A Currency for Scotland?

The media is once again full of stories of dire consequences for Scotland if we dared to vote for independence in 2016. This latest bout of scaremongering comes from the wise men and women from the UK Treasury, headed up by our Chancellor, George Osborne. It is worth bearing in mind just who it is that is making these scary claims. The UK Treasury is not some neutral, academic institution, only interested, in a disinterested way, in the truth and nothing but the truth. The Treasury and its leaders, George Osborne and Danny Alexander, are part and parcel of the UK government and as such wholly committed to keeping Scotland in the UK. They are as likely to produce a balanced report on Scottish independence as the Catholic Church is to produce a balanced report on same sex marriage. Secondly, the Treasury has a track record of getting things wrong, spectacularly wrong. Remember this was the body, under the leadership of Gordon Brown, which presided over the UK’s slide into financial meltdown. The same body which is now presiding over the apparently endless stagnation of the UK economy. Whatever the UK Treasury has to say on anything has to be taken with several buckets of salt.

Even taken with several buckets of salt, the Treasury’s latest contribution to the independence debate is at best silly and at worst deliberate scaremongering. When it comes to what currency an independent Scotland should use, I find it useful to think in terms of two timeframes and three options. The two timeframes are our old friends the short/medium term and the long term. The first takes us from independence in 2016 through to 2020 or 2024. This is the period covered by the first and second terms of parliament after independence. During this period, what I tend to regard as the transitional period, Scotland will continue to use sterling as its currency. There are no ifs or buts about this. Continuing to use sterling as our currency is not something that George Osborne or anyone else in the UK Treasury can stop us doing. This is the first option for an independent Scotland. Just continue to use sterling without any formal link/arrangement with the rest of the UK. Perfectly feasible, has happened with other newly independent countries in the past. The key point is that nobody can stop us doing this. The second option for this transitional period is for Scotland to formally join with the rest of the UK and set up a currency union. This is what the SNP are proposing. There is much merit in this proposal, both for Scotland and for the rest of the UK. It would give Scotland some input into the decisions of the Bank of England, something which we do not have at the moment. But if the rest of the UK wants to be as nasty as the Treasury is suggesting, then a currency union may not happen. In which case Scotland just uses sterling and we are no worse off than at present.

The two options outlined above are for the transitional period, roughly 2016 – 2024. During this period all of us in Scotland, including the various political parties, will closely scrutinise and monitor how effective continuing to use sterling as our currency is. This is where the third option enters into the scene. This is for Scotland to issue its own currency. Many people argue that we should go for this option straight off. However I have discounted this on the pragmatic grounds that the SNP have consistently rejected this option and are strongly committed to staying with sterling. And as the SNP will have the final say during the negotiations in the lead up to independence, this is what will happen. However after independence those in favour of establishing our own currency will have plenty of time and opportunity to make their case and convince the electorate to vote for them in parliamentary elections. By then of course we may have decided that on balance continuing to use sterling is the better option. The point is that it will be our decision. For a more detailed rebuttal of the Treasury report see this article in Wings Over Scotland.

Margaret Thatcher

The week of her quasi state funeral seems an appropriate time to reflect a little on Margaret Thatcher the politician. My first thoughts are that the cult of the personality is very much alive and kicking here in the UK. The West liked to denounce the former USSR and now the current North Korea for elevating their leaders into almost God like status. Yet the response to Mrs Thatcher was and still is not too dissimilar. For her followers, she could do no wrong and single-handedly reformed the ailing UK economy, and put the Great back into Great Britain. On the other hand for her opponents, she single-handedly wrecked British society and destroyed whole swathes of UK industry and is the begetter of all our ills today. Such agreement is a tad unconvincing. In democracies, political leaders can only achieve so much on their own. The changes that took place in the UK during her period in office came about because her party won three elections in a row and her party and her cabinet supported these changes. When her cabinet no longer supported theses changes, especially the poll tax, they got rid of her, fast. For all her period as Prime Minister, she had an overwhelming majority of MPs in parliament and thus immune to any opposition. She also had the wholehearted support of her party, the powers of the state and the support of most of the media. She didn’t have to force anyone in her government to carry out the changes that have come to be called Thatcherism. Her colleagues all supported them, some of her colleagues were even more radical than she was. The one time she did have to force something through – the poll tax – she lost this support and was unceremoniously chucked out. So much for great leadership!

