Robin McAlpine: A 15-year wait for our own currency would leave us vulnerable like Greece

BOTH Iceland and Greece have faced enormous financial and economic crises in recent times. Iceland recovered quickly and its biggest problem is now that some parts of its economy are actually growing too fast. Greece is stuck in a downward spiral.

So what is the difference between these two crises? Well, the most fundamental one was that tiny Iceland (its population is just 6.5% of the size of Scotland’s) had its own currency and a central bank. It could use the full range of economic powers, including monetary powers (how money is run and managed) and fiscal powers (how tax is raised and public services funded), to defend its economy.

Greece (population twice the size of Scotland’s) had no control over its monetary policy and effectively no control over its fiscal policy. So, instead of being able to defend itself from the crisis, it was forced to do exactly what foreign bankers told it to do.

This is the fundamental question supporters of Scottish independence now face – do we want the power of Iceland or the vulnerability of Greece? Before the Growth Commission was published I believe there was an almost unanimous belief within the independence movement that an independent Scotland should have its own currency and central bank. But that belief now seems to be up for debate. In fact, it is even more confused than that, because we actually have three options being discussed.

The first is straightforward – have an independent currency and a central bank set up from day one of independence. Common Weal has published a series of reports which explain exactly how that would be done and they’ve gained a lot of interest and support.

The second is also fairly straightforward – begin setting up a currency immediately but do it slightly more slowly and while it is being set up we will use sterling without any formal agreement with the Bank of England. This is temporary sterlingisation.

The third is more complicated. This time you don’t start building the infrastructure for your own currency at all. Instead, you build the financial infrastructure to support sterlingisation, and you defer even a discussion of starting a Scottish currency for a decade or more. This is semi-permanent sterlingisation.

These are all different approaches (though the first two are similar), and we need to choose one. So let’s look at some of the strengths and weaknesses of each.

Semi-permanent sterlingisation would mean that for not less than 15 years (the minimum time before we could actually be using a Scottish currency under that scheme) we would have no central bank, not control over monetary policy and severe limits on what we could do with fiscal policy.

I believe this scheme leaves us unacceptably vulnerable. Like Greece, if anything went wrong we’d have no form of defence, no way to protect our economy. Like Greece, we’d inevitably be run – at least in part – by foreign bankers (in this case mainly the Bank of England and the London financial markets).

Any government elected under this scheme would have its hands tied. Its proponents (this is the proposal contained in the Growth Commission) have talked about how it could eventually benefit us if everything goes well for 25 years, but there has been very little discussion of what Scotland would do it anything went wrong, or how we could make things better for our generation.

Some people have presented opposition to semi-permanent sterlingisation as “left wing”. On the contrary, I believe dismissing semi-permanent sterlingisation as an option for an advanced exporting nation such as Scotland is absolutely the mainstream view in modern European economics.

It’s just too risky, too experimental (no economy of our scale has ever tried this) and leaves us much, much too vulnerable for way too long. Plus, I just do not believe there is the political will in Scotland (never mind in the independence movement) to be run by London’s financial markets for not less than a decade and a half. So what about temporary Sterlingisation? This is much more feasible, but it should not be thought of as a “transition” – that is a misunderstanding of how currencies work. You do not “transition” from one to another, you switch in one go – a country can only have one official currency at a time.

What temporary sterlingisation does is allow us a bit more preparation time, a bit more time to get ready for the switch. During the sterlingised period we would be in the same vulnerable, risky position as with semi-permanent sterlingisation, but perhaps only for three years. If we keep our fingers crossed that nothing goes wrong, we should be fine.

But international financiers might want to try to take advantage of Scotland during that period of vulnerability and if they did we would have only limited forms of defence (effectively we’d need to run up large public-sector debt until we could launch the currency).

I could live with temporary sterlingisation if we really had to, but only for a couple of years and only if someone could persuade me of the need for a longer and more drawn-out preparatory period.

Because there are some enormous benefits of having a currency in place from day one of independence. If we did we would never be “at sea”, floating as a nation state but without any of the monetary protections of almost every other nation state in the world.

While we were building our currency we’d still be a part of the UK. Financiers can’t attack a regional economy in the same way they can attack a national economy, so we’d be much more sheltered. And if we were attacked (or if anything else went wrong), we’d still have the protection of the Bank of England.

The introduction of the euro in 1999 took a total of three years of preparation (and it was a much more complicated currency to introduce). Common Weal’s policy paper on how to introduce a Scottish currency was written by one of the consultants involved in launching the euro.

This is why we have proposed that Scotland should start creating its own currency immediately after we vote for independence and that there should be a three-year transitional period towards independence over which that currency would be completed and launched. I can see no reason why a Scottish currency should take six or eight years to create, so I can see no reason why any period of sterlingisation is needed at all. But I am willing to listen to arguments for temporary sterlingisation if people have them. I just can’t accept that we should create a semi-permanent model which it would be very, very difficult to get out of in the foreseeable future.

THERE is much in the Growth Commission report that I disagree with. I don’t want to keep the entire UK tax system. I don’t want to keep the entire UK banking system and banking regulation. I don’t want to peg Scottish corporation tax to the UK’s. I don’t want to have more than a decade of strict “deficit reduction targets” (generally known as austerity).

But I recognise that these are all perfectly reasonable (if pretty right-wing) policies. I’m more than willing to have a debate about whether these are really what Scotland wants, or whether they would really be good for Scotland anyway.

What I can’t accept is that these are made mandatory, that they are rules and not choices. Semi-permanent sterlingisation means all of these rules that any elected government must obey as a price for using another country’s currency indefinitely.

If we make a decision to choose either a Scottish currency from day one or a short temporary period of sterlingisation and you still want to pursue the policies in the Growth Commission report, there is no barrier at all to doing that (although I think it would be a mistake).

But let’s have that discussion after we’ve made the fundamental decision about our own currency. And since I know there is very little support within the independence movement for semi-permanent sterlingisation, let us narrow that choice down to temporary sterlingisation or having our own currency from day one.

I look forward to hearing arguments in favour of a short transitionary period of sterlingisation which explain why that would be better than getting the job done quickly, efficiently and in a businesslike manner. We can then have a debate and come to a conclusion. Once that’s done there is plenty of time for each of us to argue for our different visions for the future of our country.

Common Weal will soon be launching a campaign for a Scottish currency. I hope you’ll consider supporting it.