Saturday, 27 June 2015

Don’t import #Grexit into the UK


Some Scottish nationalists have recently been arguing that Scotland ought to have Full Fiscal Autonomy (FFA), while at the same time recognising that this would leave a gaping hole in the Scottish budget. Their solution is that Scotland should have the best of both worlds. They think that Scotland ought to have FFA, but that fiscal transfers between the parts of the UK should continue. This sounds like a case of wanting two incompatible things, but it might also be worth recognising a welcome admission of reality. If Scotland cannot afford FFA without fiscal transfers, then neither can we afford independence. More importantly no-one in a currency union can afford independence. The reason for this is that no-one in a currency union can afford to be without fiscal transfers.  Without them any currency union is liable to become dysfunctional.  If you don’t understand this, then you haven’t been watching the news recently.

It is in the interests of everyone, not just Scots, that fiscal transfers continue, no matter what happens constitutionally in the UK. It might not seem so to those who do the transferring, but a stable currency with similar standards of living for everyone in Britain is in everyone’s interest. Having it is worth any amount of transfer, losing it would damage our shared economy and single market more than any of us realise. Again compare and contrast the UK’s stable currency with events elsewhere. It’s not much fun to be a debtor, but anxiety levels are rather high even with the creditors.

Without fiscal transfers Scotland’s best chance of reducing our deficit to manageable levels would be through devaluation, which would entail leaving the poundzone. This would naturally be painful for Scots, but breaking up one of the world's oldest currency unions would hardly be likely to be a picnic for anyone else. If you think breaking-up currency unions is easy, once more, you haven’t been paying attention.

Do we really want to go down the route of Eurzone bailouts and the possibility of Grexit? We already have a currency that works, that is stable and that everyone wants. Above all let us not jeopardise that. This is something that both sides of the independence debate can agree on. So I’m inclined to agree with those nationalists who want fiscal transfers to continue. I want to keep the pound and I recognise that a currency union requires a transfer union. Without one it is liable to end up rather like the Euro. So whatever happens let’s keep fiscal transfers.

But having recognised the need for fiscal transfers, we must clearly recognise that this puts limits on what is politically and economically possible. Just as there are at present rules for membership of the EU, which can limit what the UK parliament and the Scottish parliament can do, so too there are rules which must apply if there are to be fiscal transfers. Being part of a currency union implies some limits on what each part can do, not least because others may have to transfer money if something goes wrong. We cannot expect an arrangement that amounts to Scotland being given a credit card which never runs out, but that the other parts of the UK pick up the bill. There must be a joint account with everyone being given a say in how we spend the money. This is in everyone’s interest including ours. After all there have been times in recent history when Scotland has paid more into the pot than we took out. These times are liable to return at some point in the future.

In principle, it is possible to come up with a number of different arrangements by which the parts of the UK run their affairs. It is possible, while we all remain in the same currency union for us to have a situation where Scotland is given some more devolution (Smith), we could have FFA, or we could even have independence. This situation could be described as Home Rule, Federalism, Devo Max or going all the way, but sometimes we get too bogged down in the words. What matters is not so much what a thing is called, but what it in fact is.

The principle that local matters are decided locally is not a bad one, but given that we are going to retain fiscal transfers we have to accept that not all decisions can be taken locally, for some of them are about matter where we all have a shared interest. Retaining fiscal transfers implies that the centre must exert some control. Whatever we share must be decided in a shared way.

Even when a country is independent, it can find that its actions are limited by other countries. This has been particularly illustrated by the examples of countries like Greece which have been subject to bailouts. Greece’s independence is limited by the fact that it depends on others to remain solvent. Those others provide conditions which Greece must follow in order to receive the money.

A transfer union works rather differently than the Eurozone. It is this above all that they lack. When we transfer money throughout the UK, it’s not in the form of a loan, but as a gift. It all happens automatically, but this is because the centre can control to an extent what the parts of the UK do. This is the limit of devolution. It is also the limit of independence that is possible given that Scotland remains part of the poundzone and the poundzone remains a transfer union.

