Despite what seemed to me to be a comprehensive “victory” on Monday evening, Scottish First Minister Alex Salmond appears still to be losing ground at the very time he needs to be gaining it because, it is suggested, he cannot come up with a “Plan B” on the currency an independent Scotland would use if the Continuing UK refused to enter into a formal Currency Union. Yet in fact I think the “currency issue” is the symptom of his basic problem, not the cause.
Firstly, it is worth being clear about what the “currency issue” is. Mr Salmond claims that an independent Scotland will enter into a formal Currency Union with the Continuing UK – a Sterling Zone, effectively, with a single central bank, interest rate and so on with influence on decisions affecting it from both countries. All three main UK parties have said, however, that they will not allow this. The obvious “Plan B” would be for Scotland to have its own currency pegged to Sterling, the same way Denmark’s is pegged to the euro (as Mr Salmond pointed out, although it would probably be called the pound and pegged at 1:1, thus in practice similar, as Mr Darling has said, to countries such as Panama which simply use the US Dollar). Economically this “Plan B” has a certain appeal, as having a no bank of last resort (the inevitable consequence) means banks have to be more careful – as has indeed proved to be the case in Denmark and Panama. However, politically, it is a disaster because it means the Continuing UK would make decisions affecting Scotland’s currency without Scottish input – an unsellable proposition to undecided voters as it hints at loss of control rather than gain.
My own view is that Mr Salmond is being skewered over the Currency Union not because of its potential economic ramifications but because it demonstrates a more obvious (and potentially unpalatable) point – if Scotland is independent and gets to make decisions in its own interest, well, so is the Continuing UK…
In other words, what is alarming people about Mr Salmond’s proposals is that it is becoming increasingly apparent that “independence” works both ways. If Scotland gets to act entirely in its own interests, so do its neighbours. Given Scotland’s peripheral location, unfavourable demographics and small population, undecided voters are increasingly reaching the conclusion that this works to Scotland’s disadvantage. To make matters worse, it would be Scotland which unilaterally departed, thus leaving the Continuing UK with all the benefits of being the successor state (not least full control of Sterling).
By insisting that his campaign is about having decisions affecting Scotland made in Scotland, but then also insisting that he knows and can influence decisions affecting England which will be made in England, Mr Salmond is beginning to look somewhat disingenuous. It is that, not the currency, which is the crux of his current difficulty.