Alex Salmond’s chief economic adviser has insisted that Scotland has several viable options for its currency, and could renege on its debt after independence, if UK ministers veto a sterling pact after a yes vote.
Crawford Beveridge, who chairs the Scottish government’s fiscal commission and council of economic advisers, said the country could comfortably use sterling without a formal deal, or move to set up its own currency as an alternative after independence – changing his advice to ministers.
Beveridge, a former chief of the investment agency Scottish Enterprise and executive at Sun Microsystems, added that if “politics trumps economics” and the UK rejected a formal sterling pact, an independent Scotland would have the right to pay much less of the UK’s historic debt – or none at all.
“There are many other viable options so I’m not that worried about currency, because every other country has one and we’re going to have one too,” Beveridge told an audience at Glasgow Caledonian university on Tuesday evening, accusing UK ministers of “posturing” over a currency deal.
In remarks which will fuel the controversy over Salmond’s strong hints he favours using sterling without a currency union as his alternative “plan B”, Beveridge said sterlingisation could clearly work, as could a new Scottish currency.
Pressed during a question and answer session on why his fiscal commission said last year that sterlingisation was only a temporary, transitory option and not a permanent solution, Beveridge agreed that was still his position.
“It would be a transition issue,” he said. “It could last a short period or it could last a long period, I don’t have a specific number of years in my mind.”
Speaking earlier, Adam Tomkins, a pro-UK constitutional lawyer and adviser to the Tories, had said that Sterlingisation would raise significant problems for Scotland’s entry to the European Union, because currency stability is an essential requirement for new member states.
Tomkins said any doubts about Scotland’s long term currency and its failure to have its own central bank would raise significant questions about its ability to meet the EU’s legal tests for new member states.
“This doesn’t mean that an independent Scotland can’t become a member of the EU; it means that an independent Scotland’s negotiations would be more difficult,” Tomkins said.
He claimed that using sterling informally, a policy known as “sterlingisation”, would require Scotland to have its own financial authorities, use international banks to lend, and to have its own central bank rich enough to bail out Scottish financial institutions in an emergency.
Beveridge’s speech suggests he has shifted ground: in its first report in early 2013, the fiscal commission appeared to rule out sterlingisation or having a new currency by stating it would have “additional drawbacks” to a formal pact.
Scotland would have no input into monetary policy and “only limited ability to provide liquidity to the financial sector.” It concluded that “the two clear options for Scotland are therefore to seek a join a formal monetary union with sterling or the euro.”
The fiscal commission also stated in 20123 that informal use of a foreign currency “tend to be adopted by transition economies … it is not likely to be a long-term solution.”
A long-standing Scottish National party donor, Beveridge insisted that a currency union would be the most intelligent option for both Scotland and the UK, because their economies were so closely integrated and interdependent.
There could be a robust framework introduced to underpin that deal to create a well-designed monetary union. But that would involve Scotland agreeing to fiscal sustainability – a reference to likely spending cuts; manage its risks and to “live within its means”.
But he backed up Alex Salmond’s threat that an independent Scotland’s obligation to pay its share of the UK’s historic debt – a sum roughly equal to £130bn or roughly 100% of Scotland’s GDP, would be affected if no currency zone was agreed.
“A failure to agree a full share of UK assets is likely to lead to a lower debt share or perhaps even a zero debt share than we [the fiscal commission] initially set out,” Beveridge said. “In this context, this could provide greater scope to build a fund to cover liquidity and wider support.”
His stance was vigorously attacked earlier by economists and business leaders who support the pro-UK Better Together campaign. Refusing to pay Scotland’s debt share would having a critical impact on the government’s credibility, the costs of its borrowing and on major employers – particularly its banks and financial companies, leaving to other parts of the UK.
Jack Perry, Beveridge’s successor as chief executive at Scottish Enterprise (until 2009) says the only viable option for Scotland is to stay within the UK, where Scottish politicians have significant direct say over the Treasury and the Bank of England.
After independence “our economies would diverge, and we wouldn’t have any influence over the monetary policy committee [at the Bank of England] which we currently do. We would not have political influence at Westminster because we would be an independent country.
“In the event there’s ever a conflict between the economic interests of the UK compared to the economic interests of Scotland, England would win every time,” Perry said.
Source: The Guardian