Osborne’s Boomerang

They love us, they love us not…
I am getting more and more confused by all this coming and going from the Unionist camp. Only a week or so ago we had David Cameron assuring us that everybody loved us and really, really wanted us to stay in the UK. And now we have George Osborne up in Edinburgh to put us in our place. When the UK Treasury announced a few weeks ago that rUK would honour all UK debt, as they are legally obliged to do, I posted, here, that this made a currency union with an independent Scotland much more likely. So, what do I know about anything? Still there seems to be something very fishy going on.

Don’t panic! don’t panic!…
It may be just a coincidence, but Cameron’s lovebombing and Osborne’s currency bombing come shortly after the opinion polls are showing a clear rise in the Yes vote and a clear decline in the No vote. Osborne’s attack may be no more than the first signs of panic in the No camp. If the Unionists were still confident of a No vote, I doubt if any of this would have happened. Somebody has got the message – and the message is that Scotland may well indeed vote for independence in September. And, pace Mr Cameron, it seems that the Unionists have nothing positive to offer after all. They are veritably stuck in lies, negativity and fear.

To bluff, or not to bluff
As we are well and truly in the middle of a political campaign, it should come as no surprise that both sides will want to keep as many cards as close to their chest as possible. The UK government has consistently said that it will not pre-negotiate any independence settlement, so why have they come out so stridently against a currency union? The Scottish government is, so far, holding to its view that this is all bluff. Come a Yes vote and all will change. This may be difficult to sustain. After all this was not just George Osborne lecturing us. He brought along not only his tame LibDem side-kick, Danny Alexander, but even his arch enemy, Labour’s Ed Balls, joined in the Jock bashing. Why they even rolled out chief mandarin, Sir Nicholas MacPherson, Permanent Secretary to the Treasury to add his tuppence worth to the mix. Whatever UK government emerges after the 2015 election, it is now very publicly committed to rejecting a currency union. If this is a bluff, then it is a pretty convincing bluff. While a formal currency union may still happen, we might be advised to henceforth work on the assumption that it will not happen.

What’s in it for rUK?
This is the interesting bit. For in all George Osborne’s assertions and claims, there is very little about how rejecting a currency union would benefit rUK. The rejection seems to be based almost exclusively on the fear that an independent Scotland would be so economically unstable that rUK would have to bail it out. He was for example most explicit about this in relation to banks. He stated, “What would be in it (a banking union with Scotland) for the rest of the United Kingdom? Nothing but exposure, again, to the risk of a failing bank – this time not even in our own country, but in a foreign one.” He is presumably referring to the Royal Bank of Scotland here. But, hang on a minute. Did Vince Cable not assure us that in the event of Scottish independence RBS would have to relocate its HQ to London? So what is it chaps?

Mr Osborne also made the following rather odd claim, “We have fought hard to keep Britain out of a banking union in Europe – a union that includes Ireland, whose banking system is also integrated with ours.” What is odd about this is that despite not being in a banking union and with no legal obligation, the UK did make a substantial contribution to the Irish bailout. Why? Because George Osborne likes the Irish and dislikes Scots? Or perhaps because Ireland is a very important export market for UK business? This would seem to indicate that currency union or not, rUK would help sort out any banking crisis in Scotland. Out of their own self interest, as they did with Ireland. Unless of course they really do hate us and just want to punish us. Christine Bell from the University of Edinburgh explores this further in a very good article on the legal issues involved.

So we are left with the impression that rUK would reject a formal currency union out of fear that an independent Scotland would be economically and financially irresponsible (the words pot, kettle and black come to mind). On the other hand Scotland would, like Ireland, be such an important trading partner that rUK could not afford to let Scotland go to ruin. This is even more so the case with Scotland than with Ireland. Just remember all that mountain of rising UK national debt. Debt that will belong exclusively to rUK. An independent Scotland would have no legal obligation to take on any share of that UK debt. The Scottish government and all Yes campaigners have indicated a willingness to take on a fair share of this UK debt. In return of course for a fair share of UK assets. Does a currency count as a shared asset? Perhaps the Osborne, Balls and Alexander triumvirate are really bluffing after all. What they are most worried about is that Scotland could refuse to take on any of that UK debt. Sir Nicholas’ Treasury note certainly makes a great play about this possibility.

Whatever the real reason for Osborne’s currency intervention, and I am still somewhat confused as to its purpose, it is surely further confirmation that all of Westminster, Labour included, are now seriously worried about the prospect of a Yes vote.

1 Comment

Filed under Scotland, UK

One response to “Osborne’s Boomerang

  1. I’m not convinced that a shared currency would be viable, not because of any risk of Scottish fiscal irresponsibility per se, but if Scotland is fully autonomous and is able to pursue its own spending agenda, there may be policies that might cost the Treasury a disproportionate amount relative to the rest of the Union. For me it would be about fairness. An independent Scotland should be fully autonomous with respect to revenue and expenditure and that for me would preclude a shared currency.
    I’m against the break up of the Union. If it were to happen, there would need to be a fair distribution of assets – oil revenues, proportion of debt (perhaps calculated on a per capita basis?). I’m not sure I see how the Bank of England would need to bail out the Scottish economy if its leaders went all Greek, but as too many are learning, the rules are different for the folks living on the upper branches of the tall trees.

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