 |
| Stone of Scone: Soon to be available in notes and coins |
Developments in the middle east have moved Westminster politicians'
attention, and that of London journalists, on from the fallout from the
Scottish referendum. But expectations have now been raised both in Scotland for
further devolved powers and in England for constitutional change which will
soon return these issues to the top of everyone's agenda. Indeed, already the
shape of the coming debate is becoming clearer.
This article considers first, what the Scottish National
Party is likely to do next to pursue its aims, given the position that its 45%
vote and the response of the Westminster politicians has put that party in. In
later posts, I shall I turn to the question of how the two largest unionist
parties might address the dilemmas each faces.
Having come fairly close to a majority for secession, the
new leaders of the SNP who take over from Alex Salmond will be looking for an
opportunity to capitalise on the momentum they were able to sustain in the
final months of the 2014 referendum campaign. The “vow” made by the leaders of
the three main unionist parties in their last-minute intervention to persuade
wavering Scots to support the union will soon present the SNP with an
opportunity. Because the vow's terms were so imprecise (see my article about
its limitations published immediately after the leaders' statement,
it should not be too difficult for the next SNP leader to declare whatever the
government offers as being in default, by comparison with what the SNP will
claim they were led to expect. Should Conservative backbenchers make determined
effort to make the offer of further devolution for Scotland conditional upon
reform of the voting system in Westminster on laws which are to apply only in
England, the SNP will find it easier still to try to charge UK politicians with
“reneging” on whatever the SNP claims the terms of the “vow” led it to expect.
The next step for the SNP will be to claim that this default releases it from
the terms of Mr Salmond's undertaking not to bring back the question of
independence to a second referendum for “a generation”. It appears that many
Scots expect no less. Lord Ashcroft's organisation polled Scots after the
referendum, discovering no fewer than 45% of “yes” voters thought it likely
that the SNP would find a way to bring the question back before the Scottish
people within five years.
But before the SNP can credibly come before the Scottish
people for a second referendum, they will know that they must address some key
gaps in the case they presented in September 2014. The polling done immediately
after the referendum by Lord Ashcroft's organisation showed that concern about
the currency or related economic issues were key factors for many of those who
voted “no”: almost half of “no” voters picked those as critical factors in
their decision,
and more than half said it was a factor.
What are the SNP likely to offer? Re-running the proposal of
a currency union with the remaining UK will clearly not convince voters.
“Sterlingisation”, or using the pound without an agreement so that Bank of
England would set interest rates and the money supply to suit the interests of
the continuing UK but not Scotland also clearly had little appeal for Scottish
voters and, if suggested again, will raise the same fears among businesses
which proved important in 2014.
Of the two remaining options, we can probably exclude the
possibility that the SNP would announce they would use the euro. The euro is
not popular in Scotland anyway. To businesses, euro-isation is no more
attractive than sterlingisation. But no currency union agreement would be
available with the Eurozone, because Scotland will have to reapply for
membership of the EU first and accession could take a considerable period of
time.
The only remaining option, therefore, is for Scotland to
plan to set up its own currency, at least for a period of time, even if in due
course it might enter the euro, at least if the prospects for that currency
improve from the zone's present plight. This certainly has risks. But there are
ways to mitigate them. And after all many countries which become independent do
create their own currency. Perhaps it might called the “scone”?
The first step would be for the SNP to create a shadow
central bank, well before a referendum. It would probably be chaired by a
distinguished economist and a team of credible experts in monetary policy,
financial services regulation, financial operations and monetary risk
management. The SNP government would have to publish a detailed scheme setting
out its proposed powers and resources. Ideally, it might help the SNP to have
operated their shadow central bank for as much as eighteen months before the
date of a second referendum, in order to build up public recognition and
business confidence in it.
Together with their shadow central bank, the SNP leadership
would probably try informally to explore with key figures in the International
Monetary Fund what kinds of terms the IMF would demand for a big loan to a
newly independent Scotland to provide it with enough foreign currency reserves
to enable the country to withstand the first year or eighteen months of
volatility on the foreign exchange markets. The loan for reserves would have to
be big enough both to smooth out foreign exchange market volatility and to
provide a backstop for some kind of Scottish scheme of deposit insurance for
household savings in bank branches in Scotland. Results of a “stress test”,
carried out by independent experts, on the size and planned use of the loaned
reserves would have to be published before the referendum. This will be
critical, in order to assure Scottish businesses that a Scottish government
would mitigate their currency risk, both immediately after a referendum victory
and throughout the period to the formal declaration of independence and beyond.
