The currency conundrum

Saturday 23 June 2012

COULD an independent Scotland end up right back where it started from: back in the UK?

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That is the extraordinary prospect held out by the former Chancellor Alistair Darling ahead of the launch next week of the anti-independence Better Together campaign, which he is leading.

Perhaps those who tired of arcane arguments about the minutiae of the mechanics of the Scottish independence referendum and called for politicians to debate "the real issues" should have been careful what they wished for. Even before the launch of the joint Labour, Liberal Democrat and Conservative campaign on Monday, Mr Darling has locked horns with the SNP over one of the most complex and abstruse issues of all: the currency.

For obvious reasons the SNP has ditched all talk of Scotland joining the euro, at least not any time soon. Nor will there be any return to groats or bawbees. Instead, it would become part of a "sterling zone". This week Finance Secretary John Swinney claimed this would provide businesses on both sides of the Border with "certainty and stability for trade, investment and growth". His argument is that, as the Scottish economy is one of the strongest in the UK, the arrangement would be mutually beneficial to both Scotland and England.Clearly, there would be nothing to stop an independent Scotland pegging its currency to the English pound, in the same way that many countries around the world align their currencies to the US dollar. However, as Mr Darling argues in an exclusive interview in The Herald today, joining a sterling zone would be more complicated. The lesson of the eurozone crisis is that monetary union without fiscal union and a large measure of political union is a recipe for disaster. The German foreign minister made the same point yesterday. Yet in the case of Scotland and the sterling zone that would defeat the whole purpose of becoming independent. It would bring Scotland "back to where you started out from", a process Mr Darling describes as "absolutely barmy".There are serious questions to answer here and the Yes campaign has barely scratched the surface. Its response this week has been to make personal attacks on Mr Darling, suggesting that it would prefer to play the man than the ball. The electorate deserves better than this.Whether the independence debate can maintain this intensity for another 27 months remains to be seen. It is likely that different dimensions of the independence question will come to the fore and be fought out between different casts of characters as the debate goes on. It is an accident of history that the euro crisis has put the spotlight on the currency issue so early in the campaign. Nevertheless, without a more robust response, it could prove a major stumbling block for the Yes campaign.

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