Vital questions on independence that Nicola Sturgeon can’t evade for ever

QUANTITATIVE easing is not an ideal topic for breakfast-time conversation on BBC radio. But when it gives rise to accidental hilarity, that can be endured and even enjoyed.

Which is what happened last Friday on the today programme, when the leader of the Scottish national Party, nicola Sturgeon, was hopelessly floundering on the issue under questioning from Justin Webb (who has the great gift of being simultaneously persistent and polite).

When Webb asked the same (unanswered) question for a third time, Sturgeon said: ‘Sorry, i’ve lost sound. Hello?’ it was like a scene from the thick Of it, armando iannucci’s tv satire, when politicians trying to avoid answering an embarrassing question via telephone, pretend the line has gone (‘Hello? Hello? Oh dear, i seem to have lost you’).

i’m not accusing Sturgeon of the same trick. and this was a truly important question, given the SnP will, if they gain a majority of seats in Holyrood in this thursday’s elections, claim a mandate for a second independence referendum.

Crisis

The SnP’s official position is that if they thereby gain independence, they will initially retain sterling, but without, obviously, any recourse to the Bank of england — rather as Panama uses the u.S. dollar as its currency, but with no access to support from the u.S. Federal Reserve.

as Webb pointed out, this would mean the Scottish government could not carry out the policy of ‘quantitative easing’, whereby the central bank creates money digitally, which it uses to buy its own debt.

Whatever you think of this policy, it was used by the Bank of england, the european Central Bank (eCB) and the u.S. Federal Reserve to inject liquidity into their economies in the wake of the credit crunch. the Bank of england has done the same during the height of the economic crisis precipitated by the pandemic.

So when Justin Webb repeatedly asked

Sturgeon what an independent Scotland would do in similar circumstances, if — as it proposes for the first few years afterwards — it retained a currency over which it had no control, she had no coherent answer. Worse still (for her), Webb continued probing on the same point once the line was restored. Still no answer; or at least not one which made any sense.

it was almost certainly for similar reasons that, the previous day, natWest (the parent company of the Royal Bank of Scotland) warned that if Scotland were to become independent, it would transfer RBS out of edinburgh.

its boss, alison Rose, said: ‘Our balance sheet would be too big for an independent Scotland. and so we would move our registered headquarters to London.’

it was only because of the financial fire-power of the Bank of england (and of British taxpayers as a whole) that RBS — as the most ‘bust’ of all British banks — was saved from collapse in 2009.

this was almost certainly on Ms Rose’s mind when she made that statement.

the SnP’s policy is also, however, to adopt, in time, the euro: at which point this proud newly independent nation would have its monetary policy determined in Frankfurt.

that’s inevitable, anyway, because applicants for eu membership are now obliged to prepare for membership of the euro: and the principal reason always given by Sturgeon for why the Scots should have a second referendum — having earlier described the 2014 independence vote as a ‘ once in a generation choice’ — is that ‘Scotland was taken out of the eu against our will’. But she also refuses to admit to what getting ready for euro membership would mean, in terms of ‘austerity’.

an independent Scotland’s structural deficit would, according to the institute for Fiscal Studies, be equivalent to around 10 per cent of GDP — and it says the figure would have been as high as 25 per cent last year were it not for the support of the Bank of england and the treasury. Yet under eu treaties, Scotland would have to bring its deficit down to below 3 per cent.

Awkward

Interviewed by andrew Marr last week, when asked how an independent Scotland would replace the funds for public spending currently guaranteed by the so-called Barnett Formula (under which Britons in Scotland receive £2,500 a year more than they pay in taxes, compared with just £91 for those in england), Sturgeon said that instead of ‘a decade of tory austerity completely against our will … we’ll deal with a deficit in the same way almost every other country across the world that has a deficit deals with that — you manage your finances’.

Well, yes: but it will be the eCB and the european Commission which will tell edinburgh how big (or rather, small) that deficit will be. Sturgeon needs only look at what happened to the Republic of ireland in the wake of the 2009 financial crisis.

the Commission and the eCB demanded Dublin cut unemployment benefits and public sector pay, while increasing the age of eligibility for the state pension. as Paul Sweeney of the irish Congress of trade unions wrote of their dealings with the eCB and the Commission: ‘it was clear who was in control. it was not a dialogue.’

Good for the BBC’s interviewers in London for challenging Sturgeon on these matters. even if the line goes dead at awkward moments.