Saturday, 15 February 2014

The threat of independence


I’ve long thought that the SNP were running a clever campaign. That is one of the reasons why I have thought it intellectually worthwhile to try to challenge it. The debate is interesting because the opponent is worthy. It may surprise some people on both sides that a supporter of the UK should respect the SNP case for independence. But really I suspect most Scots, who are not completely dogmatic, can see some merit in at least some aspects of each side’s position. What has most impressed me is that the SNP have been pragmatic. They have put forward a vision of independence which can best be described as the minimum necessary to be called independence at all. This has commonly been called independence lite. It amounts to a desire for Scotland to be independent politically and to the greatest extent possible fiscally or economically, but for everything else to stay the same. This position is barely different from so called devolution max, which quite a lot of people in Scotland say they support. Personally I think devolution max inevitably leads to independence, but that’s another story. Once you begin to understand what the SNP are arguing for, you realise how difficult it is to argue against. If they could obtain independence lite, most of our lives would carry on much the same. Many of us would barely notice the difference. But from an SNP perspective even a sliver of sovereignty is enough to satisfy, for it can be portrayed quite accurately as a seed that can grow into any tree they want. It should now be clear why the SNP position is so cunning. They want to maintain most aspects of the present relationship that exists within the UK, because they know that most Scots on both sides of the debate want that too. No one wants to have to show their passport at Berwick, everyone wants the same sort of rights that we have now within the UK to continue, we all want the sorts of things that work well in a UK context, like pensions and currency to continue. The tricky task, for those of us who oppose independence, has been to point out that some of these things may be contingent on us remaining in the UK. The standard reply has always been that to doubt that such and such would continue is to engage in scaremongering. What this amounts to is that to disagree with the SNP vision of independence lite is to be insincere, someone who is trying to con the Scottish people. You see now why I respect my opponent. He is slippery and clever.


But what happened recently I am afraid is less clever. The UK government together with the Labour party have said that one of the main planks of independence lite, currency union, is not going to happen. Moreover, and this is really the most important point, the Permanent Secretary to the Treasury has said the same thing. This is the person who advises governments of whichever party. This is not some slippery politician, but someone whose reputation depends on giving sound, consistent advice. He has not given this advice out of spite, or because he is against Scotland, but for reasons that are logical and reasonable. He does not believe that currency union would be in the interests of the rest of the UK (rUK) after Scottish independence. Of course, it is possible to disagree with this reasoning, but that is beside the point. He is saying that this is the advice that he would give to any future government. If the SNP are unwilling to believe this, then they are saying that they are unwilling to believe anything that their political  opponents say. But this is not to debate. It is a refusal to listen at all.  Moreover it would be rather hard to negotiate with people you so little trust.


Independence lite just got a little heavier then. If there is to be no currency union between an independent Scotland and rUK, this is something that we all would notice. Scotland would have to come up with another currency arrangement. There are a number of perfectly sensible options. In my view, the most sensible option would be a new Scottish currency pegged to the pound with a Scottish central bank to back it up. This is perfectly possible. After all even Iceland with a population the size of Aberdeen has its own currency. Lucky for Iceland that it did, for when faced with economic meltdown a few years ago the currency took the strain. The difference between renewed prosperity in Iceland and continuing poverty in Spain is that Iceland had its own currency. There are also disadvantages to having your own currency. There may be fluctuations up and down and pegs can break as we learned from the ERM some years ago. The biggest disadvantage however, is that having a separate currency would lead to additional transaction costs and would damage Scotland’s position within the single UK market. But really this is the least worst option. Serious countries with a financial sector the size of Scotland’s do not attempt to use another country's currency without the benefits of a currency union and the safety net of a lender of last resort.


The option of independence then may have become a little heavier. But the response of the SNP to the news from the three main UK parties has made it considerably heavier still. Threats to not pay Scotland’s share of the UK national debt contradict the logic of their own campaign strategy. Some nationalists have seized on the fact that in January the Treasury guaranteed the whole of the UK’s debt. The reason for this guarantee is now clear. What if the Treasury had only guaranteed a future rUK’s share? Well Mr Salmond’s threat would immediately have caused bondholders to fear that a proportion of the national debt was liable to default. This would have had alarming consequences for the whole UK economy and would have been damaging for all of our pensions. The Treasury guarantee however, does not mean that an independent Scotland would have no share of the national debt.  The Treasury note says “An independent Scottish state would become responsible for a fair and proportionate share of the UK’s current liabilities.” This isn’t a matter of choice for an independent Scotland, but a matter of international law. It is therefore not a bargaining chip that Mr Salmond can use to try to bully rUK into maintaining a currency union when they clearly do not wish to do so. If the two sides cannot agree over this matter it will be decided by the court of international opinion. It is clearly not in the interests of the international community to allow places like Catalonia, Flanders or for that matter Texas to secede without accepting their fair share of mutually incurred debt.  

