Carney warns Scots may lose power wer with the pound nd

THE GOVERNOR of the Bank of England has spoken about Scotland’s fiscal independence in the event of a Yes vote and agreement of a currency union.

In a speech to business leaders yesterday, Mark Carney highlighted the eurozone as an example of a failed shared monetary system and stated a “successful currency union requires some ceding of national sovereignty”.

However, he said it would be possible to make a shared system work between Scotland and the rest of the UK, if it was agreed between the respective Westminster and Holyrood governments.

UK politicians have consistently cast doubt over the possibility of such a deal being thrashed out.

Mr Carney said: “The Scottish Government has stated that in the event of independence it would seek to retain sterling as part of a formal currency union.

“All aspects of any such arrangement would be a matter for the Scottish and UK parliaments. If such deliberations ever were to happen, they would need to consider carefully what the economics of currency unions suggest are the necessary foundations for a durable union, particularly given the clear risks if these foundations are not in place.

“Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance.

“The euro area is now beginning to rectify its institutional shortcomings, but further very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources.

“In short, a durable, successful currency union requires some ceding of national sovereignty.

“It is likely that similar institutional arrangements would be necessary to support a monetary union between an independent Scotland and the rest of the UK.”

The Treasury, Better Together leader Alistair Darling and all of Scotland’s unionist parties said the speech left the SNP’s currency plans “in tatters”.

The Scottish Government’s White Paper said that within the framework of “a fiscal sustainability agreement between Scotland and the rest of the UK” an independent Scottish Government “will have full autonomy to use (its) fiscal and wider economic independence to boost growth”.

The Green Party, which supports independence, said Mr Carney’s speech showed the need for Scotland to adopt a new, separate currency in the event of a Yes vote. A Treasury spokesman said: “Governor Carney today highlights the principled difficulties of entering a currencyunion— losingnationalsovereignty, practical risks of financial instability and having to provide fiscal support to bail out another country.”

Mr Darling added: “For John Swinney to respond to Mark Carney’s speech by claiming Scotland would have 100% fiscal independence within a currency union shows that he has completely ignored the central warning of the governor’s analysis.”

H oweve r, Scottish Finance Secretary John Swinney welcomed both the intervention and the governor’s talks with First Minister Alex Salmond about the technical aspects of any system, which took place earlier in the day.

Mr Swinney said: “Ultimately, as Mr Carney makes clear, a sterling area is a matter for the two governments to agree.

“Such a shared currency area is the common sense position as it is in the overwhelming economic interests of both Scotland and the rest of the UK.

“An independent Scotland will control 100% of our own revenues, compared to the 7% of our tax base we are currently responsible for under devolution.”