Martin Sandbu notes in the FT this morning that
[I]t seems to me that a choice for independence would be motivated in part by a desire for a different orientation of economic (and other) links. If so, then a referendum that took Scotland out of the UK would put it on a path that ends with the euro.
It is worrying that such a senior commentator as Sandbu might use a column in the FT to promote an idea so potentially contrary to the interests of an independent Scotland. That is especially true when he did so on the basis of the very limited appraisal of the currency issue that he offered in his article.
The first thing to note is that Martin Sandbu is an exceptional fan of the euro. He actually argues that the UK would have benefited from being a member of it, which is very hard to explain. I can see literally no justification for that argument.
The second thing to note is that Sandbu appears to have reduced the issue of money to the simple issue of what is to be used as currency in exchange transactions. It is almost as if he thinks money has no role apart from being the quasi-tangible notes and coins that we use and as a mechanism for recording transactions through bank statements. For a serious economist that is quite extraordinary.
Third, I have to know the arguments that Sandbu ignored. He did not, for example, note the issue of sovereignty.
Nor did he note the significance of s government having the ability to control its monetary policy through the setting of interest rates.
Come to that, there is no reference to the significance of a country always being able to settle its debts if they are denominated in its own currency, and of the consequent impossibility of being held to ransom by financial markets that results from that.
Nor did he note the relationship between money and tax, which any serious economist should now appreciate is fundamental to the basis on which any currency achieves value.
And, finally, he did not mention the role of an independent currency in fiscal policy through the use of quantitative easing, without which no government has the necessary armoury to deal with the risk of a financial downturn.
It is almost incomprehensible that so many factors could be ignored by him.
If you do ignore all these issues and instead argue that on the basis of economic efficiency that it is useful to borrow somebody else's management systems then you can just about reach the bizarre conclusion that the euro might be the destination for Scotland. But, even then his argument is seriously incomplete. He does not, for example, consider the transition from sterling that would be necessary in that case. His glib comment is that many people in Scotland would choose to continue using that currency, whilst ignoring that if all tax in Scotland is to be paid in Scottish currency there is no conceivable likelihood that this will be true. In addition, he ignores the fact there for Scotland to become a eurozone member it must, first of all, have its own currency, which he entirely glosses over. That is how bad this article is.
It has to be said that there is a danger in London based technocratic economists opining on issues relating to Scotland, particularly when they have never thought about issues relating to independence, or sovereignty, or statehood. But it is much worse when they not only ignore those vital issues, but then get all the economic arguments wrong as well. Sandbu we made a fool of himself in the FT today. For a man whose work I generally respect I consider it a matter of considerable disappointment to have to say that, but it is also an unavoidable comment to make. Scotland would be wise to ignore his profoundly superficial and incorrect comments.
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Very curious if Sandu has been a wise economist in the past. He either has not noticed the fate of Greece being completely screwed over by the European Central Bank and that he prefers Scotland being beholden to the gnomes of Frankfurt rather than London. He must have been got at by someone not to think of Scotland becoming a sovereign country with its own currency controlled by Edinburgh.
We will not be joining the Euro any time soon! Anyway folk may be interested to know we have finally forced the establishment of the Scottish Reserve Bank onto the SNP Conference Agenda. It was rejected last year and for the previous conference this year. So hopefully a bit of progress at last.
An Independent Scotland being forced to join the Euro seems to be a favourite, and groundless, unionist ‘project fear’ trope which has being doing the rounds for years. I think it’s supposed to sound even worse than sticking with Sterling, which is also a silly and impracticable notion. Unfortunately some silly notions gain undue traction.
I haven’t seen the FT article yet, but will check it out later. My first impression on reading your piece above is that Sandbu’s article sounds like a “project fear” piece. These are becoming more numerous as time passes and the UK Gov’s erratic/ill-advised/nonsensical/illegal/illogical (take your pick) behaviour drives up support for Scottish independence. “Project fear” pieces are fairly easy to spot as they betray a lack of knowledge of events in Scotland and present arguments wholly from the perspective of Unionist views. Our media are full of them as there is a small, but well-organised group of writers bombarding the press here on a daily basis.
This is a wholly London centric article
To make a credible case for independence to win a future referendum the SNP need to lay out a credible roadmap in regards to the currency issue and the EU. As has been argued by this blog true independence will only come with the establishment of a sovereign currency – something the SNP have yet to embrace. This is not unrelated to membership of the EU. It is a requirement,as I understand it, for new applicants to the EU (which is what Scotland would be) to join the Euro. I can’t see that having widespread appeal to the Scottish electorate.
Sturgeon shows little inclination to address this issue and I suspect is happier with the idea of extending her tenure as First Minister than leading a potentially unsuccessful campaign to win a referendum on independence.
One option I have not seen discussed is the possibility of a newly independent Scotland with a sovereign currency applying to join EFTA if only as a halfway house towards full membership of the EU. As I have said for a campaign for independence to succeed a credible strategy needs to be laid out to the electorate. Otherwise you are just proceeding on a wing and a prayer and we don’t have to search too far to see where that can lead.
EFTA or EEA are viable start points
Indeed. As I’ve pointed out here before, it’s not as simple as just applying for EU membership. First the independence voters have to win a referendum to demonstrate the peoples’ will and then the Scottish Gov has to negotiate its withdrawal from the UK. The latter may throw up a situation where border and tariff issues with rUK and the importance of Scotland’s exports/imports to/from rUK might make EFTA or EEA more viable alternatives to EU Membership. Until that Withdrawal Agreement is defined and agreed, it’s my view that keeping European affiliation options open allows more flexibility and makes more sense strategically than diving blind into the EU.
It seems to me, that the way forward for a newly Independent Scotland would be to seek an “Agreed Currency Union” with the rUK as the stability achieved would initially suit both parties.
Further down the line a Scottish Pound & an application to join EFTA would seem a reasonable course.
Any application to join the EU would undoubtedly be put to the people in a referendum.
I disagree
Scotland would need its own currency in weeks or it would be suffocated by the Bank of England
I don’t have your knowledge or experience in this area,however my question would be, could Scotland achieve its own currency immediately after a successful independence referendum, or would it require c24 months to set it up
I am absolutely convinced however that our own currency is the End Game.
Remember it will take at least three years from the vote to be independent – so there is time
Exactly Prof, I have tangled with unionists online who also think we will be forced into the Euro on becoming independent as a condition of EU entry. No amount of reference to Denmark seems to sway them. Neither does the point which you make and I made too that we cannot join the Euro without first having an independent currency stable in ERM II for at least 2 years.
iScotland cannot use Sterling for that purpose. Firstly because Sterling is rather famously not in ERM II, having been forced out of ERM I on Black Wednesday. There is also re Denmark again, no mechanism of compulsion to put your own currency in ERM II.
As a newly re-independent nation we will need our own fiat currency to have the funds needed to build the necessary institutions of independence. A foreign service, a defence ministry, Customs, DVLA (assuming we don’t do a deal) etc. etc. etc.
I cannot see us floating Scot£ for at least 5 years. It will take that long likely to amass a warchest of foreign currency from trading to defend it from Soros and his ilk if/when they decide to test it.
If Scotland floats it will jot need a warchest
Denmark pegs and that is a mistake