Salmond stung by Plan B #IndyRef

Following the Televised debate between Alex Salmond and Alistair Darling the latest Scottish Independence Referendum  (#IndyRef ) debate is about Currency and  with  More than 50 experts have highlighted flaws in the Nationalist currency plans where does that leave the SNP.

The “Current” UK Government consisting of the Coalition of the Conservatives and the Liberal Democrats have both stated that there will be NO Currency Union with rUK and an iScotland and have detailed why. The Main opposition party at Westminster The Labour Party have also outlined their case that a Currency Union would not be in the interest of rUK.  All that has been stated by Alex Salmond, Nicola Sturgeon and John Swinney is that everyone else is wrong and they are right and there will be a Currency Union. It’s the “Field of Dreams”  Claim but instead of “if you book them they will come” it’s If Alex says it will happen”.  Given the fact that they can’t even tell the truth about whether there have been discussions with Europe and calling a question being answered discussions with the Bank of England. I personally and the Majority of Scotland do not believe anything that our Current First Minister says.

So Alex Salmond has said “Its our Pound and we will use it” . Now the implications of no Fiscal controls over our Currency are disasters as shown in Europe with the Euro.  We would have no lender of last resort and could end up like Greece. The only way to  avoid an economic melt down  would be to run the Economy at a continual surplus.  This would mean high taxation and cuts in spending. Thatcher famously compared the Economy to a Household income. This is wrong and was best explained to me by the Bevan Foundation and this is taken straight from their website.

Cutting spending in one area frequently leads to an increase in spending in another area. Even at the basic level this is clear, redundancy costs may have to be made to civil servants out of a job, welfare payments made until that person obtains new employment (perhaps with payments then needed from tax credits) and the tax take of that person drops. This is before we consider multiplier effects on the private sector (major job losses in one area will be followed by job losses elsewhere) and further increases in the cyclical deficit. The net result is a fiscal contraction. The case of Ireland illustrates this well; in 2009 its deficit was 12% of GDP, after it made sizeable cuts its deficit remained at 12% of GDP in 2010 as its income collapsed and the cost of benefits rose.

However there is also a further effect, which is that if you stop a particular social programme, you have consequences that may mean further expenditure on other areas becomes necessary. If you stop spending money on schemes aimed at preventing young people turning to crime, then in future years you will be spending money on dealing with the criminals that result from the absence of those schemes. Cut a scheme that increases physical fitness in deprived communities and you spend the money on healthcare later on. Cut education provision and you get reduced income tax bills and higher unemployment bills later on.

In other words the economy is not like a household budget. Cutting the deficit isn’t about finding a list of project and schemes you will no longer spend money on, it is about deciding where savings can be made that are real savings and not merely shifts in expenditure. It is about not crippling the ability to obtain a future income, and not condemning communities to decades of deprivation. After all, nobody would suggest the household in debt balances its bank accounts by the main earner quitting their job in order to save money on petrol.

A lot is said about the Economy of Norway in comparison to Scotland.  Well Norway comes 29th in the world for Tax compared to the UK which is 6th.  Now the White paper is quite clear that the SNP intend to reduce Corporation Tax. Now remember in order to do that they have to increase taxation else where so here is the big question who should pay higher taxes because if they are cutting taxes for business the SNP wont be taxing the Rich.  An iScotland  will be a country with high Taxation and low spending to meet the needs of an ageing population.

The Scottish Government is adamant that they want to have a Currency Union but they ignore the Experts well here is what they say -:

A report published by the British Academy and Royal Society of Edinburgh stated:

“It was suggested that monetary union is not a straight forward option, and is made less so by the problems the Euro zone has recently experienced. It is now a conventional political and market position that it is difficult, if not impossible, to achieve a stable currency union unless this is accompanied by banking or fiscal union, or at least a step towards these.”

