It seems Viking is doing a special on bulk-buy venom this week as ex-MP & Highland Free Press veteran Brian Wilson is using a vat-load in his busy quill. His article in the Hootsmon today (Weds 11th) is well worth a read, if only to understand the mind of an entrenched commentator for whom the Union is—by definition—as good as things can ever get for Scotland. This time, he focused on what possible currency an independent Scotland could use—“Should we float our groat, stick with somebody else’s sterling or take a punt on the euro?” as Brian puts it—deriding the intermediate use of the pound sterling.
His lodestar in all of this is a paper published by the David Hume Institute Regulation, Supervision, Lender of Last Resort and Crisis Management by Dr Brian Quinn (former Deputy Head of the Bank of England). There may be few points on which Brian and I agree but his assertion that this paper is required reading for any who would debate Scotland’s future is one of them—even if our reasons for that differ.
Because Dr Quinn’s paper is another shell lobbed in a directed barrage of papers that are drip-feeding poison into Scottish ears through a willing media that this whole indy thing is madness. It needs to be taken in context with Danny Alexander’s Scottish Office Scotland Analysis publication series, including Macroeconomic and Fiscal Performance and Currency and Monetary Policy. Written by those in the know, such arguments deserve to be met by lucid counter-arguments. They are not merely political posturing—although they do qualify in that department too: independistas (and especially the somnambulent Yes campaign) need to deal with the fact that there are people on the union side of the argument who are just as passionate, articulate and committed as they are.
Now, my training is this fiscal field goes little further than being numerate, paying attention to events and decades of reading the Economist. Nonetheless, the partisanship in the Scotland Analysis series is not hard to expose. On the choice of Sterling as currency that Brian derides, the Scottish Office opines:
“This unilateral adoption of sterling (or “sterlingisation”) would avoid the transition and transaction costs of a change in currency but at the expense of leaving an independent Scottish state with no control over its monetary policy.“With no ability to print money, a Scottish monetary authority could have at best only a limited function as a lender of last resort to commercial banks. The sterlingisation option would therefore impose severe constraints on monetary and fiscal policy and financial stability.”
Para 1 is fair enough—a country the size of Scotland may need to accept it does not have the clout to adopt its own viable currency—at least not until it is recognised as a hard, oil-backed denomination less volatile than gold. But this ‘lender of last resort’ fiction in para 2 has been peddled by Darling since he was Chancellor. Rather than Scotland going to the wall because of foolish HBOS/RBS profligacy in 2007/8, had it been independent, the 80% of the banks’ business being in England would have forced HM Treasury into an action similar to what happened—and perhaps not so precipitate in giving away so much to the banks as he did.
A secondary argument they make—that the proportion of a Scottish economy dependent on oil would force us into instability with volatile oil prices—ignores two facts: 1) other than the year of global insanity of 2007/8, oil has risen steadily in price from $60 to over $100 a barrel in the last ten years and its viability going forward can be validated by the £2bn+ investment already committed to the North Sea; 2) The Norwegian Krone, far from being volatile with oil prices, over the last decade has strengthened steadily in value—from 7.5 to 6 against the US$ and from 12 to 9.5 against the UK£.
But to Dr Quinn and his weighty paper, which is less obvious to expose. As a Scot, he should have appreciation of the rather differing culture that obtains here and, as a senior servant to the Old Lady of Threadneedle Street, his central banking perspective should be gospel. However, he retired in 1996, long before Irn Broon and his slippery ways infested UK central banking and, perhaps more relevant, spent three decades in the financial heart of London prior to that. Dr Quinn’s principal theses are that:—
“—a shared system of supervision would encounter difficulties, with serious weakness in governance and accountability. As a Scottish Government adopted policies which differed from those at Westminster, these flaws would increase in severity.”
“—the concept of a shared system of supervision and crisis management is seriously flawed and that its weaknesses would increase during the period of transition following independence.”
