Alex Salmond is a sharp political operator. For a long time I’ve admired his dexterity, his plausibility, his confidence, his ready wit — and let’s be honest, his uncanny ability to irritate the mainstream politicians.
I had the pleasure of meeting him some years ago — probably 1994, now I come to think of it — when he made a State Visit to Singapore and ended up on a harbour boat tour with the local ex-pat community, of which at the time I was a member. Later, short of ideas for a Burns Night speech, I traded on that thinnest of acquaintanceships to approach him and ask for a draft of a speech he’d used in a similar context, and he very kindly sent it to me.
Nonetheless, I’ve always regarded his objective of “An independent Scotland within the EU” as an absurdity — indeed a contradiction in terms, a bit like speaking of “a free man in the Lubianka dungeon”. I am amazed that for years he’s been able to say it without any appearance of conscious irony, and indeed without significant challenge.
But recent events in Europe have highlighted the absurdity of his position in a dramatic way. Hat-tip to Iain Martin of the Telegraph, who got me thinking about it.
The €uro currency union is in trouble, and Salmond, of all people, ought to understand why, because he is already a member, on very favourable terms, of a very successful currency union — and a much older one than the euro. The UK is a Sterling currency union between England, Scotland, Wales and Northern Ireland. And it works because:
(A) It is backed by a proper government;
(B) It has a real central bank, the Bank of England, which like all other central banks except the European Central Bank is able, in extremis, to print money, and can therefore always stand behind the nation’s sovereign debt. In the process it may (and has in the past) caused devaluation of the currency, but unlike the ECB, treaty-bound not to bail out sovereigns, it can never reach a stage when England, or Scotland, simply has no money left. And
(C) In the Sterling currency union, major fiscal transfers can and do take place to cushion the inevitable imbalances between England and Scotland (and Wales and Northern Ireland). In the case of England and Scotland, we call it the Barnett Formula (which, for the benefit of younger readers, is not a hair gel).
Recently RBS, Scotland’s flagship bank, was in serious trouble. If Scotland had been independent, it could not have bailed out RBS, whose debts were quite sufficient to take down the whole Scottish economy. Had Scotland been in the euro area, it’s not clear that the ECB, or anyone else, would have bailed out RBS. As it was, the Bank of England, the British government and ultimately the British tax-payer did. Humiliating for Salmond perhaps, but at least RBS is still there.
And it’s not just money. It’s democracy. We’ve seen how the Paris/Berlin/Merkozy axis ruthlessly sweeps aside the democratic governance of small countries like Greece, and even large countries like Italy, without a second thought. We’ve seen how Merkel has insisted that eurozone states abandon monetary and fiscal sovereignty and take direction from Berlin. Many Scots resent what they see as government from London. Does government from Berlin sound a whole lot better?
Above all, Scots have seen the utter incompetence, the sheer dysfunctionality, of the EU, and the Merkozy axis, in dealing with the euro débâcle. The Fitch ratings agency has just expressed the view that there is no viable economic or political solution to the euro crisis. (Actually there is an economic solution — a debt union plus fiscal transfers — but that’s not acceptable politically).
Surely the canny Scots will not swap a viable currency union that has worked to their advantage for many decades, for the wholly dysfunctional and failing euro? I don’t believe they will. Salmond needs a new narrative, and a new vision. How about “devolution within the Sterling area”?