“The point was made that in any such negotiation [for a Eurozone-style currency union], account would have to be taken of the fact that an asymmetry exists, with Scotland accounting for around only 8.5% of the monetary union, so that the rest of the UK would expect oversight of Scotland’s economic policies. It was suggested that the negotiation of monetary union would, on that basis, prove very difficult, with Scotland unlikely to be able to negotiate acceptable terms.”

“The decision on which currency option to choose therefore comes down to comparing the consequences of the different criteria. It is clear from historical cases of currency unions with separate governments and different economies, that unions can be unstable and vulnerable to capital flight.”

“In conclusion it was suggested that a shared currency between Scotland and the UK would be unstable and capital flight likely to occur. The suggestion was made that with regard to risk management, there has not been adequate understanding of the potential financial risks the day after the Referendum on Scotland’s future.”

“In the event of a crisis, the UK would hold most of the cards on how to impose losses on Scottish institutions.”

“It was further suggested that the fiscal constraints on an independent Scottish Government would be considerably tighter than they are under the Scotland Act 2012. The risk would be even greater if negotiations for a monetary union were to fail and Scotland’s debt repudiated. This is because the danger of the market pushing up interest rates under these circumstances would be considerable.”

 

A report from former Treasury and Scottish Office adviser Jim Cuthbert and Margaret Cuthbert recently pointed out:

“Scotland has to be very careful that in negotiating its relations with bodies like the rest of the UK and the EU, it does not make concessions which will impose constraints which ultimately prove to be crippling. Any choices, for example, about forming a Sterling currency union with the rest of the UK would have to be viewed very carefully in this respect.”

“The basic choice for an independent Scotland … would be whether it wanted to control its own monetary policy, (in which case it would need to have its own currency), or whether to opt for some arrangement like membership of a currency union, or operating a currency peg, both of which would involve ceding control over monetary policy.”

“[a Eurozone-style currency union] would have to involve very close co-ordination of financial supervision and stability arrangements between the parties involved: and also restrictions on both parties’ ability to operate their fiscal policies. This would probably entail not just limits on the maximum allowable levels of public sector debt and deficit, but also limitations on the ability to vary specific taxes within very restrictive ranges.”

“Almost certainly, for example, given the close geographic confines of the British Isles, the rest of the UK would insist on negotiating the terms for any UK currency union so that Scotland would not have unfettered freedom to vary corporation tax. It is a very good question, therefore, whether the constraints which Scotland, (and for that matter the rest of the UK), would have to concede in order to establish a joint UK currency union would actually be consistent with any meaningful form of independence. But it is certainly the case that the constraints involved in such an arrangement are currently unknowable, so that the economic policy options open to a Scottish government in a UK currency union are largely a matter of guesswork.”

“The key imponderable about Scotland having its own currency is the potential transitional costs of getting there.”

“Future contingencies will also be critical in determining when and how an independent Scotland could make a transition to its own currency. The transition from a monetary union to a separate currency is, by common consent, a difficult step. In effect, all of the contracts written in the old currency have to be renegotiated, in a situation where the different sides in these contracts will take different views about who is being penalised and who is gaining.” 

 

Professor Brian Quinn, who served as Head of Banking Supervision and Deputy Governor at the Bank of England, in a recent paper wrote:

“[Under the nationalists plan for a shared system of crisis management] the crucial requirement for speed and authoritative action in the face of a systemic crisis would be jeopardised, if not lost altogether.”

“In a system in which the regulation, supervision and financial support of financial institutions is shared, the potential for dispute is virtually inbuilt; and on any reasonable calculations based on the relative size of its banking system, Scotland’s tax payers could face real difficulty in meeting their share of the costs unaided if one or more major Scottish banking groups were again to face failure.”

“[The assumption of the Scottish Government’s Fiscal Commission] that other UK taxpayers should share the costs of the collapse of Scottish banks does not appear to have a legitimate basis.”

“it is necessary at least to set out the risks and challenges entailed in moving away from a system built on long experience and the practical lessons of the immediate past, to a system the nature and implications of which are at this point unexplored.”

  

A recent briefing paper from the House of Commons Library noted:

“By entering a sterling zone, Scotland would forfeit the ability to set its own interest rate.”

