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Why Plan A is the only way for Salmond

FOR nearly a year now, ever since Chancellor George Osborne said Alex Salmond's plan for a monetary union with the rest of the UK was "unlikely" to be agreed, the First Minister has been assailed with calls to produce a Plan B for an independent Scotland's currency.

The calls have grown louder with each passing month.

We thought they had reached a crescendo when Mr Osborne went a step further and ruled out the pound-sharing plan as too risky for the rest of the UK. But then they grew still louder when Standard Life threatened to pull out of Scotland, in the event of a Yes vote, because of concerns over the currency among other things. Throughout, Mr Salmond has stuck to his guns. A monetary union would be agreed, he insists, because it would be best not just for Scotland but the rest of the UK. Mr Osborne is merely bluffing and bullying, he says, and will quickly change his tune if Scots back independence.

Faced with 200 days of "Vote No or lose the pound" from Better Together, it is vital to the Yes campaign that substantial numbers of people believe Mr Salmond. So he will be hoping that a rare face-to-face meeting of his economic experts, the Fiscal Commission Working Group, in Edinburgh on Thursday will strengthen people's faith in his analysis.

As The Herald revealed last Thursday, the group's chairman, Crawford Beveridge, believes it is unlikely the high-powered panel (if you didn't know they include two Nobel prize winners you really haven't been paying attention) will throw their weight behind a second-favourite option. To understand why, it's worth reminding ourselves what they will be reconsidering. In a report a year ago they identified serious currency options: the sterling monetary union, joining the euro or creating a new currency, either pegged to the pound or free floating on the international exchange markets. Incidentally, "sterlingisation", or using the pound unilaterally without central bank backing, was not seriously entertained. It was discussed literally "as an aside" in the report and dismissed in a single paragraph. So Mr Salmond may be right when he says there would be nothing to stop Scotland using the pound, but Alistair Darling seems equally entitled to pour scorn on what he calls the "Panama Plan". As for the other main currency options, joining the euro was possible "in principle," the experts said, but the membership criteria would be "difficult to meet immediately". A free floating new currency was, well, floated but not really explored in much detail. Instead the report preferred to dwell on a new currency pegged to the pound which, it said, was an "obvious option".

Not all economists are convinced, however. Professor John Kay, a former adviser to Mr Salmond, warned in an article this week that a Scottish central bank could not fight off a speculative attack on a currency pegged to the pound and would suffer its own Black Wednesday.

So back to Mr Beveridge. "I don't think we've changed our view," he said. It seems we should expect a heavyweight re-endorsement of Plan A on Thursday then. That and perhaps a more detailed assessment of the pros and cons of currency union for the rest of the UK. Mr Beveridge echoed Mr Salmond's claim that the UK would hardly wish to saddle its businesses with the additional costs of doing business in a different currency. Nor, he said, would it want to risk an independent Scotland walking away without paying its share of the national debt, something he stressed would be legal. It's a theme Mr Salmond is also set to develop. At a press lunch on Wednesday, he quoted from a forthcoming article by Northwestern University law professor David Scheffer which argues that an independent Scotland would be legally entitled to start life debt-free if the UK laid claim to being the "continuator" state after a split. What's more, he claims such a stance would not wreck the country's international credibility. Provided an independent Scotland at least offered to negotiate paying a share - which Mr Salmond already has - then walking away might be seen "as a sign of financial strength and political acumen," he says. It looks like those calls for a Plan B are falling on deaf ears. Rather, the plan over the next few days is to prove just why Mr Osborne is bluffing.

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