If Scotland were living beyond its means rather more than the UK average, it would be reasonable for others in the UK to suggest to Scotland that we reduce our spending. The reason for this is that ultimately they would have to pick up the tab if we didn’t spend less. In the end, being part of a transfer union will imply following the rules in the same way that those in the Eurozone have to follow the rules.  Of course Scotland can choose to elect who we wish, but we cannot choose to party with someone else’s money.

In order to be in a well ordered currency union we are going to need a means of debating these issues. We are going to need a means of deciding those issues that we hold in common, even if we decide all issues that only apply to us by ourselves. What this means obviously is that we are going to need not only a transfer union, we are going to need a political union. How else are we going to decide issues of macroeconomic policy that enable us to keep our currency union functioning smoothly? How are we going to regulate matters that everyone recognises are best done in a cooperative way, like defence and those aspects of “social union” that everyone on all sides likes and values.

Even the Eurozone, while lacking political union still has a shared parliament. But it’s precisely the lack of a political and transfer union that means it ends up as a lot of large countries ganging up on poor Greece. We in our poundzone, no matter what happens need to do rather better than European Parliament in order to ensure that our currency union doesn’t end up in the same sort of mess that the Eurozone is in. We need to keep what they lack. In theory what we have is what they are tending towards, but if they had it right now all their problems would be solved at a stroke. Why would we give it up? It would be as if we wanted to import Grexit along with olive oil and Feta cheese.

Given that we in the Scotland ought to keep what the Eurozone lacks, what shall we call the arrangement? We could call it FFA, Devo Max or even independence, but it frankly is not that different from what we have right now. The principle of Scotland deciding matters that only affect Scotland is perfectly reasonable, but just as the SNP recognise that matters in England sometimes affect Scotland, so too they must realise that sometimes what Scotland decides affects the rest of the UK. If we are to remain in a currency union, if we are to have a similar standard of living throughout the various parts of Britain, if things are going to work with a degree of harmony, then we are going to need political union no matter what happens in our debate. If the EU needs a common parliament, why should we suppose that the UK doesn’t?

Even in a group of independent nation states like the EU, each state’s independence is constrained. A large percentage of UK law originates in the EU. But the UK doesn’t have a currency union with any EU member state. It would be reasonable to suppose therefore, that being in a currency union would imply a greater degree of shared law and regulation. So even if Scotland were independent, but within a currency union and transfer union, we would need rules and laws to regulate this arrangement. To what extend would this arrangement differ from that of devolution?  All of these things are matters of degree. A currency union ultimately means that we have to share through fiscal transfers and share political decisions about how we run our union. The difference between what we have now and “independence” within a transfer union is frankly not much, so long as the other parts of the UK would agree to the arrangement. They would, for there is no escaping our shared interest and our shared currency. The logic is remorseless, but it cuts both ways. The UK too is a building with no exits. The trick is to prevent it burning.  The only way to do that is for us to keep what Greece and Germany lack. We need to keep fiscal transfers in the UK or else sour our relationship in the same way that theirs has been soured. But above all we must recognise that a union with fiscal transfers, which is the only long term way of preventing the poundzone from turning into the Eurozone, would require political union also. So even if Scottish nationalists at some point won a vote, even if they decided to call the arrangement “independence”, the reality is that it would be pretty much what we have now. In the course of negotiation we would all find that we needed to keep both the fiscal and political aspects of our union. We would be “independent” within the UK. There might be some unnecessary turmoil getting to this point, but nothing really would change, though the words we used to describe the reality might suggest something different. But that is mere flag waving and has as little substance. You cannot eat flags.

I find myself taking part in a debate that is becoming ever more sterile.  It’s all really a matter of semantics. But then so much of modern life has become a matter of playing with words. I can choose to describe myself and my situation in any way I please so long as I redefine the word and maintain vehemently that the word applies to me. But the reality does not change, which is why there is frequently such vehemence. Scottish nationalists want Scotland to be an independent country like Greece. But Scotland right now has much more independence than Greece does. If you don’t understand this, you simply don’t understand the reality and are just concerned with words.


