Wednesday, 24 April 2013

Sterilising “Sterlingisation”

The Treasury’s “Scotland analysis: Currency and monetary policy” is a shameful document, a vacuousl,y polemical piece of politicking as politicised as any anonymous SpAd’s tweet. “Positively”, its overall effect makes clear Scottish independence would require changes that could, probably would incur costs, except any one with half a brain knew that already. However, its actual content – illustrated below with dirty, great big verbatim quotes - is atrocious.

Let’s start with the politicking and the self-servingly contradictory back-flips this entails; “The structure of the Scottish economy is very close to that of the UK as a whole and Scotland and the rest of the UK follow very similar business cycles ... deep economic integration across the UK”.

Cool, cos then the paper states “(t)his ensures that monetary policy set by the Bank of England is on average well suited to the Scottish economy” i.e. the status quo is just hunky dory thank you very much.

Except on the next page the paper states Scotland actually is structurally different, having “a narrower economic and fiscal base, and be exposed to a number of volatile sectors such as finance and energy (including North Sea oil and gas).”

So does that mean current monetary policy and policy arrangements aren’t suited to the Scottish economy? Nope, rather, moving swiftly on, it means an independent, Scottish economy would be more volatile and that “(t)his volatility would be felt regardless of the currency and macroeconomic framework adopted by a new Scottish state”.

By contrast, the UK economy can “absorb fluctuations to deliver comparatively stable economic conditions. This is a pre-requisite to the certainty and stability required to allow individuals, households and businesses to plan ahead for the future.”

God, see now I’m all confused cos I thought the “structure of the Scottish economy is very close to that of the UK as a whole and Scotland and the rest of the UK follow very similar business cycles”.

Thankfully, the paper then explains “In the event of independence, institutional and policy divergence between Scotland and the continuing UK would be likely to lead to a weakening of economic integration. These effects would cause monetary policy set by the Bank of England to become less appropriate over time for an independent Scottish state’s economic conditions“.

Phew, so ignoring the fact no reference is made to timescales i.e. are we talking 5, 10 or 50 years for this structural change to occur (give or take the kind of devastation a Thatcher might wreak, obviously), really the relationship between the Scottish and the UK economy is like Schrodinger’s cat, being both the same and different at the same time. Plus when you introduce a temporal dimension the economies are simultaneously diverging and presumably converging what with us all being globalised and what no. It’s just, it’s just, the one constant here is that the claims appear to vary depending on the argument being made; when the status quo is good, Scotland is the same, but when change would be bad, Scotland is different. That’s one thing to consider I guess, except its hard to do so because the paper then gets worse, much, much worse.

This worse takes various forms. One is an obsession with size like when it’s stated “An independent Scottish state would be a different economic entity. An independent Scottish state would be a relatively small economy among developed nations. Economic size is not, in and of itself, an important driver of an economy’s success, nor does it determine the choice of a currency regime. But the dynamics of small countries’ economies are inherently different” Cool, except this “and of itself” is to forget GDP per head is more important – think Switzerland or Lichtenstein - and within that the distribution of wealth and incomes is what really matters e.g. the Chinese economy/penis may well be bigger than the UK’s, but I’d rather be an average earner here than there.

Then there’s dull realities like how since 2007 an economy disproportionately exposed to finance and oil and gas would have seen these sectors arguably balance each other out. And to get even more current, the paper ignores how the acquisition of HBOS plus RBS shrinking its balance sheet by 10s of billions every other quarter means finance is smaller than it was.

Rather than that kind of malarkey, the paper instead states the “UK’s key national institutions – including the Bank of England – would operate on behalf of the continuing UK as before, but would have no power to act in or on behalf of an independent Scottish state, and no obligation to create the structures to do so”. Which means what exactly?

Right now the Bank of England has one wee Scottish office (in Glasgow) and while I’ve always found its Scottish agents to be charming fellows (less sure about the calibre of the deputies), is the potential loss of a couple of fact-finding bods being seriously presented as an argument against independence?