“—the clarity of responsibilities and procedures which were central objectives of the Financial Services Act 2012 would be reversed…Scottish financial institutions might face a substantial increase in their contributions to a financial compensation fund.”
“—it is important to set out the risks and challenges entailed in moving away from a system built on long experience and the practical lessons of the immediate past, to a system the nature and implications of which are at this point unexplored.”
All weighty points that do not pull punches in implied unknowns. But Dr Quinn really should get out more. The very concept of independence is fraught with uncertainties for a country—more than with any teenager leaving home and moving away, which is scary enough. But, if his “system built on long experience” provides such a desirable model for stability and foresight, what price the 2007/8 fiscal fiasco that made his much-vaunted Financial Services Act 2012 so urgently necessary?
This is the worm at the heart of his argument. He remembers good old days at the Bank—stable, omniscient—before the bright braces of Canary Wharf finished exploring the limits of the 1986 ‘Big Bang’ of financial deregulation and got themselves (and then the rest of us) into ever-deeper trouble creating ‘financial instruments’ built of papier mache, hedge funds of insubstantial twigs and ‘mortgage packages’ from bundles of unsaleable properties—all under the watchful (blind) eye of Irn Broon.
Dr Quinn is writing of another era, when words were bonds; before the similarities between Canary Wharf and Las Vegas became more that just architectural. But his assumption that ‘Scottish financial institutions’ are purely that also derives from an era when they were. But since Sir Peter Burt sold BoS down the Halifax river and RBS jumped on the same empire-building bandwagon, we no longer have the luxury of such clinical distinctions as to which country a bank belongs. The lie to the fiction that England would not have helped bale out an independent Scotland’s banks is given by the fact that:
“Barclays was bailed out to the tune of £552.32bn (at backdated exchange rates) by the US Federal Reserve and £6bn by the Qatari Government.” (Business for Scotland)
This dwarfs the £45bn that Darling squandered on RBS. None of this de facto integration of the financial world—let alone two countries with a joint interest in remaining firm friends—creeps into Dr Quinn’s work, perhaps because it was written for another era to which his own experience applies. The fact that an accommodation, such as he decries would be both necessary and desirable as an arrangement between Scotland and England, eludes him. The fact that without Scotland there IS no UK and that Scots part own all that currently belongs to the UK, including the Bank of England, also passes him by.
But to return to the other Brian and his quill-o’-the-wisp venom that claims “civil servants are being forced to waste their time on composing a white paper on independence while the legs are being kicked away from its central tenets before the tome even sees the light of day”. Let’s assume that prejudging a democratic vote is poor planning and accept that someone should be looking into repercussions of the ‘yes’ option and consider—as he seems unable to—an arrangement for independence in which:
- England and Scotland both behave like the reasonable long-time friends they are
- Scotland keeps the £ and places members on the Bank of England committee while
- Considering other long-term options, such as the €, $ or even Brian’s ₲roat
- The Scots and English FSAs work closely together to prevent any risk of repeating the cowboy days of 2007/8 (as the Scandinavians did at the time & had no such problems)
- Just as the Scots recovered from debilitating wars and loyalties in the late 17th © to create the Enlightenment partnerip of Empire and the booming trade of the late 18th © so Scotland could be the best partner England could want—especially if England keeps antagonising Europe and fighting wars it can ill afford.
Just as Dr Quinn seems mired in pre-New Labour assumptions on monetary practice and that fiscal dictatorship by the Bank of England is an a priori good—as well as tenable—in the 21st ©, so the Mr Wilson needs to get off his preoccupation with Great Britain being the only viable country—and by extension political entity—in these islands.
If both Brians and a shed-load of Alastairs/Dannys/Gordons/etc are all so sure of the inherent inviolability of the unity of Britain, answer this question: why did the Irish leave in 1922 and why have they had no desire to return, even their recent darkest fiscal days? To shamefully misquote the great Austrian statesman Metternich (who knew a thing or two about the integrity or otherwise of countries):
“Großbritannien ist nur ein geographisches Begriff”
(Great Britain is merely a geographic concept)