The SNP’s threats unfortunately show which way divorce negotiations would go. It is this which is most damaging to the SNP’s case for independence lite. What sort relationship would exist between rUK and Scotland if we threatened not to accept our share of the national debt? Remember that quite a large proportion of that debt was incurred when a Scottish Prime Minister and a Scottish Chancellor chose to bail out two Scottish banks. If we were to renege on that debt, what do you think the people in rUK would think of us? You see actions have consequences. The SNP vision of independence lite depends on the goodwill and friendship of the people we now call our fellow countrymen. The SNP wants to maintain a social union, wants to continue using many presently shared UK institutions, wants us to have the same rights in London as we do in Edinburgh, wants life to go on pretty much the same as it does now. I want these things too. But how much of this social union would survive a messy divorce? How much would survive if Scotland somehow were able to persuade the international community that we need not take our share of the national debt. Independence lite begins to look heavier and heavier. The threat to not pay our share of debts is dishonourable and wrong. To make such a threat seriously is irresponsible and frankly scares me very much, for if carried through it  would have consequences that are impossible to predict. It would damage perhaps irreparably our relationship with our neighbours and the wider international community. It would affect each of our lives profoundly. The existence of such a threat is a reason in itself to vote no.

15 comments:

  1. "If we were to renege on that debt"

    For the millionth time: Scotland CANNOT "renege" on the UK's debt, nor can it "default". It is the UK's debt. The UK is the signatory to it. You don't have to take my word for it - the Treasury said so absolutely explicitly only a couple of weeks ago.

    If you're a lodger in my house and you don't pay the mortgage, the bank doesn't come after you, it comes after me. Your credit rating isn't affected, because you've defaulted on nothing.

    The bank doesn't give a damn if the reason I haven't paid my mortgage is that you haven't paid the rent. It only has a contract with me, and I'm the only person it will pursue and take action against.

    We cannot have this debate conducted on the basis of complete fallacy.

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    1. Well, Scotland is "technically" reneging on its debt, as the First Minster implied he "MIGHT" do if he does not get the currency union. However, his only answer was assets and liabilities. But the Pound is not a sharable asset. The Pound id an item of the BoE which is an institution of the UK. leave the UK and then you leave the Pound. Debt on the other hand, is a liability since scotland contributes towards it. And it is also getting the assets it has such as UK government property, Trident, as well as other shared assets like Territorial soldiers. So Scotland is not being cheated out of anything.
      Your Story is also quite a fallacy because it assumes scotland is immune or totally separate from UK. The story would be more accurate if it was jointly owned by four people and Scotland has had a fair share in living costs.

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    2. "Well, Scotland is "technically" reneging on its debt"

      No, it's not. Scotland doesn't HAVE any debt. The UK does. The Scottish Government has no borrowing powers.

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    3. Reverend, Scotland is not free from UK debt. It has to accept the debt that is proportionally theirs which you've outlined is 150 Million Quid. That is an asset and a liability. The pound does not need to be shared as the Bank that owns it is a UK institution. Plus, if Scotland does not accept the share, they would not have a good credit rating.

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    4. If you don't believe the Reverend or the Treasury, will a Law Professor at Edinburgh University be enough to convince you that Scotland can't renege on a debt?

      http://www.futureukandscotland.ac.uk/blog/currency-reflections-legal-issues

      The legal position here is absolutely incontrovertible. Only someone unwilling to face reality could possibly decry it. If the debt isn't owned by you, you don't have to pay it. Any first year law undergraduate would understand that quite readily. There is no arguing around it. Inescapable logic.

      There is a corollary to this. The argument then goes, well maybe technically you don't have to pay, but if you didn't you would start off with a terrible credit record, no-one would lend to you etc. This of course is again simply not true. In the first place, it assumes that an independent Scotland would need to borrow, which is a pretty large assumption bearing in mind the past 30 years of fiscal data and the economic potential we have. There is no obvious reason why we would need to borrow any money. Further to that you need to provide solid evidence rather than just 'mere assertion'. Where is your evidence that international lenders would assess Scotland in this way? Please direct me to the source. As yet no-one has.

