Osborne’s ‘bogus’ currency claims dismissed as ‘silly scare stories’

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  By a Newsnet reporter
 
UK Chancellor George Osborne’s claims that an independent Scotland would not be able to retain Sterling or issue Scottish banknotes have been dismissed as “silly scare stories” by financial and business experts.
 
Speaking in Glasgow as he launched the UK Treasury report, the Chancellor said that a currency union with an independent Scotland may not be in the interests of the rest of the UK.

Appearing alongside Treasury Secretary and coalition colleague, Lib Dem MP Danny Alexander, Mr Osborne also said that agreeing to a union was not as strong an imperative for the rest of the UK as it would be for Scotland. 

Mr Osborne said:

“The fundamental political question this analysis provokes is this – why would 58 million citizens give away some of their sovereignty over monetary and potentially other economic policy to five million people in another state?

“The rest of the UK, as the larger economy, would be much more exposed to the risk of an independent Scotland running into fiscal and financial difficulties.

“Let’s be clear – abandoning current arrangements would represent a very deep dive indeed in to uncharted waters.

“Would a newly independent Scottish state be prepared to accept significant limits on its economic sovereignty? To submit its economic plans to Westminster before Holyrood?”

According to the Treasury report, a formal currency union would “only be possible if both an independent Scotland and the continuing UK could reach an agreement that satisfied both countries’ economic interests”, it adds that a post-independence currency union would be “very different to the current arrangements and would be a profound economic change for both states”.

The Chancellor went on to argue that even if a currency union could be agreed, it was unlikely that Scotland could continue to issue its own banknotes, as it does at present.

However Mr Osborne’s claims were rubbished by financial and business experts. 

James Scott, formerly Executive Director of Scottish Financial Enterprise, was scathing in his response to the Chancellor’s claim that an independent Scotland in currency union with the remainder of the UK would be unable to continue to issue its own banknotes. 

Mr Scott, who is also Chief Executive of the Scottish Development Agency and Deputy Secretary in the Scottish Office said:

“This bogus assertion by the Treasury should be treated with the contempt it deserves.

“No one seriously believes that while we have had our own Scottish banknotes for so many years under the current Westminster arrangements, we would not be able to continue to do so as an independent country.  Even the Isle of Man and the Channel Islands, which are not in the United Kingdom but have a currency union with it, issue their own sterling banknotes.

“The fact is that the pound is every bit as much Scotland’s currency as it is England, Wales and Northern Ireland’s. The Chancellor should know better than to peddle such silly scare stories.”

Mr Scott’s comments follow similar scathing criticism of Mr Osborne by David Blanchflower who is Professor of Economics at Dartmouth College and former external member of the Monetary Policy Committee, who said:

“Should the people of Scotland choose independence in next year’s referendum it would make sense for Scotland to enter a formal monetary union with the rest of the UK with the Bank of England operating as central bank for the common monetary area.

“Independence within a currency union would represent a substantial increase in the economic responsibilities of the Scottish Parliament. A currency union would provide the full flexibility to vary tax and spending decisions to target key opportunities and challenges in Scotland – powers that are currently unavailable to the Scottish Parliament.

“George Osborne would be better off revisiting his misguided and failing policies for growth rather than scaremongering to the people of Scotland.”

First Minister Alex Salmond and Deputy First Minister Nicola Sturgeon also gave the Chancellor’s statements short shrift, describing the UK Treasury report as “frenzied self-interest”, with Mr Salmond calling on the Chancellor to “grow up”.

Mr Salmond said the Treasury report was designed to try and scare people against a Yes vote in next year’s referendum.

The First Minister said:

“This is a Tory chancellor trying to scare people in Scotland, to try and stop them from voting for independence, of course he’s going to say the sort of things he said today. But the day after a resounding ‘yes’ vote in the referendum, when people sit down and start to negotiate, he’ll sing an entirely different tune.

“When serious economic interest takes over rather than the political sabre rattling we saw today, then people will sit down and do what’s in the best interest of the people of Scotland and of course what’s in the best interests of the people of the rest of the United Kingdom. That’s what I’m doing, and I think George Osborne should grow up and do the same.”

Reacting to the Chancellor’s speech in Glasgow, Nicola Sturgeon said that the Chancellor’s remarks were self-interested and predictable.

“In some ways, the real news story today would have been if the Chancellor had come to Scotland to say something other than that, in his view, keeping the pound would be terribly difficult for Scotland.

“He is, after all, a member of the UK Government  – which is against independence – and it’s in his interest to imply that an independent Scotland wouldn’t be able to use the pound.

“By contrast, the experts on the Fiscal Commission Working Group have no axe to grind. They simply took a detailed and exhaustive look at the various currency options that would be open to an independent Scotland and concluded that staying part of a sterling zone  would be the best option for Scotland and for the rest of the UK.

“They also concluded that, notwithstanding the fiscal discipline that this option (and indeed any other currency option) would require, independence within a sterling zone would give Scotland substantial economic levers to grow our economy that we simply do not have at present.

“The fact of the matter is that, if Scotland does vote for independence, the frenzied self-interest that we are hearing from the Chancellor today will quickly give way to more rational and hard headed economic interests.”

The Working Group, which includes Nobel Prize winning economist Joseph Stiglitz and businessman and former Scottish Enterprise chief executive Crawford Beveridge amongst its members, said that a currency pact with an independent Scotland was clearly in the UK’s interests. 

Without Scotland’s massive assets, the Working Group said that Sterling would likely come under great pressure on the markets, forcing a sharp devaluation in the currency which could send the rump-UK into a deep recession.

Co-convenor of the Scottish Green party, Patrick Harvie, said that Scotland should keep an open mind about creating its own currency after independence, and any Sterling deal should be seen as a short-term measure. 

Dismissing Mr Osborne’s Treasury report as an attempt “to wage a phoney war” he added:

“In the event of a yes vote both sides would need to recognise the mandate given by the people, and settle down to the real negotiations.

“Scotland’s hand in those negotiations would be strengthened if we did the groundwork on our own currency so we keep it as a realistic medium-term option.

“Osborne’s economic credibility is in tatters and now he’s attempting to wage a phoney war by suggesting we’re doomed unless we stick with the existing arrangements – arrangements which fail to reflect our needs and aspirations.

“If Scotland votes for full control of our own affairs it is reasonable to expect our economic priorities to diverge from the rest of the UK, so we would be wise to keep our currency options open.”