The only true independence would be for Scotland to become a country like Iceland. Iceland has its own currency and is not part of the EU. It can do more or less what it pleases and it can do so even though it has a tiny population. Having its own currency meant that Iceland had room for manoeuvre when it got into trouble in 2008 and it saved itself  from Greece’s difficulties precisely for this reason. There are massive advantages to having your own currency.  If that’s what you want be my guest, but it means Scotxit, it means devaluation and it means default. Alternatively recognise that what we have now is the best of both worlds. By all means call it “independence” if you wish. But in the context of being in a currency union we have already reached the maximum of devolution possible and indeed the maximum of independence. If you don’t like it and forever want more, the only alternative is to go it alone in the fullest sense of the word. That too is possible, but let us at least be honest about what we are debating. Let’s not play with words.   




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16 comments:

  1. The SNP has to make people believe that we are able to discard all the bad things about the UK but keep all the good bits (like the Pound Sterling, backed by the Bank of England).

    Some nationalists think that arguing for an independent currency would have been a more coherent, more sellable policy. But they just don't get it - people in Scotland maybe don't identify as British but they sure enjoy all the benefits that Britishness brings them - like a strong, stable currency. Salmond understood this - and that's why he was more comfortable discussing his stools than his currency plan B / C / D etc. But, in arguing for the pound, you argue for Britishness and the union - whether you like it or not.

    It seems the SNP is stuck between a rock and a hard place on this one. Throw in the dying oil industry, and you have a slam dunk for "No" in any near-future rerun of the independence referendum.

    And that - for all their sound and fury - is the reason it wont happen, regardless of the Holyrood result next year.

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    1. I don't even think independence is possible in the end. Scotland leaving the poundzone would be a disaster for Scotland and no picnic for the other parts of the UK. But currency union ultimately implies political union and transfer union. I too think Yes would lose another indyref certainly under the present circumstances and for that reason there won't be one anytime soon. However we must keep fighting, as if nationalism gets fanatical enough our politicians may decide to do something stupid. Alternatively something bad may accidentally happen. I'm not at all worried by 56 SNP MPs. They are completely impotent.

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    2. When I saw the exit poll on the night of the election, I just about jumped through the ceiling in sheer delight. Thank goodness the people of England, Wales and N Ireland at least had the sense to counterbalance our (I hope) temporary insanity in Scotland.

      They say "money talks". If that is indeed the case, then Scottish independence is surely a dead duck. SNP politicians with investments and property in Scotland as well as those who care about their country must, by now, be starting to have second thoughts, or - at least - thinking of Scottish independence as an extreme long term ideal rather than something that can be practically achieved in the next few years.

      On current form, the unionist parties in Scotland will collectively lose the Holyrood election next year. That is no secret. Increasingly, the opposition to the SNP's current trajectory will come from within. Or, if it doesn't, there is still the British government and, ultimately, the Scottish people standing in the way of independence. At least one of those barriers will prove successful.

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  2. SNP were defeated in May. They wanted influence, they didn't get any. The same arguments will apply next time. English voters will vote to avoid a government that depends on the SNP.

    It doesn't fundamentally matter whether SNP control Holyrood they won't hold a vote on independence until the economic conditions are in their favour. Who knows when that might be. Meanwhile if UK votes for Brexit or if the EU goes back to being a sort of trading block, then the condition for the possibility of independence ceases to exist.

    They are all cock a hoop at the moment thinking independence is inevitable. But the position of Scottish nationalism is actually much worse than they think it is.

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    1. Not many people saying SNP were defeated in May. I agree their influence is limited but that is the case for any and every set of Scottish MP's. In itself a pretty beefy reason for Independence.

      My question to the collective doomsayers on here is simple. If we accept your opinion that Scotland alone in the world is simply too poor to operate as a state. Then what do you expect London to do to change this or are you simply content to accept eternal subsidy ?

      What happens in your vision of a future Scotland when the oil runs out and our economy has been shrunk by successive gravitational pulls of all industry and commerce to the South. At which point would it be polite for our neighbours to say , we are no longer Better Together ?