      What we do know is that Westminster is TERRIFIED that Scots might not take on a share of the debt because it would take the trade deficit up to around 10% and leave them paying back all the debt themselves. The UK's borrowing rate (which is already higher than most European countries) will rocket. This is the real economic reality, and is why there has been this unusual unanimity on the currency union front, and why there is such a squealing reaction when Salmond hints this could happen. If Scotland did not agree to assume some of the liability of the debt it would mean economic catastrophe for rUK and anyone who pretends otherwise is lying.

      However, this is not what Salmond and Sturgeon propose, they have always made it clear they will take a fair share of the debt. When politicking subsides and reality sets in after a YES vote, hard economic facts and mutual self-interest will result in a currency union. This is what Sir James Mirrlees has argued for, and as the winner of the noble prize for Economics (and certainly no nationalist!) I think his opinion is one I'd pay close attention to.

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    5. "It has to accept the debt that is proportionally theirs"

      No, it really really doesn't.

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  2. The fact is, if the rUK asserts that an independent Scotland is a completely new state, not a continuation of an earlier extant one, then there is no reason why it should take a proportional share of debt. If Scotland is considered to have no right to a continued currency union, currently a shared asset of the UK, then why should any other formerly UK assets or debts be our problem either? The rUK is determined to be seen as a sole successor state, and as such it has to be prepared to take all that comes with that.

    It is also very important to note that the notion of "Scottish banks" crashing is a red herring - these are international institutions encouraged by the deregulated economic headcase that is the City of London to act with impunity. These banks may have Scottish names but the problems they caused had nothing to do with Scotland.

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  3. The UKs understanding of international law is that an independent Scotland would have to accept a share of the UKs present national debt. That is what the Treasury note issued in January said. If Scotland were to refuse this then negotiations between the UK and Scotland would immediately be at an impasse. The matter would have to be decided by international courts. There is little chance that Scotland would win. If Scotland were to reject international law with regard to the share of the national debt, then why should the UK accept Scotland's interpretation of international law with regard to, for instance, maritime borders. That way lies anarchy and madness.

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  4. "The UKs understanding of international law is that an independent Scotland would have to accept a share of the UKs present national debt. That is what the Treasury note issued in January said."

    Eh? There is no such international law that I'm aware of. Source and quote, please.

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    1. The treasury note reads as follows:

      "1.1 In the event of Scottish independence from the United Kingdom (UK), the continuing UK Government would in all circumstances honour the contractual terms of the debt issued by the UK Government. An independent Scottish state would become responsible for a fair and proportionate share of the UK’s current liabilities, but a share of the outstanding stock of debt instruments that have been issued by the UK would not be transferred to Scotland. For example, there would be no change in counterparty for holders of UK gilts. Instead, an independent Scotland would need to raise funds in order to reimburse the continuing UK for this share.

      1.2 An entirely separate contract between the continuing UK Government and an independent Scottish state’s Government would need to be established. The respective shares of debt and the terms of repayment would be subject to negotiation."

      Quoted in http://www.newstatesman.com/politics/2014/01/why-snp-shouldnt-be-celebrating-uks-pledge-guarantee-scotlands-debt

      In the paper Scotland analysis: devolution and the implications of Scottish independence the following paragraph occurs

      C:\Users\Peter\Desktop\Scotland_analysis_Devolution_and_the_implications_of_Scottish_Independan...__1_.pdf

      "The division of liabilities and assets is a significant part of any negotiations to create a new state, and would also have to be settled by negotiation. Although there are some general principles of international law that could impact upon this matter there is no clear consensus in international practice as to the precise allocation of national debt in circumstances of state separation or dissolution. However, there would be an expectation that an independent Scottish state would take on an equitable share of the UK’s national debt. How an ‘equitable share’ would be calculated is open to question and would have to be negotiated. The continuing UK would approach negotiations in good faith and, in the interests of its citizens, would need to seek to ensure that a fair settlement applied to assets and liabilities (such as national debt)."

      Finally Professor of law at the University of Glasgow Adam Tomkins writes:

      http://notesfromnorthbritain.wordpress.com/2014/01/28/the-hidden-costs-of-independence/

      "International law provides a number of presumptions that are likely to shape such negotiations. Among these presumptions are the following:

      The UK’s fixed property in Scotland (e.g. Government buildings) would become the property of the new Scottish State; conversely Scotland would have no claim on the UK’s fixed property in the rest of the UK or overseas
      The UK’s movable property in Scotland would become the property of the new Scottish State where it is specifically for local use
      Other assets and liabilities would fall to be apportioned equitably. This may be calculated by such means as share of population or, possibly with regard to the national debt, for example, by share of GDP. Historical contribution appears to be of no relevance: thus UK fixed property in Scotland would become the property of the new Scottish State even if its construction had been paid for UK taxpayers as a whole, and no compensation would be due to the rUK

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    2. Um, that doesn't say what you claimed it said. Here's the key passage, from the UK government's own mouth:

      "there is no clear consensus in international practice as to the precise allocation of national debt in circumstances of state separation or dissolution."

