Friday 14 February 2014

When Yes doesn't mean Yes? Er... no.

Headline: What can charitably be
described as "bollocks"
Today's Herald front page leads with the headline "Yes does not mean Yes". The byline claim was that "A Referendum Yes vote would not guarantee Scottish independence and the 'status quo' would be maintained if talks do not go smoothly, a senior coalition source has warned".

Explosive stuff. Cue Twitter going into a frenzy with Nats expressing mock horror at the suggestion that the UK government would not respect the result of the referendum and that Westminster was being bullying and abrasive and backtracking on its commitment in the Edinburgh Agreement.

Except, uh, that's not what they actually said.

Here's the direct quote, contextualised, from later in the article:

"Dismissing the SNP Government's 18-month timescale for completing negotiations as "totally unrealistic", the source said: "A Yes vote in the referendum would be the start of a process, not the end of one; we would start negotiations. But if Alex Salmond made impossible demands, we would not just roll over and agree to everything he wanted. If we could not reach agreement, the status quo would be the default option."

The senior coalition figure said one such impossible demand would be the First Minister's threat, repeated yesterday, that Scotland would not pay its share of UK debt if it were denied a currency union by Whitehall.

"It would not be a question of denying the wishes of the Scottish people. As the UK Government, we would have a duty to represent the interests of the people of England, Wales and Northern Ireland" the source said."

What is actually being said is not that the UK Government will deny Scotland independence even if it votes yes. Rather what is being said is that the mere fact that the SNP have indicated a preferred Independence Day in March 2016 is immaterial in the event that critical aspects of the independence settlement cannot be agreed within the 18-month timescale. Absent the implementation of a scheme (which remember will require primary legislation from Westminster) the position being maintained is that the status quo prevails until something else is agreed.

Observe that, far from reneging on the Edinburgh Agreement, what is actually being said is pointing out exactly what it is and what it is not that the UK Government has committed itself to. In signing the Edinburgh Agreement, they have accepted merely that the referendum result will be respected: Yes or No. They have not accepted the SNP government's preferred terms of settlement and timetable will be respected or anything of substance asserted by the White Paper, which both postdates the Edinburgh Agreement and is a set of political claims made by the SNP who does not always have the gift to claim them. They have not agreed to sign up to a currency union. They have not agreed to initiate an EU Art 48 amendment to secure Scottish EU membership. They have not agreed to implement Independence Day by March 2016.

The other important aspect is to emphasise that, in the event of a Yes vote, the UK Government does not just have the right, but the duty to protect the interests of the citizens of the rest of the UK. If they arrive at the considered opinion that a certain settlement is neither something they are legally obliged to do, nor is it in the interests of the people they represent, they are dutybound not to accede to those terms, even if it is something that would benefit Scotland. This is how sovereign states interact with one another in the real world.

This may be an unpleasant truth for some on the Yes side, but part of the point of sovereignty is the pursuit of national interest. We expect the SNP Government to negotiate in the interests of the Scottish people, not the UK as a whole. Why should we expect anything different of those on the other side? At the point where the UK is to cease to include the Scottish people, it should cease to be accountable to them too. A fair settlement does not mean that Scotland or its negotiatiors get to dictate the terms of independence. Politicians of soveriegn entities adopting hard-headed self-interested approaches on behalf of their citizens isn't "bullying"; it's precisely what independence means.

What has been said here is actually eminently sensible. It is not that "Yes does not mean Yes" as the Herald have shrilly and recklessly misrepresented it. That is a squalid and pathetic attempt at journalism. It is that Yes does not mean what Salmond says it means just because it's what he wants. It doesn't mean that if unreasonable demands like not taking debt absent a formal currency union are made, independence will happen anyway within the prescribed timescale. Yes means Scotland will become an independent state after a mutually agreeable settlement is legislated for by Westminster. Nothing more. Nothing less.

Thursday 13 February 2014

Wanted to share the Sterling, but they said, No, No, No.

With the news that all three UK parties have ruled out a formal currency union in the event of Scottish Independence, the SNP have been dealt a blow to their credibility. For some time now, I've warned that a clear contingency plan needs to be in place in the event their preferred currency proposal (which may not in any case be the best option for Scotland post a Yes vote anyway) fell through.

This being the case, however, my instinct is that this move is driven more by a political calculation than an outright hostility to a currency union. By the time the UK Government is actually confronted with the question of a currency union properly, it has already lost its political bet on the referendum itself, and has nothing to gain from holding to a red line unless it is in any case in their interests to do so. The Treasury's analysis paper on the currency union indicated that it would come with a number of potential drawbacks for both countries, some of which were alluded to in Mark Carney's speech on the matter only a few weeks ago.

