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Plan B is not as simple an issue as some might think

'Oh Plan B!' exclaims the Foreign Secretary-designate in John McCann's engaging new play Spoiling.

'There's finally a f***ing Plan B.'

When I saw it at Edinburgh's Traverse Theatre last Friday that line was greeted with a knowing laugh from the audience, for it was just a few days after Alistair Darling challenged Alex Salmond to set out his alternative to currency union.

At Holyrood the day before the First Minister had, if anything, hardened his stance on Plan A, repeating again and again, rather like a petulant child, 'it's our pound and we're keeping it', which isn't even a very good sound-bite let alone a convincing policy.

The Scottish Government's arguments for a currency union have always rested on the bizarre notion that monetary policy is somehow a mere formality rather than integral to a nation's sovereignty and economic flexibility. It all seems to boil down to any alternative being inconvenient - but then where does that leave the whole independence project?

Discourse on the subject is also unhelpfully simplistic, with both politicians and some Nationalist commentators having convinced themselves that such matters are easily sorted out given good will and a bit of imagination. Have they been paying attention to events in the eurozone?

The usual bad history is also deployed with scant regard for accuracy or nuance. Take Iain Macwhirter in yesterday's Sunday Herald, writing that the "pound was, after all, the product of a partnership between two nations - Scotland and England - in 1707". "The idea," he went on, "that one side could claim exclusive use violates the spirit of the very Union these critics claim to uphold."

Laying aside the obvious point that attempting to make Scotland independent might just violate the "spirit" of that Union rather more than threatening to veto a currency union, this simply isn't accurate. Until 1707 Scotland used the pound Scots rather than the pound sterling, and even after the Union the pound Scots continued to be used for most of the 18th century. Sterling - the English currency - gradually replaced the old Scottish currency, just as it did in Ireland more than a century later.

So to argue, ad nauseam, that the pound "belongs to Scotland as much as it belongs to England" is not only historically questionable (it belongs", if anything, to the UK) but in the context of a complex debate about monetary policy little more than a meaningless soundbite. By that logic other UK-wide assets such as Trident "belong" to Scotland as much as they do England, while surely England could lay claim to North Sea oil on the same basis.

During his sell-out appearance at the Edinburgh International Book Festival on Saturday, Iain Macwhirter also alluded to the Irish precedent, where the Irish punt was pegged to sterling for half a century. "The Scottish Government would (not, you note, could) set up a currency board", he wrote yesterday, "and issue Scottish pounds based on a one-to-one parity with sterling. Job done."

It all sounds so easy, yet a closer reading of Irish monetary history reveals the obvious drawbacks to an independent Scotland in following this route. Initially, the Irish Free State simply retained sterling, with early administrations demonstrating their financial conservatism by establishing a currency commission (a central bank followed in 1942) on, ironically, the British colonial model.

Twice the Irish government tried to break the sterling link, in 1955 when rising London rates precipitated a deep recession and surge in emigration, and in the late 1970s when expansionary loan-financed government fiscal policy overheated the economy; when the UK devalued the pound in 1949 and 1967 Ireland had to stand by and watch.

Historians have also speculated that the link may have prevented Irish exporters seeking more dynamic markets beyond the British Isles.

Another spurious analogy regularly deployed is that of the eurozone. Thus Macwhirter asserts that the Bank of England setting an independent Scotland's interest rates would be the same as "under any non-euro arrangement". But this is surely specious, for France and Germany (to use his examples) are formal members of the eurozone and have a relationship with the European Central Bank that's unlikely to be echoed by an independent Scotland with Threadneedle Street.

Europe's most recent secession, that of Czechoslovakia, also serves as a relatively recent warning from history. The Czechs and Slovaks agreed to a currency union for a minimum of six months but it lasted only 38 days, and although its break-up was relatively orderly an extended prelude to the split provoked capital flight from Slovakia (which had a weaker economy) to the Czech Republic.

Alex Salmond is fond of referencing the Belgium/Luxembourg currency union that lasted for half a century after 1922. Both countries' monetary policy was dictated by the Belgian Central Bank and exchange regulations overseen by a joint agency. Broadly speaking it was a success, but for it to work as an analogy in the context of the current debate then Scotland would need to be cast as Luxembourg, a city state with a population akin to that of Edinburgh.

Currency unions - formal and informal - also apply in the British Isles' three Crown Dependencies: both Guernsey and Jersey issue their own sterling notes (in the manner of Scotland and Northern Ireland) as part of a formal arrangement with the Bank of England, while the Isle of Man has a more informal arrangement which - importantly - isn't underwritten by the UK Government.

But all one can conclude from these examples is that currency unions are viable for island or city states but not ideal for larger territories such as Ireland or Scotland. Size does matter.

There's also the issue of debt. Some ministers and journalists have convinced themselves that if the Treasury vetoes a currency union then it also waves bye-bye to a Scottish share of UK liabilities, but that implies a link between currency and national debt that simply doesn't exist (rUK insisting on being the sole successor state would, however, prove challenging in this respect).

Criticisms of the Unionist position have more legitimacy when it comes to style rather than substance. George Osborne's original intervention overstated the position by suggesting an independent Scotland couldn't use sterling at all, which of course isn't true, while Ed Miliband's speech in Scotland last week sounded, as Iain Macwhirter has observed, egregious and preachy.

For what it's worth, I happen to believe realpolitik would dictate that some sort of currency union would eventually follow a Yes vote, although with terms and conditions that would heavily undermine the central goals of an SNP government, not least plans to banish austerity with £3 billion of additional borrowing. Mark Carney's Edinburgh speech - much referenced by Nationalists - set out the constraints very clearly.

The bottom line is this: Scotland is already in a stable currency union with the rest of the UK, and it takes real gall to argue it would somehow be more stable following independence.

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