      If Scotland is such a basket case...who bears the blame ? Is it 11 years of devolved government or 300 or lopsided government ?

      Here is a thought , I can say that from 30+ years of industry experience that without exception every single financial and corporate entity with a bulk of workforce in London has moved jobs out. These jobs go to other regions or even other countries.

      Why has this not happened with the core establishment of Civil Service and government ? Are the current and recent UK government's not committed to being free market players ? Or is it more of a case of sacrificing everything to keep London growing ?

      So think about this. Where will Scotland be in 50 years under the current status quo ? At best it will be in a similar situation. If that is the length of your ambition then its the people not the country that are the problem

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    2. Independence is inevitable but it will be delivered by England(actually London) on Scotland when its ready to let go an not before. So it's coming , the choice is when is best.

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    3. I suggested a couple of weeks ago that both UK supporters and independence supporters can work together to improve the Scottish economy. It serves the purpose of both our arguments. It also unites us. How we go about doing this will divide people politically.

      I don't think "independence" makes a lot of sense in today's world. Greece is a sovereign nation state with independence, but practically is run by its creditors. Scotland practically has much more independence than Greece.

      If we are to remain in a currency union with the other parts of the UK, which I'm sure we both hope for, then we are going to have to accept some form of political/transfer union. If we don't then we are importing a model that has failed and getting rid of a model that works. So your choice is between "independence" within a political union of the UK or the status quo. There isn't frankly much difference, apart from some flag waving. If on the other hand you went for the full let's be independent like Iceland option, it's doable, but would cause a lot of turmoil for us and for others in the UK. Breaking up a currency union is not easy. Again it's possible, but is it what we want?

      I'm afraid much of the debate is about playing with words. What do we mean by the word country. What do we mean by the word independence. Nothing is inevitable though it can be nice if you desperately want something to think that it is. Repeat inevitable enough times and you even overcome your own doubts. That's the point of the repetition I suspect.

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    4. That repetition jibe works both ways.....pro and anti independence. Not so long ago the sun never set on the empire.

      The fact that you cast of Scotland being a country as being purely semantics tells a story in itself.

      It was the Unionist side who shot down the currency union. So it's difficult to swallow that being a blocker for independence supporters. Scotland can easily be independent as it will have no debt, if it has no currency union.

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  3. The economic conditions have never been right for independence. Since the plunge in the oil value, they have become even less suitable.

    The thing the SNP will be most scared of is a second referendum defeat. You can come back from one such defeat - but two of them? They'd have no credibility left. They are already showing their fear of such a scenario by beginning to link indyref 2 to unlikely events (Brexit etc). They will continue to threaten another referendum to keep their newfound fan base on board but not actually hold one. The problem with this is that their supporters will eventually see throught it - and it wont play well with the more radical elements. I don't pretend such voters can be won over by the unionist parties but if they stay away from the polls the next time around then it still benefits us.

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  4. I would guess the key is what the next generation think. With the name guardian business I imagine the SNP have half an eye on that too. Why does the state need to be so close to every child / young adult?

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    1. The SNP's state appointed guardian for every child is the most creepiest piece of legislation our country has ever seen.

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    2. The legislation has cross party support in Holyrood, such is the uselessness of our so called opposition. No wonder the SNP are running rampant - no one, in Scotland at least, will even attempt to hold them to account. The media is also soft and compliant.

      The only opposition to the SNP seems to come from the UK conservative party.

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    3. You know it is truly horrendous, I've spoken with several Yes/SNP voters and they all, without exception, seem to be under the impression that the rules dont apply to their children and they as parents are safe while the truth is no parent in Scotland is now trusted with their own child and are all getting a SNP picked supervisor.

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    4. Named person and changes to education are about turning children in Scottish nationalists. It's just like the Young Pioneers in the USSR. But like there it doesn't always work. Young people have a tendency to rebel against received wisdom and they may well rebel against a diet of Braveheart history.

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  6. I'm off for a couple of weeks. Thanks to everyone from both sides who comments. Let's try to turn the comment section into a place for friendly debate. See you all soon.

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