A currency union would almost certainly mean some set of formal restrictions on fiscal policy: tax and spending limits for at least Scotland and probably both states, and a completely new set of accountability mechanisms for the way monetary policy is exercised. It would also involve a clear set of rules regarding the circumstances in which a bank would be bailed out and who would bear the cost.

It is worth, at this point, debunking one of the myths perpetuated by the Yes side, that because the Bank of England is nominally independent, and no politicians sit on the Monetary Policy Committee, that it therefore is not in any way "influenced" by politicians, Scottish or otherwise. This isn't true. The Bank of England's remit in monetary policy, whether it is is the setting of the base rate of interest or deciding the level of quantitative easing, is determined by UK Government policy.

Their "independence" is in the freedom to work within an envelope of powers to meet certain targets set by the Treasury, subject to supervisory oversight by the Chancellor and regularly being called before the House of Commons Treasury Select Committee. In the latter case, Scottish MPs have the opportunity, as do any others, to interrogate decisions and to question them where there is the suggestion that policy is being determined by the concerns of, say, London's financial sector, to the detriment of other parts of the economy.

It is also worth bearing in mind that, with Carney's appointment, we have thrown into sharp relief the pretence that central banking is in any way apolitical, and that the Bank of England's MPC are but the humble enforcers of universally accepted technocratic standards. The debate about the appropriateness of the 2% inflation target, and the metrics used to determine what ought to be done in the short and long-term to establish the most appropriate interest rate policy, is one that is clearly influenced by and involves political institutions.

This matters, because it affects the answer to the following question: to whom is the Bank of England accountable? The SNP's proposal involves shifting central banking away from instruments of domestic law, accountable to Treasury and to Parliament, towards an instrument of international law, presumably accountable to two Treasuries and two Parliaments. This is different from the much looser arrangements Westminster has with places like the Isle of Man, the Channel Islands and the Overseas Territories. They represent such a small proportion of economic activity transacted in GBP that they are scarcely able to influence the overall picture of what is, in monetary policy terms, in the interests of the Sterling area.

The same is not true of Scotland, which, among other things, is the second biggest trading partner with the rest of the UK. The need for these international arrangements make it less clear to whom or to what the Bank of England should be accountable and who, in practice, exercises control over deciding that question.

This is also why we need a much clearer account of what it means "to use the pound". It is meaningless to go around saying "it's our pound too" when it doesn't explain what is actually "ours". All currencies are ultimately just a denomination of the value of the assets held by a central bank. "The pound" as such, therefore, is an instrument of law, not an asset, as too is the corporate entity of the Bank of England. When the SNP talk about it being "our pound too" it doesn't mean anything. It is likely that we will be entitled to a share of the Bank of England's assets (or an equivalent sum settled in other assets) but this isn't the same thing.

Absent a currency union, we would be unilaterally adopting a currency of a country in a set of circumstances where we account for a not insignificant share of Sterling transactions, but with no political influence over the institutions setting monetary policy. This has the (indirect) effect of restricting our fiscal options, lacking a lender of last resort.

What may ultimately be a better back-up plan, now, is to use Bank of England notes as a reserve to set up our own central bank, and issue Scottish notes in a similar way that the Bank of England itself does at the moment. At least pegging to the GBP is our choice. It is worth pointing out that, contrary to what some more passive observers have suggested, the likes of Australia and South Africa did not "share" the pound with the UK, but had a distinct currency which they sought to peg until points that were ultimately well before independence. A currency peg, supported by an economy with a good balance of trade, thanks to oil and whisky exports, may in fact afford Scotland the real flexibility it needs, while also assuring international markets of its ability to pay its way.

A final note on the SNP's shrill response to the rejection of this currency union. It isn't "bullying" for the UK Government to prioritise the interests of rUK in considering whether a currency union is acceptable to them. There is no one else to represent rUK at the moment. It is no more "bullying" than the Scottish Government trying to bounce the Westminster Government in agreeing to a Treaty on a subject matter they don't agree with on details they haven't had sight of.

By all means, say it is empty rhetoric and tactics to dissuade voters, and that they would be in dereliction of duty not to re-assess the lie of the land post a Yes vote, but counter-threats of refusing to take a share of the debt are the stuff of the school playground. If an independent Scotland is to ensure a smooth transition into the international community, pissing off your biggest trading partner, who has a veto on your EU membership, and sending the signal to the global markets that you are a debt shirker on day one, is probably the worst way to go about it.