When it comes to the changes that took place in the 1980s, none of them seem to have been her own brainchild. Her programme relied heavily on the thinking of others in her party, Sir Keith Joseph for example. It is also the case that many of the changes were contemplated by the previous Labour government and some were actually started by Labour – the reforms in education in England and the cut backs in government spending for example. Even with trade union reform the Labour government had led the way. What they failed to do was to carry the reforms through into law. This is where Mrs Thatcher and her government did succeed. The trade unions, in opposing Labour’s reforms, ended up with something much worse. A lesson in the great British art of not compromising! The same is true of the sale of council houses. Labour were contemplating this, but with the proviso that proceeds should go to the local authority to enable them to build replacement social housing. The Tories just sold the houses and pocketed the money. As regards some of the other changes, the privatisation of the state utilities, gas, electricity, telecoms etc, this was at first seen as a good way to raise money for the government without having to raise taxes. It also fitted in with the Tory obsession with private enterprise and their growing hatred of public services.

As regards the outcomes of all these ‘Thatcherite’ changes, it is hard to see anything really positive. Thatcherism was supposed to usher in a new era of entrepreneurial activity that would once again make the UK the strongest economy in the world. Shackling trade unions and reductions in income tax for the wealthy would release unheralded growth in the economy. Very little of this happened. While the economy did grow, the growth was unspectacular. It was also to a large extent bankrolled by the returns from North Sea oil. A gift from God, or perhaps an unwilling gift from us Scots. Certainly nothing to do with Mrs Thatcher. The economy certainly changed considerably in the 198s, with most of our remaining industry disappearing. What remains is now mostly under foreign ownership and management. So much for British entrepreneurial talent. Where the UK remains strong is in its traditional service sectors – advertising, the creative arts and banking. Yes, banking, something that has come back to haunt us a bit. Not that the current travails in the finance sector are the direct responsibility of Mrs Thatcher, but her trust and faith in deregulation and in captains of industry came to mark government policy for a generation or more.

This last point should remind everyone that perhaps the biggest success for Mrs Thatcher and her governments was to change the terms of debate about the economy and the role of government. It became standard wisdom that government was now part of the problem and not the solution. This also led to convulsions in the opposition, especially the Labour party, which changed beyond recognition to become New Labour, more or less another Tory party, just a bit kinder and a bit softer. But just as wedded to the neo-liberal economics of Thatcherism. Which perhaps explains why many in the Labour party are only too happy to fix on Mrs Thatcher as the evil witch who destroyed all that was good in the UK. Much easier than to engage in a bit of self analysis as to how the Labour party, in and out of government, was in part responsible for the rise to power of Mrs Thatcher.

The North Koreans Are Coming!

But do not panic. Our great leader, David Cameron will protect us from those dastardly North Koreans and their nuclear weapon. They do have one don’t they? It was hard to imagine how anyone could outdo Tony Blair in the lying stakes, but David Cameron has done it and pretty comprehensively too. To hold up North Korea as a reason for the UK to hold on to our nuclear weapons is about as daft a justification as it is possible to make. North Korea does not possess any weapons that could reach the UK. There is also the small matter of just why North Korea would want to nuke us? Or why anyone would want to nuke us? I suppose invading and occupying other countries does provide some countries with a plausible reason for nuking us. But thankfully we have not invaded North Korea or any other country with nuclear weapons. Perhaps there is some connection here.