Nah, that would be incredibly stupid that would so here lets give ‘em the benefit of the doubt and assume the argument is instead to do with monetary policy itself. Unfortunately, no examples are given of how Scottish interests actually feature in current policy setting arrangements, only that the UK inflation target recently got shoogled about. This is an unfortunate omission that implies Scottish interests aren’t formally recognised in any shape or form whatsoever in current monetary policy setting arrangements (the Scottish Bank of England agent’s reports on current business conditions being for info only and appearing to be comparable in importance to say the latest view from Cornwall).

Thereafter the paper goes mad for the bias when it sets out what the current options are for Scotland.

The first is a formal sterling currency union, except “An independent Scottish state would therefore need to agree a negotiated set of constraints on its economic and fiscal policies. In practice this would be likely to require rigorous oversight of Scotland’s economic and fiscal plans by both the new Scottish and the continuing UK authorities”.

Cool. And? Like is the strawman seriously being presented here that being independent doesn’t mean you get to do what you like? Besides, using a practical example drawn from Alastair Darling’s recent pro-union speech; can anyone seriously envisage an independent Scotland having as disproportionately large a military budget relative to the size of its economy, as the current UK lot? No, me neither i.e. there’s clear scope for an independent Scotland to reallocate public spending to more productive less wasteful things within the confines of any “negotiated constraints” e.g. it tasking Scottish tradesmen to build social housing rather than invading yet another country.

Then there’s the next option of “sterlingisation”, which would be to “use sterling unilaterally, with no formal agreement with the continuing UK”. Except, this is just wrong. No seriously, this is utterly, totally misrepresented wrong. I mean c’mon, “sterlingisation” is a makey uppy word for an arrangement that already exists and is called a “currency board”. Here let me repeat that, there’s no such thing as “Sterlingisation”, but there are things called a CURRENCY BOARD ya big fanny. And to give some real world examples, Denmark operates this kind of arrangement right now as does Bulgaria while Ireland ran one for decades. Similarly, Hong Kong unilaterally  adopted the US dollar as its go to currency i.e. there are clear, obvious, real, lessons can be learned, practical, sustained examples of this approach being taken by economies comparable in size and complexity to Scotland.

But, are they relevant? Thankfully, the Treasury offers to guide us - away from the facts - by stating a “number of smaller countries have opted for this approach, but it would be likely to be too constraining for a country of the financial complexity of an independent Scottish state”. So yeah Denmark, yeah Bulgaria, yeah Ireland, yeah global financial and trade centre Hong Kong, you just ain’t as big or as clever as Scotland. How’d d’ya like ‘dem apples?

As for the other two options, well one is joining the Euro, which means you’re having a laugh over a 1-5 year time frame, while the last is establishing an independent currency, except why bother when a formal union and/or a currency board make much more sense?

Funnily enough, the paper devotes 18 pages to a currency union, 12 to joining the Euro, 16 to a Scottish currency, but only 8 to a currency board. Hmmm, so one of the two most obvious options and what would be the fall back position in any negotiation gets significantly less attention, hmmm………. bias, prejudice, bias ……..

Anyhoo, there’s other stuff as well about what the lender of last resort for banks would be in an independent Scotland, except the chat is just shite. Like, the Fortis Bank example made two things perfectly clear, 1) no one had a scoob what do to when a multinational European bank failed and 2) since then the EU has been developing an approach to managing exactly that situation with banks setting up “living will” teams to set out how them failing could be managed i.e. the Treasury paper is presenting things no one knew how to sort out when they arose a coupla years back as if they could be considered unique to an independent Scotland, then ignores the practical work being done to address them anyway.

Really, the question “Scotland analysis: Currency and monetary policy” poses is why are government departments being ordered, at our expense, to trot out such utterly rank shite.

P.S. from what I’ve read so far the pro-independence chat on all this is utterly shite an'all.

1 comment:

  1. Here

    Funnily enough this isn't getting much airtime, in fact one (the) left wing newspaper described the SG response to Gideon's report as 'hurried' (perhaps they're unaware this has been out since February, perhaps not).