Hammer to the Scots?

Perhaps one of the most significant events of the Scottish independence referendum campaign so far came yesterday as George Osborne announced definitively that should Scotland vote Yes in September, they will not be allowed to share the British Pound Sterling in a currency union with the continuing UK.  To add further weight to the statement, he was joined by the most senior financial representatives of the two other major UK political parties: Danny Alexander (Lib Dem, Chief Secretary to the Treasury) and Ed Balls (Labour, Shadow Chancellor).  Rather than a warning shot across the bow, dissenting hypotheticals from the No campaign, this is a torpedo to the Yes argument that has potential to see the ship sink.

The economy is the fundamental issue to most Scots in making their mind up about independence, with 32% saying it was top of their list, compared to just 11% for the next highest point of contention (which was pensions, itself linked to the economy).  With this news that Scotland’s economic future will be far less certain if it chooses independence, it may affect the way that many of these 32% choose to vote in September.

This isn’t just a warning that Scotland might not automatically join the EU upon independence or a projection that Scotland might not be better off financially as an independent country.  This is a concrete fact that if Scotland was to go it alone, it would have to take one of the less desirable options when it comes to currency.

The timing of this announcement is interesting in many ways.  In recent weeks, the Yes campaign has been claiming to be making headway compared to the other side of the debate – closing the gap amongst decided voters to just 6 percentage points in one poll.  Last Friday, David Cameron took to a podium in the Olympic velodrome to wax lyrical about his will for the UK to stay together – a speech that polarised opinion along already divided lines.  But yesterday’s announcement was a real and substantive move from the UK Government and the No campaign.  George Osborne had already said that a currency union was “unlikely”, but to shut the door officially on one of the Yes campaign’s staple stump arguments is a real blow to them.

How this announcement will be seen by the Scottish public at large is yet to be seen.  The No campaign may begin to pick up points in the forthcoming opinion polls, whether from defecting Yes voters or more likely by picking up some of the 15-20% of Scots undecided on the issue.  This gulf between the two campaigns may be narrowed slightly by some voters that will agree with the SNP’s point-of-view, that Scotland and its people shouldn’t be lectured to in this manner by Westminster politicians in the first place.  Polls don’t necessarily capture the feeling of the nation as a whole, but the changes between them do provide a good indicator as to how that feeling is changing.  With seven months left to go for the Yes campaign to parry this attack, surely one of the No campaign’s strongest, a small dip in the polls might be a fate that the Yes campaign can not only survive but conquer.  A sizeable slump may leave the mountain too high to climb.

So what now for the Yes campaign?  The SNP hierarchy are currently arguing on the basis that the announcement is further proof of Westminster’s “bullying” of the people of Scotland in “laying down the law”, as Nicola Sturgeon put it.  It seems as though they are intent on maintaining their standpoint that Scotland has as much right to keep the Pound Sterling as the continuing United Kingdom would.

It may be time for the Yes campaign to at least consider other alternatives to the currency union, breaking from the SNP’s narrower vision, as an independent Scotland with a different currency is still a victory for the nationalist cause.  There are three main options open to the Yes campaign at the moment: an informal currency union, where a Scottish currency is created but pegged to the same level as the British pound; joining the Euro, becoming part of the Eurozone when (and if) Scotland becomes an independent member of the EU or creating its’ own currency that would float in the same way currencies like the dollar, Euro and the pound do at the moment.

All three have inherent risks to them.  Pegging a Scottish currency to the pound would leave Scotland with no formal control on important matters like interest rates and lending, which would mean losing some economic control entirely to the continuing United Kingdom (that Scotland has just separated from).  This effect would be amplified in a time of crisis, like the recession from which we are just emerging.  Joining the Euro isn’t a popular prospect, as the memories of the many financial crises in countries like Ireland, Spain, Portugal and Greece that let the value of the Euro plummet and spread the burden around the Eurozone are still fresh in the mind.  With a relatively strong economy, the idea that Scotland would be in some way accounting for the failings of another European state’s economy frightens many Scots, with 33% saying in 2012 that they would be less likely to vote Yes if it meant Scotland adopting the Euro.  The third option would be the separate Scottish currency.  It may seem the most independent and sovereign course of action, but with Scotland being a new state there would be a period of adjustment in the economy that would be more unstable and risky than any of the other options.  With little credit history and debt obtained from the UK, interest rates could be high and affect mortgages and pensions for the worse for many Scots.

All-in-all, the revelation that Scotland won’t be able to keep the pound may not be that surprising but the realisation of the fact means that the debate over Scotland’s future will take a new path.  The Yes campaign needs to counter-act the attack on the issue of currency by providing an alternative and showing the many other ways in which they believe Scotland would be better off independently.  The No campaign needs to press home the advantage they appear to have, in convincing more people of their opinion that Scotland can’t be as successful separate from the UK, but can prosper as part of the union.

There is still a lot of campaigning to do for each side of the debate, on a wide variety of issues.  The opinion polls in the coming weeks and months will show whether yesterday’s announcement is seen as a minor setback in the creation of a Scottish state or a hammer-blow to the Scottish nationalist dream.

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