, again, you see there is a problem: the Scottish government assures us that Scottish interests are not uniformly the same as UK interests. Indeed, the independence campaign has in large part been predicated upon the fact that our political interests and cultures are diverging.

Westminster might agree. It might say that if you want independence then you should have it. It might take the nationalists at their word. If our interests diverge does a full monetary and banking union remain the most efficient, appropriate way of organising our affairs? Maybe. But maybe not.

Which is why the Yes campaign are keen to maintain the fiction that sterlingisation - clearly Salmond's "quite attractive" Plan B - is effectively just the same as a formal currency union anyway. The pound in your pocket will remain the pound in your pocket. You won't notice any difference. Not really. We'll use the pound "come what may". You see it's our pound and we're keeping it. 

Aye, laddie, but on what terms? It is unfortunate, though, that sterlingisation - the not-so-secret Plan B Salmond will not admit to having in his pocket - is the one currency option pretty much ruled out by the First Minister's own much-ballyhooed Fiscal Commission. You know, the one with the two Nobel Laureates?

And there are good reasons for that. Financial services account for 15% of Scottish exports and 9% or so of GDP. It doesn't take a polymath to appreciate that a Flight of the Bankers is going to have an impact on Scottish prosperity.

But, look, nationalists say, RBS and Bank of Scotland have already pretty much gone. There's some truth to that. But almost no-one thinks sterlingisation would have anything other than a terrible impact on a financial services industry that, whatever you think of it, is the most significant single part of Scotland's onshore economy.

But we could renege on our share of the UK's national debt and begin life blissfully debt-free! True, we could. But this too must surely come at a price during the independence negotiations. And after them. It is not the sort of thing liable to impress lenders.

Moreover, sterlingisation would still leave policy being set in London. Interest rates will be set with no regard to the Scottish economy and they will be set in the context of a rUK economy in which London and the south-east of England are even more dominant than they are at present. In other words, a situation the SNP deem unsatisfactory now will be even less satisfactory if their apparent Plan B goes ahead.

There are other puzzling things to consider. It is an article of faith in nationalist circles - or at least in those circles in which you find Journalists for Yes - that the UK will agree a currency union for its own interests. The theory goes, in as much as it makes any sense, that Scotland will be fine come what may but the rump United Kingdom desperately needs Scottish contributions to the UK's balance of payments account and so on and so on. I don't know. I suspect the UK will be able to muddle on through without us.

And Denmark! And Hong Kong! What about them, eh? Well, Hong Kong has run a surplus most years for most of the last half century. It has foreign reserves of more than $130bn. Scotland, starting out on independent life, is unlikely to have reserves of more than £6bn. Hong Kong is not very much like Scotland.

As for Denmark: true, its currency is pegged to the euro and, yes, this places a brake on Denmark's independence and Denmark still does fine. But Denmark still has its own currency and its own central bank - which, in other words, puts it in a rather different position to anything the SNP is proposing for Scotland.

Ah yes, a central bank. This is one reason why the SNP are coy about coming out and admitting that sterlingisation is their Plan B. Because EU rules say that you need a central bank to be a member of the European Union. No central bank (or comparable monetary facility), no membership of the club.

Now you may object that Scotland might be treated as a special case and that these unfortunate difficulties can be negotiated away. And you know what, perhaps they can! But not in the 18 month timescale the SNP envisages for the pathway to independence. Again, even granting this, what will Scotland have to sacrifice to persuade the rest of the EU to turn a blind eye to these other difficulties?

More significant than these technical matters, however, is the political difficulty. There are reasons the nationalists chose a Plan A in the first place. Admit that Plan A might not work and you're self-evidently left with a Plan B you previously rejected - and rejected for good reasons.

Which is perhaps why some nationalists suggest that a formal currency union or sterlingisation would only be for the short-term anyway. Grand. But that means there's a Plan C lurking somewhere in the background and it's not altogether unreasonable for Unionists to ask what it is. Awkward. Especially five weeks from polling day.

So it's a mess and the SNP are in a rare old fankle. One largely of their own making though, admittedly, none of the options available to them were wholly attractive. A separate currency, as favoured by Salmond's critics within the nationalist movement, would have been a tough sell too, not least on account of the ease with which Unionists could point to the problems caused by increasing costs on Scottish business.

As it is, however, the SNP's preferred policy is for Scottish borrowing levels and Scottish interest rates to be chiefly determined in London. Which, hey, might not be the worst thing in the world even if they would be determined, in large part, by UK governments likely to be right-wing more often than is likely to be the case, given current voting patterns, under the present constitutional arrangements. But, hey ho, that's the way the game goes.

So, in the end, perhaps the logic of monetary and banking union is political union too? Just a thought but one prompted by the SNP's own arguments.

Is it all too dry and technical for voters to worry about? Perhaps. But interest rates and borrowing and the future of the financial services industry are not small things of no account. They do have an impact on everyday lives.

More to the point - at least for now - this remains a political quagmire for the nationalists and one from which there is no obvious escape. If I were a nationalist I might even consider it an act of unpardonable folly.