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Sands shift on currency union and SNP policy on Europe

NICOLA Sturgeon's statement on an independent Scotland's membership of the EU marked a fundamental shift in the Nationalists' position.

They have moved from asserting, as a statement of fact, that an independent Scotland would remain in the club on exactly the same terms as the UK to acknowledging that negotiations would be required not just on routine matters, such as the number of Scots MEPs sent to Strasbourg, but also on more sensitive issues, including the euro single currency, the Schengen free travel area and Britain's budget rebate.

The manoeuvre was executed with driving test care. For the past couple of months ministers have been talking publicly about the need for negotiations and only when pressed held the old line that the big stuff would not be on the table. Perhaps they weren't pressed enough. This weekend history is quietly and ruthlessly being re-written. "We've always accepted the need for negotiations," say SNP spin doctors. "There was no shift in our position."

They're confident that by the time Scotland votes in 2014 folk will have forgotten the whole sneaky-seismic-repositioning-on-EU-membership row from the back end of 2012. It's a safe bet they're right not to worry on that score.

The truth is Ms Sturgeon has shifted the SNP away from a position of increasingly untenable certainty on the EU and towards a more plausible case for membership based on "common sense and realism," as she put it, with minimum political damage. The fact that commentators on all sides of the debate have been saying the SNP should have done this years ago only serves to show she was right.

The SNP may be more vulnerable to claims that Scots will not know exactly what they are voting for in 2014 but they now have a much more credible platform from which to rebut far-fetched scare stories about being forced to join the euro.

Which brings us to the pound. In the coming weeks attention will surely shift to the Government's plan for an independent Scotland to enter a currency union with the UK. It is the chosen mechanism for retaining the pound and it is crucial, for the simple reason that creating a new currency would be far too scary for most voters. The question is, what price would the UK Government demand?

As The Herald revealed this week, former Bank of England analyst Mark Allan believes Scotland's fiscal policy would be so severely limited by monetary union that independence "almost certainly means a new currency". Conditions could include pursuing a common tax policy with England, he warned, adding: "If the first act of an independent Scotland was to surrender almost all fiscal sovereignty to London in order to continue using sterling, one could reasonably ask: what was the point of independence?" He is not alone. Brian Quinn, the former deputy governor of the Bank of England, voiced similar concerns in a paper for the David Hume Institute last month.

There is a growing desire for clarity on how a currency union might operate, not least from Scotland's financial sector. So far, we have only a vague inkling of contacts between the Scottish Government and the Bank of England which the former describes as a "dialogue" and the latter resolutely does not. The Government is refusing to say what has been discussed or by whom (and is doubtless dreaming up ways to confound the many Freedom of Information requests submitted this week).

What we do know is the Government's "fiscal commission" – a sub-group of the First Minister's council of economic advisers – is due to bring forward detailed currency union proposals early next year based on the dialogue/non dialogue. Expect the next big constitutional policy statement to come not from Yes Minister Ms Sturgeon but Finance Secretary John Swinney.

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