Another nail in Alex Salmond’s currency coffin

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September 3, 2014 by Paul Goldsmith

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Another day, another nail in Alex Salmond’s currency coffin. Last night, The Chief Secretary to the Treasury Danny Alexander talked of an exchange of letters that he has had with a Ollie Rehn, the European Commissioner for Economic and Monetary Affairs and the Euro, in which Rehn says that if an independent Scotland were seeking to become a member of the EU then “sterlingisation” would not be possible. So bang goes one of Salmond’s three Plan Bs for Scotland’s currency.

Alexander noted in his Chatham House speech that the Nationalists have been arguing that even if the rest of the UK doesn’t agree to a currency union, Scotland would use the pound without a formal agreement. This is called sterlingisation, and would mean Scotland would not have a central bank to set interest rates or act as a lender of last resort.

As well as flying in the face of what independence means, Alexander pointed out that Mr Rehn had written that “As to the question whether ‘sterlingisation’ were compatible with EU membership, the answer is that this would simply not be possible, since that would obviously imply a situation where the candidate country concerned would not have a monetary authority of its own and thus no necessary instruments of the EMU.” Rehn added the examples of Iceland, who wanted to ‘euro-ise’ the Kroner, and Montenegro, who had to create its own central bank as part of conditions for joining the EU. Scotland would not have a central bank under sterlingisation, and so would not be able to join the EU under the terms of its treaties.

Which leaves Alex Salmond’s currency plan in the following position: the rest of the UK will not want a currency union as it would expose it to uncontrollable risks and leave Scotland trying to steer its economy without the tools to do so. Now one of his ‘plan Bs’, which is borrowing the pound without access to the support and stability of the Bank of England, would be incompatible with a Euro membership, on which an independent Scotland would rely.

Salmond became so desperate in the debate last week that he tried to twist Alistair Darling saying that Scotland could use the pound “or the rouble, or the dollar” as him “admitting” Scotland could join a currency union. He then refused to engage in anything like an adult debate with Faisal Islam of Sky News last week when asked again about the currency (https://m.youtube.com/watch?v=–68wMD2XbI). It’s because there is no credible currency plan apart from win, and then pray.

Shame, because in many other areas the Yes campaign is doing extremely well. But in the end, it might be the economy, stupid.

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One thought on “Another nail in Alex Salmond’s currency coffin

  1. Peter W says:

    Interesting reading, but you may not be aware that Alex was an economist with the Royal Bank of Scotland. If anyone, he should be aware of the currency issues and it is not a subject that is easily ducked.

    Interesting, as a former RBS alumni and an advocate of Fred Goodwins strategy at RBS, he had to eat humble pie:-

    http://www.theguardian.com/uk/scotland-blog/2012/feb/01/alex-salmond-regrets-backing-goodwin

    Maybe his grasp of economics and corporate governance, is not as strong as it should be.

    Incidentally, Paul, you may want to add this book to your reading list:-

    http://www.scotsman.com/lifestyle/books/shredded-inside-rbs-the-bank-that-broke-britain-1-3452610

    Like

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