      Even that only talks about "practice", not "law". The bottom line is what the UK government and every credible expert said it was - the debt is the UK's, and any agreement by Scotland to take on a share of it will purely be a matter of negotiation and goodwill.

      If no goodwill is forthcoming from Westminster, Scotland is absolutely legally free to invite Westminster to store its debt in an internal location on its person.

      "Legally under international law the position is clear: if the remainder UK keeps the name and status of the UK under international law, it keeps its liabilities for the debt. The UK took out the debt, and legally it owes the money. Scotland cannot therefore ‘default’.

      It can be argued that international law does, however, contemplate that on dividing, the two resulting states share out assets and liabilities equitably. However, it has no hard and fast formula for what constitutes equitable division.

      Tangible natural assets such as oil go with the territory they are in. But other matters – in particular debt - must be negotiated. What is equitable will depend on the overall result and context of the negotiation. "

      http://www.futureukandscotland.ac.uk/blog/currency-reflections-legal-issues

      I would as soon trust Prof Tomkins as a neutral witness as I'd ask a fox to guard my chickens.

      Why's your PC username "Peter", by the way?

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    3. Sorry my quotes didn't satisfy you Stu. What I don't understand is if Scotland really had no legal obligation to accept a share of the national debt, why would the SNP agree to do so if we were granted a currency union. Moreover, why would there be any expectation on the part of the Treasury and others that Scotland should accept a part of the debt? It's not a trivial sum after all. International law may be murky, but there is a clear expectation and precedent that seceding countries accept a share of liabilities. I doubt that I can convince you of this. And anyway each of us just has opinions based on what we have read as I suspect neither of us is an expert in international law. No doubt we will have to wait and see how the issue plays out during any post independence referendum negotiations should these occur.

      Peter is my husband. For some reason he chose to name our computer after himself. Typical man.

      Best wishes,

      Effie

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    4. Why would the SNP agree? Because they want the UK's co-operation in negotiations. (And who knows, maybe they just feel it's the right thing to do too.) I might as well ask you why the UK government accepted 100% responsibility for the debt if it didn't hold 100% responsibility for it.

      "International law may be murky, but there is a clear expectation and precedent that seceding countries accept a share of liabilities."

      No, that's exactly what there ISN'T. If countries, as you put it, "secede", then they're generally held to have walked away from the rights AND the responsibilities. Nobody in the Yes campaign has ever used the word "secession". Just because the UK *says* it's the continuing state and Scotland is a new state doesn't necessarily make it so. The Acts of Union only had two signatories. If you get divorced, one of you isn't still a couple.

      The bottom line is that the UK can't have it both ways. If it wants to play nice and behave in a civilised, respectful manner should the voters of Scotland democratically choose independence, the SNP will too. If they want to be dicks, so be it.

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  5. I never expected to delve so deeply into such arcane matters as international law. My understanding of the UK position is based on the following:

    The paper Scotland analysis devolution and the implications of independence by Professors James Crawford and Alan Boyle argues that in the event of independence Scotland would be a successor state while rUK would be the continuator state. International law with regard to what happens to the debt in these circumstances is influenced by the Vienna Conventions on Succession of States:

    "When part of the territory of a state is transferred by that state to another state, the passing of the state debt of the predecessor state to the successor state is to be settled by agreement between them.

    “In the absence of such an agreement, the state debt of the predecessor state shall pass to the successor State in an equitable proportion…"

    http://legal.un.org/ilc/texts/instruments/english/conventions/3_3_1983.pdf

    As far as I am aware that is the precedent in international law. Naturally lawyers will disagree. But then lawyers could equally disagree with regard to the International law of maritime boundaries. If we get into the tangled web that lawyers may spin we will be in chancery for ever and Scotland will resemble Bleak house.

    But all this really is beside the point. If Scotland chose to refuse to accept a share of mutually incurred liabilities, relations between rUK and Scotland would be at best frosty at worse hostile. Independence would not be independence lite, but independence heavy. They would not want to cooperate with us, nor would they want to retain any sort of social union if they could help it. I suspect most Scots would prefer the union to continue rather than that relations between Scotland and rUK would deteriorate to that point.

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