“Given the relative size of the two economies, interest rates would be likely to reflect economic conditions in the rest of the UK more than conditions in Scotland. Under these circumstances, a shared monetary policy would become less appropriate for Scotland.”

“Countries which share a currency generally have to accept some constraints on their economic policies as a condition of belonging to the currency union. These constraints often put limits on the budget deficit and government debt.”

     

The Scottish Council for Development and Industry in a recent report stated:

“a rUK Government may seek in negotiations on the currency to limit its flexibility over spending and borrowing, while the Bank of England may set an interest rate for the rUK and not for an independent Scotland.”

“It is expected that the UK Government would only agree to a formal monetary union with an independent Scotland with certain constraints on the Scottish Government’s freedom of action in a number of key areas of economic and financial policy.”

“All of the currency options for an independent Scotland would involve, to a greater or lesser extent, explicit or implicit constraints on decision-making over fiscal policy. The Euro zone crisis has underlined the systemic risks of a monetary union in which some members have less disciplined fiscal policies than other members. It also showed that even legal agreements stating that one member will not bail out another are disregarded by markets assuming that the need for stability will override them.”

 

Professor John Kay, one of Alex Salmond’s former economic advisers, has suggested:

“If I represented the Scottish government in the extensive negotiations required by the creation of an independent state, I would try to secure a monetary union with England, and expect to fail. Given experience in the Euro zone, today’s conventional wisdom is that monetary union is feasible only as part of a move towards eventual fiscal union. But desire to break up fiscal union was always a major – perhaps the principal – motive for independence in the first place.”

“So Scotland might be driven towards the option of an independent Scottish currency. This would impose costs on business on both sides of the border and inconvenience travellers every time they cross it. The same inconvenience suffered by residents of Denmark and Sweden, countries that are not members of the Euro zone but whose economic fortunes are closely bound up with those of the currency bloc.”

“Whether or not an agreement on formal monetary union with rUK could be reached, an independent Scotland would have bargaining power only if it held open the option of a separate currency. And that is the only option that campaigners for a Yes vote can commit to deliver.”

 

Professor Gavin McCrone, former chief economic adviser to the Scottish Office, has said:

“we see how difficult it is in Europe at the moment. What it [the nationalists plans for a Eurozone-style currency union] really means is that there would be very little freedom; you couldn’t obviously have a separate monetary policy if you are in a currency union because you have the same currency.”

“Well look what’s happened in Europe and they are moving towards a situation where they are trying to get control of each other’s fiscal policy in order to stop some countries building up huge debts and so on. It really does make it very difficult to run a separate fiscal policy.”

“I think the pro-independence side have got a lot of questions to answer actually about the currency, about the European Union and so on and about the financial sector. I mean I think the financial sector would have to be restructured I think if we were to become an independent country and that would be quite a headache.”

 

Dr Angus Armstrong, Director of Macroeconomic Research at National Institute of Economic and Social Research and ESRC Scotland fellow, has said:

“If they [the nationalists] really want to have fiscal levers – full fiscal levers – then the only real way to have that is to have an independent currency, if they want to have full fiscal levers for themselves.”

“But then the difficulty is the transition: how did you get there; from where you are here today. In other words, to go from Sterling which you have had for the last 300 years, to all of a sudden to having an independent Scottish pound well that involves tremendous risks of capital moving of Scotland – how are we going to convert whatever Sterling debt an independent Scotland takes over and so on and so forth? But if one wants to have full fiscal levers, if that’s the proposition, then you need your own currency.”

  

John Nugee, former Chief Manager of Reserves Management at the Bank of England, has suggested:  

“the London government would be duty-bound to consider what is in the best interest of the remaining UK; it is not obviously the case that this automatically coincides with the optimal solution for an independent Scotland and not clear what an Edinburgh administration which wished to use rUK’s currency could offer London as negotiating points in any ensuing dialogue.”

