The Pound, the Euro and Other Scottish Pink Herrings

The crisis in euroland continues unstaunched and, perhaps, irrevocably. Naturally, being self-obsessed sorts and this being the week it is, one is drawn to consider the impact this must have on Alex Salmond and the prospects for Scottish independence. Plainly, the currency question is a difficult one for the First Minister. While the euro seemed solid it was at least straightforward, even though one wondered if swapping monetary policy set by the Bank of England for monetary policy set by the European Central Bank would necessarily be a great bargain. But the euro is no longer solid and uncertainty reigns.

So one can appreciate why George Osborne has intervened, arguing that an independent Scotland might not be able to keep the pound sterling and would, instead, be compelled to live in the eurozone’s charnel house. Equally, one can appreciate that there are obvious questions to be asked about an independent Scotland’s credit-worthiness. Unfortunately, it is impossible to answer these questions now.

If they are not red herrings they might be considered pink herrings. Why? Because no-one knows how many currencies there will be in europe by the time the referendum is held in 2014, far less what the land will look like by 2016 or 2017 which, even if Scots vote for independence, seems the earliest independence might actually become a reality. What we may say is that europe will not be as it is today.

This uncertainty is unavoidable. Nevertheless, it is not obvious that Mr Osborne could prevent Scotland from yoking itself to sterling (or, hell, just for the fun of it, the US dollar?). Granted, an independent Scotland would have less “influence” on the Bank of England than it presently does. In practice, however, this is a distinction without much of a difference since no-one can credibly argue that economic conditions in Scotland (or the north-east of England or Northern Ireland) determine, or even much influence, the Bank’s monetary policy now. (This is not a blaming exercise, merely stating the obvious truth that the south-east of England and the City drive monetary policy more than does the rest of the United Kingdom.)

True, again, an independent Scotland could face some difficulties in this area. True too that the early years of independence are liable, should it ever happen, to be rather more uncomfortable than the SNP cares to acknowledge. But it is not as if other small countries – one thinks of Norway or New Zealand – are necessarily handicapped by possessing their own currency. Perhaps Scotland, as Douglas Carswel*l suggests, could manage too.

Osborne raised some other pink herrings. The SNP must explain:

what its plans are for the defence of Scotland when it doesn’t have the protection of the UK, what its plans are for the Scottish economy when its not part of a larger economy and able to benefit from UK companies like AstraZeneca.

Hang on! No-one proposes that Scotland will become some kind of Hermit Kingdom, shut off from the international economy and uniquely unable to “benefit” from “companies like AstraZeneca”. Nor, when considering defence, is it the case that Scotland would no longer “have the protection of the UK” (an unfortunately paternalistic choice of phrase, incidentally) since, unless the English invade, Scotland’s share of UK defence assets should be more than enough to meet its (quite modest) defence needs.

Finally, Brother Forsyth raised another issue that might be worthy of pinkish herring status: would Spain (or any other country) block Scottish accession to the euro? James cited Kosovo’s difficulties, but Kosovo is not even a candidate for EU membership. Montenegro is however while Croatia is due to join soon. Granted, their situations are not wholly comparable to Scotland’s since Yugoslavia was not a member of the EU before it was torn apart. Nevertheless, if one conducts a thought experiment in which Belgium breaks-up, does anyone really think Flanders or Wallonia would be excluded from EU membership? Surely not. Indeed, I suspect neither would have to even make a formal application to join.

That’s a hypothetical situation, of course, but it may well be that Scotland and the remainder of the United Kingdom would each be considered “successor states”. Neither, after all, would have left the EU.

Perhaps not and I don’t mean to suggest that any of these matters are irrelevant, unimportant or easy to answer merely that nor are they necessarily deal-breaking obstacles either. In each instance there is too much uncertainty to make much more than an educated guess at present.

These are all issues in which practical matters butt heids with the principle of the thing. Though the SNP can make as detailed a case as they can (and will) the truth remains that the details cannot be worked out until the principle is decided one way or another. That does not diminish the importance of the detail, nor does it ignore the problems associated with uncertainty but the fact is that it is impossible to resolve all the known unknowns (far less the unknown ones) until the time to resolve them actually comes. Is this a problem for the SNP? Yes. Can it be resolved? Not really.

*Incidentally, Mr Carswell, like his friend Daniel Hannan, seems to favour devo-max too. I have some time for these gentlemen but sometimes worry they suffer from a surfeit of optimism and suspect they have a troubling weakness for grand, sweeping schemes that will solve everything. I’m not sure life always works like that. The theory is swell, the problem is the crooked timber with which it must work.