Realistically, the SNP must expect that RBS and Lloyds would
relocate their headquarters and registration to London so that they can
continue to benefit from the Bank of England's protection and, unless they have
been privatised by then, from continuing UK “bail out” funds. This would
probably be no bad thing for a newly independent Scotland anyway. Iceland's
experience as a country with a small population and therefore a modest tax
base, unable to stand behind over-leveraged and over-sized banks, reminds us
that Scotland might well be better without having the markets regarding two
troubled banking giants on the new state's list of contingent liabilities.
Next, the SNP will need to produce an outline scheme of
fiscal policy for the first few years of independence, showing how they would
configure taxes and spending in a variety of plausible scenarios for trends in
Scottish GDP, current trade deficit, gross domestic capital stock, tax revenues
etc., in the first few years after the day of the vote itself, and not just
from the date of formal announcement of independence. This would have to
include a plan for the kinds of government debt instruments they would envisage
having to issue, as well as for the share of UK public sector debt they would
commit to accepting. With a scheme of that kind, an SNP government could ask
the major credit rating agencies, not to publish a full rating – that would be
impossible prior to independence – but to comment publicly on their likely view
of the scheme's profile. This would enable the SNP to adjust and respond in
advance of the referendum.
When the SNP comes to seek agreement with London for
recognition of the result of a second referendum, a number of items will have
to be on the agenda which were not the subject of the talks which led to the
Edinburgh agreement. Ironically, if the critical views of the union and of
Scotland expressed by many Conservative backbenchers since the September 2014
referendum are more influential in the Conservative party, this might actually
help the SNP in their negotiations for recognition, because that might mean
that they could be dealing with a Westminster parliament in which a greater
part of the right might positively prefer Scotland out of the UK than is the
case while Mr Cameron is still leader of his party. Goodwill for Scottish exit
of this kind might be needed because the SNP would have every reason next time
to ask, as part of the terms of recognition for the second referendum, for an
agreement that the Bank of England would provide short term transitional
assistance in standing behind Scottish banks which do not relocate, from the
day when the results of the vote are announced and then for perhaps eighteen
months. This would free up funds borrowed from the IMF for other stabilisation
and firefighting operations in currency management.
Secondly, a Conservative party no longer so committed to the
union would be helpful to the SNP is conducting better and deeper prior
informal talks with the European Commission than Mr Salmond managed to achieve
in 2014. For in a second referendum, it will important for the SNP to be able
to say something clear and coordinated with the President of the Commission
about the likely timetable for accession negotiations. At the every least, the
SNP will want the President to say that Scottish accession would not be
classified as “enlargement”, because the country has been in membership through
the UK since 1973, and therefore Scottish accession talks need not fall under
Mr Juncker's policy of a “go slow” on further expansion of the Union. I do not
underestimate the difficulties for a Commission President in being helpful,
especially if the Spanish government chooses to try to block the making of any
prior commitments even to a timetable. Certainly, there is no precedent. But if
the remainder of the UK has not by then voted for leaving the EU, or “Brexit”,
in its own referendum and the Conservatives want to assist Scotland to leave in
the hope that they might then dominate the politics of a devolved structure for
England, talks with the Commission about a timetable for Scottish negotiations
on accession, even before the referendum, might be easier to secure. This would
be especially valuable in reassuring the business community in Scotland of
their continuing access to the single market.
For these reasons, the SNP may actually have an interest in
seeing a Conservative government in power in the Westminster parliament at the
time when they plan to run a second referendum, at least provided they can run
their independence referendum before a UK Conservative government sought its own
referendum on “Brexit”. On the other hand, though, a 2017 Brexit referendum
would give the SNP very little time to set up its shadow central bank, work out
its fiscal scenarios, negotiate recognition and begin to sound out the IMF.
Even if the SNP can put all of these arrangements in place,
they will not and cannot eliminate all currency risk, and should not seek to
appear to promise more currency stability than they can realistically offer.
Nonetheless, with a sizeable IMF loan for reserves, a Bank of England
transitional support commitment, a credible shadow central bank team and scheme
of powers, a set of fiscal contingency plans for market volatility, a timetable
for EU accession, the SNP leadership would be able to show voters and
businesses in Scotland that they have done all that realistically could be put
in place before a vote to reduce and to mitigate the currency risk problem
which undermined Mr Salmond's offer in 2014.
So my expectation is that the SNP will probably use the next
few months to build among Scottish voters a climate of disappointment and sense
of being reneged upon by Westminster, while privately cultivating better links
with the increasingly vocal anti-unionist Conservatives in London. I expect
that they will begin some quiet, behind the scenes diplomatic work to sound out
leading economists, key figures in the IMF and the newly appointed European
Commission. And finally, they will do anything they can to stir disunion among
the Westminster parties about the terms of any reform of voting in the House of
Commons on laws applying only to England.
No comments:
Post a Comment