Sunday, 26 June 2016

Salmond for the Prosecution

I wrote in my last blog on Friday about how angry I am with the result of the European Referendum.

A lot of people are. And are looking for a solution, any solution.

David Lammy MP even suggested Parliament should just ignore the referendum altogether! I'm not quite sure that would mean for our Party's prospects in the North of England.

Elsewhere, three million people have signed a petition calling for a re-vote. Except seventeen million people actually voted to leave and the only polling done since indicates that they are overwhelmingly happy with what they have achieved. I'm in no doubt that, in time, we will see buyer's remorse but that time is not yet.

Thousands of others are desperately off to try and get an Irish (EU) passport but it's not clear where they actually propose to live.

All we need now is a Euro camp in Parliament Square full of zoomers invoking the intervention of Jesus and the Queen. While blaming the whole thing on Murray Tosh.

This is all nonsense. I am in no doubt we need to work to reverse or at least mitigate the result last Thursday but this is not something that will be achieved overnight and depends on a number of other factors: the immediate response of the 27 other EU members; the result of the Tory leadership (de facto Prime Ministerial) election;  the fall out of the instant challenge to Corbyn, whichever way it goes; the result of what appears now to be almost certain 2016 General Election and, if that doesn't reverse last Thursday by itself, any negotiations that then take take place between the EU and the UK in its aftermath.

But I just want to say something about the other immediate angry response we have seen to the vote, one particular to Scotland, that in response we should declare independence (via a second independence referendum) so that Scotland could remain in the EU at the price of leaving the UK.

This is understandable, because anger is understandable, but it is nonsense. Because by the time of any such vote, the consequence of such a cutting off one's nose to spite one's face would be a lot more apparent than they are in the current febrile atmosphere.

I could list any number of reasons for this but I'll choose just one, currency. Say what you like about Alex Salmond but he is not a stupid man.

I am in no doubt that he understood that for Scotland to actually operate a different economic policy from our own much larger neighbour we would need to have a different currency which could trade at a differential value on the world's currenc exchanges.

But in 2014 he didn't offer that, instead he proposed a currency union with England. This was improbable then, something that Salmond himself has since admitted. On any view however, now it would be impossible. A currency union from within the EU with a country outwith the EU? It is inconceivable that this would be acceptable to either Brussels or London.

So, we would be left with only one option*, our own currency. An independently issued, central bank backed, convertible currency is an absolute sine qua non of EU membership as, if you consider it for a moment, you will appreciate that it is required for the stability of a single market.  That currency, the Pound Scots, might be declared on creation to be intended to be worth the same as the Pound Sterling but it wouldn't be. Because, in the absence of a reciprocal arrangement, convertible currencies are not worth what their governments declare them to be. The key is in the word convertible. Governments might produce the "goods" (The Pounds or whatever) but they don't own the shop, let alone control the customers.

And these markets would immediately place a shadow value on this Scottish currency,indicating not exactly what it was worth (because it would not yet exist) but rather what it would be worth when eventually placed on sale.

And that value would inevitably be significantly less than the Pound Sterling.

Why? Because the key element in pricing any national currency is the size of the national fiscal deficit. And, as a percentage of GDP, Scotland's deficit is significantly higher than that of England, even before the boost the latter would get from losing its obligation towards subsidising Scotland. That is based not on my opinion but on the annual GERS figures produced by the Scottish Government.

And there is no politically acceptable solution to this because to continue with that deficit (setting aside for the moment whether any wider EU entry  obligation would permit that) would mean one thing. That anybody paid from the public purse: every public sector worker; every pensioner; every benefit claimant, would know that on Independence Day they would be immediately worse off. On the other hand, if it was announced in advance, to reassure the markets, how the Scottish Government proposed to address the deficit? Then every public sector worker; every pensioner; every benefit claimant would know that on Independence Day they would be immediately worse off. Not just worse off when they went "abroad" but worse off when they tried to purchase any imported item at their corner shop.

And, crucially, that isn't something that would come as an unpleasant surprise after any second referendum vote, it would be known on polling day, because the Scottish currency's shadow value would be known on polling day.

So, maybe people will be so filled with affection for the EU, or resentment of England, that they might still vote for that. For an immediate, significant, cut in their living standards. But I very much doubt that. And my number one witness for that conclusion................? Alex Salmond.

*I haven't addressed the suggestion of immediate Euro entry because it is almost certainly technically impossible but, even if it wasn't, Euro membership requires a target deficit of less than 3%. Scotland's deficit is currently 9.4%, so for that to be possible the spending cuts I refer to would just as certainly have had to have been detailed. Anybody who thinks that might be negotiable should ask the Greeks.

I also haven't mentioned "Sterlingisation" (using Sterling without permission) not just because it was always a farcical proposition but because having one's own currency (or the Euro) is an express requirement of EU membership.




6 comments:

  1. What would you like to see happen now Ian if you were in charge?

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  2. But the GERS figures are kilted. They actually originate from London. Methinks that they overstate the costs of running Scotland whilst understating the revenues.

    Do you think that an Indy Scotland would be in debt?

    And yes, EU membership does require commitment to the Euro but I detect a half truth. Use of the Euro can only come after operating within the Exchange Rate Mechanism for two years, which is itself voluntary: in other words, it's fudged.

    Reality is that the UK economic model is hollowed-out. Ouch!

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  3. I too hold to your view, Ian, that any 2nd Indyref will result in the same. This will be because, whereas those who seem to have tipped the Leave vote that acted against their economic well-being probably had little to lose, that isn't true of the persuadable No voters.

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  4. It looks like there is a bit of catch 22 involved in a 2nd referendum - namely that given Scotland's fiscal position the only way we could be voting on an option of leaving the UK to immediately apply for entry to EU is if we had just experienced a very strong economic recovery. However if we had just improved our economic circumstances so successfully why would the risk averse Scottish electorate want to put that recovery at risk by voting for radical change? Alternatively if the predictions of economic doom following brexit are borne out then our fiscal position would be so dire that we would effectively voting to leave both UK as well as EU, and with no short or medium term prospect of getting entry to the EU. However if UK went for a Norway model (or an amended version of this) does that still require the UK (and/or an independent Scotland) to meet fiscal deficit targets?

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