   

Charles Nolan, Professor of Economics at University of Glasgow, has said:

“The Treasury analysis of the currency options facing an independent Scotland highlights the complexity of what’s involved. The preferred option of the Scottish Government is to do a deal and establish a formal Sterling zone. But it takes two to strike a deal and it now seems that a deal over a Sterling zone will be difficult to achieve.”

“The argument that we trade a lot with the rest of the United Kingdom, and vice versa, is true and that is why having a single currency is a good idea. But countries sharing a currency whilst operating separate fiscal policies face two difficult issues; they don’t help insure one another when things go wrong, and they can infect one another if one runs up excessive debt. Again, these elements are apparent in the Euro area today. That is why the euro area is pushing hard to establish something close to a fiscal and banking union.

“It seems likely that, in the event of a vote for independence, at a minimum the continuing UK would want powers to intervene if necessary in the fiscal policy of Scotland in order to protect Sterling. It also seems likely that such powers would raise fundamental issues of sovereignty such that they would be rejected by the Scottish Government. There is therefore real uncertainty about what a vote for independence would mean.  Uncertainty over questions of currency can be highly destabilising; they can lead to reduced investment and capital flight.”

  

Ronald MacDonald, Professor of Political Economy at the University of Glasgow Adam Smith Business School:

“For a currency to be successful it must be credible and offer a country a means of exchange rate adjustment in a time of crisis. Does the currently proposed regime of forming a monetary union with sterling offer these two key ingredients? I believe not.”

“But this lack of an effective means of adjustment to oil and other shocks means Scotland would ultimately have to leave the monetary union since its exchange rate would become so misaligned it would not be a credible arrangement.”

“Financial markets are forward looking and the combination of a non-credible exchange rate regime with questions over whether the Scottish Government has a credible commitment to its preferred currency option mean capital flight will precipitate a Scottish financial crisis in the wake of a Yes vote and, in all probability, with catastrophic effects for the Scottish economy.”

   

Professor MacDonald has also argued:

“The proposal that an independent Scotland would adopt a form of sterlingization along the lines of the system run in the Isle of Man seems to suggest that the Scottish Government have rather lost the plot in terms of the currency debate.

“For one thing, the Isle of Man is clearly a much smaller and differently structured economy than that of Scotland and to suggest that just because sterlingization works well there means it would work well in Scotland is without any empirical foundation.”

“Indeed, a key plank of the SNPs policy for an independent Scotland is to acquire North Sea oil reserves, thereby turning an independent Scotland into a net exporter of hydrocarbons that would give it a very different economic structure to the Isle of Man, or indeed the rest of the UK. This in turn would have profound implications for the exchange rate of an independent Scotland and would effectively mean that any form of fixed exchange rate, such as the Scottish Government’s Plan A (sterling currency union) or Plan B (sterilization), which falls short of the current currency arrangement will be doomed to failure.”

“Ultimately, the failure to design an appropriate exchange rate system for an independent Scotland will be punished severely by financial markets who will be the ultimate arbiters of any currency decision.”

 

I have written this in order that all this information is all in the one place so I hope you have read this and that you will share this with your friends and family before the 18th September and that you like me will Vote No Thanks to Separatism and Economic disaster.

Michael

August 17, 2014 | Categories: #NoThanks, Alex Salmond, Alistair Darling, Andy Burnham, Better Together, Clare Lally, Co-operative Party, Conservative Party, David Cameron, Douglas Alexander, Ed Miliband, Facebook, Gordon Brown, Independance, Johann Lamont, Labour Party, Michael Grieve, Michael Moore, MPs, MSPs, Politics, Politics - UK, Politics Scotland, Scotland, SNP, Social Media, Twitter, Yes Scotland | Tags: Alex Salmond, Alistair Darling, Better Together, Bevan Foundation, Danny Alexander, David Cameron, David Milliband, Ed Balls, Ed Milliband, Gordon Brown, Income Tax, Johann Lamont, John Lamont, John Swinney, LabourNo, Michael Grieve, Michael Moore, NoThanks, SNP, Yes Scotland | 1 Comment