Independent Scots ‘can’t keep pound’
Carney’s blow to Scottish independence plans
SCOTTISH hopes of keeping the pound after independence were dealt a blow yesterday by the Bank of England.
Mark Carney claimed the crisis in the eurozone showed how risky a sterling zone could be for Edinburgh. The Bank’s governor said Scotland would lose control over interest rates and have to sign up to tough rules on tax and spending.
SCOTLAND could never be fully independent if it keeps the pound, the Governor of the Bank of England warned yesterday. Mark Carney said that Scotland would have to share sovereignty with the rest of the UK to avoid creating economic havoc.
His assessment of a ‘Yes’ vote on September 18 suggested that Scotland would need to surrender control of interest rates and agree to strict rules controlling tax and spending
Otherwise it would risk a eurozone-style disaster, where stronger nations, including the UK and Germany, have been forced to prop up heavily indebted smaller ones, such as Greece.
Mr Carney insisted in a speech in Edinburgh that he was not passing judgment on whether Scotland should be independent or on what currency arrangements an
‘Ceding of national sovereignty’
independent Scotland could make. And he refused to be drawn over whether Scotland would be better or worse off as an independent nation.
But his intervention carried the clear implication that Scotland can either be fully independent or stay with sterling – but not both.
The governor’s speech is likely to be a pivotal moment in the referendum battle, with just 230 days left until the vote.
Scottish First Minister Alex Salmond insists an independent Scotland would keep the pound.
But a spokesman for George Osborne yesterday said it was ‘highly unlikely’ that the UK government would agree to it.
The Chancellor’s spokesman said: ‘Governor Carney highlights the principled difficulties of entering a currency union: losing national sovereignty, practical risks of financial instability and having to provide fiscal support to bail out another country.
‘This is why the UK Government have consistently said that in the event of independence, a currency union is highly unlikely to be agreed. The Scottish Government needs a Plan B.’
Former Labour chancellor Alistair Darling, who is leading the Better Together campaign against Scottish independence, said: ‘Make no mistake, the Governor’s judgement on currency unions is devastating for Alex Salmond’s currency plans.’ And John Cridland, director-general of the CBI business lobby group, said: ‘Successful currency unions need strong fiscal agreements and a banking union.
‘This underlines why the CBI believes that the nations of the UK are stronger together.’
After a meeting with Mr Alex Salmond, Governor Carney said: ‘A durable, successful currency union requires some ceding of national sovereignty.’
Mr Carney acknowledged there are a number of benefits of currency unions, such as ease of trade and travel between different countries.
But he said there were also risks, including ‘the potentially large costs’ of giving up a flexible exchange rate and putting interest rates in the hands of the Bank of England in London.
He added that the risks of a poorly constructed currency union have been ‘demonstrated clearly in the euro area over recent years’.
He said that an agreement would have to be hammered out on ‘all aspects’ of formal currency union between Scotland and the rest of
‘Devastating for Salmond’s plans’
the UK. These would have to include strict controls on the levels of Scotland’s debt and deficit. He said ‘ tight fiscal rules’ will be required to ensure that Scotland runs its finances prudently rather than rely on support from taxpayers elsewhere in the UK.
Mr Carney also pointed out that there would have to be a ‘banking union’ with a central bank capable of bailing out failed lenders and propping up the financial system.
That would mean England, Wales and Northern Ireland would have to rescue the Scottish banking system and the Edinburgh government if another financial crisis on the same scale as 2008 struck.
Mr Carney said: ‘The threat of default by one country may trigger a generalised crisis. It will be in the interests of other countries in the union to bail out a country in crisis.’