I was perhaps too generous to David Cameron when I suggested that using North Korea was about as daft a justification for the UK to hold on to our nuclear arsenal. For our great leader then came up with another really, really stupid justification. Namely that we do not know what threats may emerge in the years and decades to come. Now this is undoubtedly true – no-one can foretell the future. But if the future is likely to be as uncertain and as dangerous as David Cameron believes it to be and if the possession of nuclear weapons is really some use in protecting us against these unknown dangers, well, surely other countries would also benefit from having this extra protection that comes from having nuclear weapons. Unless of course what David Cameron really meant to say was that only the UK was in some danger and that non nuclear countries were OK. In which case why do we not give up our nuclear weapons? Not for the first time I am left most confused by the utterances of our great leader.

Cyprus and the Euro

After a week or so of protracted cliff hanging Cyprus seems to be receding from the media’s lens. Is it all over and Cyprus and the rest of us, including the Eurozone, can get back to what passes for normal? Most unlikely. Early indications are that Slovenia could shortly be the next in line for a rescue package, putting yet more strain on the ECB and the EU. As for Cyprus itself, the consensus is that the country and its citizens are in for a very long period of economic contraction with all that entails. The reputation of its banking and financial sector has taken a big, big hit and it is not clear that it can survive in anything likes its previous form or size. The austerity measures agreed by the Cypriot government will only add to this misery for ordinary Cypriots.

Why did all this come to pass? The media has been full of tales of corruption, over borrowing and tax havens for the Russian mafia. This has been very much the dominant narrative here in the UK, USA and most of the EU. But how accurate a picture is it of Cyprus and in particular of its financial sector? Not at all, by many accounts. While tax evasion no doubt exists in Cyprus, there is little evidence that it is greater than elsewhere in the EU. Nor is the relative size of the financial sector that out of line with other EU states – see Luxembourg for example. For a more detailed and positive view of the Cypriot economy see this article from Naked Capitalism. It is also known, but under reported that Cyprus and its banks were badly hit by last year’s restructuring of Greece’s debt. This involved large losses for Cyprus. So it was known for over a year that Cyprus would need some kind of help. Why has it taken so long to reach a deal? Why the attempt to destroy the Cypriot financial sector? Something fishy seems to be going on here, but it is not clear to me just what this is.

With the crisis has come the usual blame game. If it is not the fault of the Cypriots themselves then it must be those nasty Germans. Or at the very least it must have something to do with the Euro. As regards the Euro, there is so far, little evidence that it is the existence of the single currency per se which has caused this latest crisis. The Euro, like any other currency is a tool, and as such has to be managed. The management of the Euro by the ECB does of course leave a lot to be desired.

But the basic problem goes deeper than the ECB. What is killing recovery in the EU is the pig headed stubbornness of the leaders of almost all EU countries to pursue neo-liberal austerity measures come what may. Even the IMF is no longer convinced of this austerity promotes growth nonsense. Evidence that it does not work is to be seen everywhere. Yet almost all our national leaders continue to stick by this discredited policy. Note too that this is not some German plot. Though Germany does favour austerity it is not alone and there is no way in which Germany on its own could force the other member states to adopt these polices. Consider the fact that the leading figures in the Eurozone in charge of economic and monetary policy are Mario Drahi, the Italian President of the ECB; Olli Rehn from Finland, the European Commissioner for Economic and Monetary Affairs and the Euro; and Jeroen Dijsselbloem from the Netherlands, President of the Eurogroup, the body which co-ordinates economic policies within the Eurozone. Now it is theoretically possible that they are all German stooges, but I think this unlikely. Nor is this just a Eurozone matter. Our political masters in the UK are equally wedded to this austerity and more austerity nonsense. The only perceptible difference between Labour and the Coalition is that Labour would try to slow the pace of austerity, not change direction at all.

Quite why almost all EU political leaders are so completely wedded to this comprehensively failed economic experiment is beyond the scope of this post. Perhaps psychiatrists will be required to attempt to resolve this matter. For a brief introduction to this aspect, see this recent post by Paul Krugman.