Nobel Prize winner says Scottish pound could kickstart economy, reduce deficit and help transition to EU

Joseph Stiglitz, who has advised the Scottish Government and Bill Clinton’s US administration, called plans for a UK currency union a “mistake”, advised an independent Scotland against joining the euro and said a “resurrected” Scottish pound could kickstart growth, reduce the deficit and smooth the transition to the European Union.

The pre-referendum blueprint for an independent Scotland, drawn up under the leadership of then First Minister Alex Salmond, suggested the creation of a “sterling area”, with no changes to the country’s currency.

Salmond claimed this would preserve vital trade links between Scotland and the rest of the UK.

The plan, which came with a “clear recommendation” from the Fiscal Commission Working Group, which is part of the Council of Economic Advisers, was ruled out by then UK Chancellor George Osborne and ridiculed by political opponents.

Yesterday Stiglitz, who sits on Nicola Sturgeon’s Council of Economic Advisers, told the BBC the plan “may have been a mistake” and a Scots pound could give the country an advantage.

He told BBC Radio Scotland the Scottish Government had sought “the smoothest transition possible”, adding: “They wanted to say we can move from the current economic arrangement to another one while keeping our currency and keeping other forms of institutions. I think, in hindsight, that may have been a mistake.

“It would be a mistake to join the euro, by the way, so what they would have needed to do, perhaps, is to resurrect the Scottish pound, let it float.

“Small countries can have their own currency. The reason that Iceland, which had one of the deepest downturns in 2008, had one of the strongest recoveries was that it had its own currency.

“If there was a Scottish pound floating, you could help stimulate the Scottish economy. The deficit would come down to make it acceptable to joining the EU.

“I think there’s going to be, going forward, a greater willingness – I hope there is – within Europe for countries to be a member of the EU but not have the euro.

“Sweden doesn’t have the euro, obviously the UK did not have the euro before, so they have shown some willingness to accept countries into the EU without joining the euro.”

According to recent figures, Scotland recorded a 9.5 per cent deficit last year, taking in almost £15 billion less than it spent. The result, which has been disputed, gives the country a higher deficit than that of Greece.

Earlier this summer, First Minister Nicola Sturgeon maintained that sterling is “our currency” and remains the currency “we should continued to use” on exit from the UK.

Yesterday the SNP said the party’s position had not changed. A spokesman said: “Any change in policy on currency would be required to go through the normal party processes, but we agree with Professor Stiglitz that we should not join the euro.

“However, our immediate priority is exploring all possible means to protect Scotland’s place in Europe, in line with the way people here voted, which is vital for jobs, investment and long-term prosperity.”

However, Green co-convener Patrick Harvie said: “Professor Stiglitz is right to highlight the dangers of sharing the pound and the benefits of an independent currency, just as the Scottish Greens argued during the 2014 referendum. If we want the maximum economic control to run a fairer economy then having our own currency must be a fundamental aim.

“After the No vote Greens pledged to continue building the case for independence, but we’re clear that it must be a stronger case than was offered last time, especially on the currency.

“Given the uncertainty we now face from a Brexit process Scotland didn’t vote for, it may be that independence is the best option for keeping Scotland in Europe. It’s therefore essential that we continue to lay the groundwork for a Scottish currency.”

Meanwhile, Tory finance spokesman Murdo Fraser said: “There is a simple solution for the SNP on the currency. It’s called the UK pound and most people in Scotland would like to keep it.

“The SNP needs to accept the result of the referendum two years ago and got on with the job of governing.”

Labour leader Kezia Dugdale added: “What we have today works. Being part of the UK means we can use the pound and have access to the Bank of England in times of difficulty for our economy. That’s a positive argument for remaining in the UK.

“Instead of agitating for a second independence referendum, the SNP should focus on the bread and butter issues of government, like getting people back into work and giving everybody a fair chance in life.”

And LibDem leader Willie Rennie said: “The SNPs favourite economist has now criticised Nicola Sturgeon’s favourite policy. Imagine the chaos we would now be in if we had followed her advice then.”