Iain Macwhirter: Come back George Osborne, all is forgiven

Perhaps the SNP think that a bit of cold realism will appeal to presbyterian Scots. It certainly appealed to unionist blogger Kevin Hague, who “applauded the realism” of the Growth Commission because it accepts his analysis of Gers deficit figures – which it does. Those SNP MPs will have to unblock @kevverage on Twitter now they are on side. The Keynesian finance expert, Richard Murphy, of Tax Research - a prominent ally of independence - on the other hand called it a “disaster” for Scotland, and said the Commission was “the slave of pre-crash economics and a proponent of everything that is oppressive about neoliberalism”.

Of course, the SNP has to show that it can be responsible, and that an independent Scotland is not going to be another Venezuela. But it seems an odd way to stimulate growth, to start out by cutting demand in the economy. This from a party that has stood at successive elections on a platform calling for an end to austerity and for a fiscal stimulus, which means increasing public spending. I thought it had been largely accepted now, following Greece and the sovereign debt crisis, that you cannot cut your way to growth. Cutting spending in a downturn creates a vicious spiral of deflation, unemployment and reduced tax revenues requiring further cuts. Even George Osborne realised this and largely abandoned austerity after 2012. Perhaps Scotland could spontaneously grow its way out of this double-bind, through mass immigration and productivity, but that requires heroic assumptions.

Ben Wray, economic commentator and editor of the independence-supporting CommonSpace website, could hardly contain his dismay and resorted to emojis indicating extreme anger and nausea. He was equally revolted by the Growth Commission's rejection of an independent Scottish currency, which the Common Weal, along with the Scottish Greens and others, has been arguing for since 2014. Indeed, many believed that the Growth Commission had only been set up two years ago to extricate the SNP from Alex Salmond's currency union, which was thought to have been shredded during those campaign TV debates because the Treasury said it wouldn’t happen.

But no. The Growth Commission opts for what looks rather like the worst of both worlds, setting up a kind of Scottish currency but pegging it to sterling for the foreseeable future. A Gordon Brown-style list of “six tests” have to be met before an independent currency could be contemplated. This “Panamisation” as it's called would appear to mean Scotland could not print money or devalue in an economic crisis, and could find itself in the same predicament as countries like Greece. Critics say the Scottish Government would be left with no option but to further increase taxes and cut spending in order to balance the books in a process called “internal devaluation”. Perhaps this is better than Venezuela, but not exactly a great way to kick start a new social democracy, boost public services and cut poverty by 50 per cent.

All this fiscal conservatism represents such a clash with the SNP's left-Keynsian rhetoric, that I began to wonder how serious we should take these headline proposals. Does Nicola Sturgeon believe all this? Is it just a strange form of triangulation? An exercise in confusing the unionists by seeming to adopt their own arguments? Is it all just to reassure business that the SNP is on their side and avoid talk of higher taxes? Perhaps by seeking a compromise on currency the Growth Commission thought it would be more difficult for the Bank of England to say no. I suppose they couldn't have foreseen that the Bank of England governor, Mark Carney, would belatedly say yes to a currency union only days before the report hit the internet.

On the deficit, it looks suspiciously as if the Commission has cribbed from the EU's Stability and Growth Pact which also aims for a three per cent GDP limit – much honoured in the breach. Yet, there is no serious consideration in the report of the euro, which an independent Scotland would formally be required to adopt when it rejoins the European Union. Some people insist that the euro is optional, because a number of countries have opt outs, but under Maastricht it is still a requirement of EU membership.

But even if it weren't, it seems strange not even to raise it as an option. After all, the Commission is adopting the straightjacket of the euro-related Stability Pact but without the trade benefit of being part of the single currency. The vast majority of those small nations of Europe, which the report rightly praises, like Latvia, Slovakia and Finland, have adopted the euro with great enthusiasm because it ends currency instability. Given that Scotland will be a kind of petro currency, it might make sense to be pegged to a reserve currency to avoid the “resource curse” of over-valuation.

Of course, the Commission didn't want to talk about Scotland's Oil – the basis of the SNP's economic programme for the past 40 years - and assumed revenues to be zero. This was in the month that Brent Crude briefly hit $80 a barrel again. Ignoring oil is almost as misguided as basing an entire economic prospectus on it. But that still isn't as silly as ignoring Brexit. The Commission assumes there will be “frictionless borders with the EU and the rest of the UK”, yet this is the one thing we know cannot happen. There will have to be a border somewhere if Scotland is in the EU and England is out of it.

The authors probably thought that there would be no point in producing a report that said: "We can't talk about how Scotland would leave the UK before we learn how the UK is leaving the European Union.” They had to do the best they could. But Brexit uncertainty hangs over this document like a dark cloud. There is still a remote possibility that the UK will remain in the European Single Market, which would alter the picture dramatically. But that just raises the question of what purpose this exercise served.

The Growth Commission made worthwhile points about small nations being rather successful, and there are lots of proposals on things like productivity and gender balance. It accepts that the banks will probably leave and abandons ideas of attracting inward investment by crude tax competition. But this report has raised profound ideological divisions in the broader independence movement, given heart to many of the SNP's sternest critics, created an entirely new set of currency problems and made Nicola Sturgeon sound as if she is an advocate of austerity. Perhaps it should best be placed on the shelf marked “interesting contributions to the debate” and allowed to gather dust.