THE ongoing crisis in Spain is a dire warning to us all of what would happen here if we fell for the delusions of independence or devo max.
In 2008 Spain's public finances were in line with Maastricht requirements: an annual deficit of less than 3% of GDP and a national debt considerably less than 60% of GDP, thanks largely to central stringency and often surpluses in the administration of the national finances in Madrid. Today the annual deficit is at 8% of GDP and the national debt is 84%, rising next year to 96% of GDP. Yields on two-year bonds last week peaked at a record 7%, and on 10-year bonds at 7.63%, before falling back after bulllish words from Mario Draghi, head of the European Central Bank ("Stocks rise on eurozone stimulus hopes", The Herald, July 28).
The question is how long the country can continue funding itself. This rapid deterioration is mostly due to Spain's membership of a politically misconceived and manipulated single currency. Excessively low interest rates to suit Germany led to a building boom in Spain, as in Ireland. House completions raced towards 750,000 units annually (fewer than 200,000 in the UK). The building boom exploded, the banks imploded, unemployment soared and output collapsed, unable to keep pace with Germany on price competitiveness. The public finances fell apart.
The same would have happened to an independent Scotland with membership of the euro. Only sterling independence has avoided as great a national disaster. Membership of the euro is simply no longer an option for Alex Salmond. But the alternative arrangements have little attraction either. One is to stick with sterling, which fits the evolution and structure of the country's economy, but have no control over interest rates, money supply and the external trading currency, nor access to fiscal transfers. The other is to establish a separate currency with all the risks and uncertainties attendant on that. With an economy fully integrated with that of the UK, Scotland is no Switzerland or Norway. We can conclude that independence is without real meaning.
Spain already operates devo max and illustrates what happens when local politicians get their hands on the public purse strings but are only loosely supervised by the national authorities. The Spanish regional governments have wider borrowing powers, just as Mr Salmond and his supporters would like to have in Scotland. But Catalonia, having been on an infrastructure spending spree and having run up 41 billion of euro debt, now has debt repayments of 3.4bn euros due by the end of the year. Valencia recorded a deficit of 7.3% last year – far beyond the 1.3% set by Madrid. Together all the regions need in excess of 15bn euros in bail-out funds from Madrid this year alone.
Local politicians just cannot help spending taxpayers' money, and would dearly love to have a wide freedom to borrow and raise tax levels – none more so than in Scotland. So if devo max happens, expect taxes to rise considerably, or, as with the extant 3p in the pound power, not at all. A devolved power to raise tax on moveable assets such as people or capital is disruptive, avoidable and therefore pointless. If Scotland were to lower taxes, that would be another matter, but such behaviour is not in our politicians' DNA, as we all know.
Richard Mowbray,
14 Ancaster Drive, Glasgow.
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