There are two great issues facing the UK in the next
few years: sorting out our own constitutional mess and sorting out our
relationship with the EU. In reality, they are the same issue.
I’m going to start with a few assumptions. They are
widely shared. In the modern, globalised world you can’t have a long-term,
viable currency union without a political union, a fiscal union and a transfer
union.
It was the establishment of a single currency that
made East and West Germany united. It was the willingness of West Germans to
transfer vast sums to East Germans that made them compatriots. To cease to
be willing to transfer those sums is already to cease to be part of the same
country. The difference between a compatriot and a foreigner is that money is
transferred to a compatriot in trouble as a gift while to a foreigner as a
loan. We have friendly relations with other sovereign states, but we tend to be
unwilling to pay off their debts for nothing. Within our own sovereign state, however, we do not count the cost. We share with the poorer parts of our country
without limit and we do this forever without thinking of repayment. It is this
willingness or unwillingness that marks the difference between one sovereign
nation state and another. It is what makes Germans compatriots to each other
rather than foreigners. But there are two sides to this coin. When East Germany
accepted membership of a currency union and accepted transfers from the West, it
also gave up its own sovereignty. It ceased to be a sovereign nation state in
its own right. Ultimately, those who control the currency hold the sovereignty.
In the United States the Fed controls what is
politically possible. In the Eurozone the ECB has this control, and in the UK it’s
the Bank of England. These banks may or may not be politically independent, but
this matters little. What is possible politically is determined by those who
hold the purse strings. This is
especially the case when an economy gets into trouble. The Republic of Ireland
found its political decision making controlled by the ECB and others. The same, of course, goes for Greece et al.
The issue facing the Eurozone is either they must become
like the USA, (i.e. they must create a single nation state called Europe, let’s
call it the United States of Europe (USE)), or they must revert to their old
currencies. There isn’t a third option.
We in the UK are approaching a vote on membership of
the EU, but it is crucial that we reflect on what we would either be leaving, or
on what we would be choosing to remain a part of. The Eurozone may become a
single nation state with a political union, fiscal union and transfer union,
but the UK will not be a part of this until and unless we choose to join the
Euro. You can’t have political union without currency union, but we have our
own currency, so if the Eurozone creates a political union, we in the UK will be
outside it.
So our relationship with the EU will by default be
different from, for example, France’s relation. There clearly needs to be a
different status for countries like us who don’t share the Euro. We are not
moving towards becoming part of a political union, because the condition for
the possibility of that movement is sharing a single currency. Therefore, it is
clear that the EU ideal of ever closer union does not apply to the UK.
We cannot be part of the transfer union, fiscal
union and political union necessary for the Eurozone to function for the simple
reason that we have our own currency, which necessitates our own political,
transfer and fiscal union. It makes no sense to expect the UK to transfer funds
to Greece, because Greece does not share our currency. But it does make sense
for Austria, Finland and, above all, Germany to do so.
In reality the UK’s special status in relation to
the EU happens in and of itself. EU countries within the Eurozone have one
status while EU countries outside it have another. By choosing not to be part
of the Eurozone we have already chosen not to be a part of the core EU project
of moving towards becoming a nation state.
At the moment, however, there is no guarantee that
the Eurozone will become a political, fiscal and transfer union. The failure of
countries to follow through the logic of monetary union and transfer money from
the richer to the poorer states means that the Eurozone remains fragile. It may
break up. If that were to happen, we would all go back to being nation states
with separate currencies. In that case, if the EU were to survive at all, it
would go back to what it was when we called it the Common Market. It would be a
trading block. But if this is what the EU would be if it ceased to have the
Eurozone, it makes sense that this is what it ought to be for those countries
who do not take part in the Eurozone.
The main benefits to the UK in being part of the EU
are free trade, the Single Market and free movement of people. The UK
particularly benefits from access to the EU labour market. One of the main
reasons for our economic success in recent years is that our job vacancies have
been filled by citizens from the EU. But clearly if we are not going to be part
of an EU superstate, and how can we given that we have our own currency, it
makes no sense for us to take part in those aspects of the EU which have to do
with political union. The UK ought to be able to negotiate a withdrawal from
those areas of EU life that simply do not and will not apply to us.
The logic of currency union is relentless. In the
end, to be in a currency union is to be in a country. Scotland is in a currency union with the
other parts of the UK. But this requires political union, fiscal union and
transfer union. It is this, above all, which makes the idea of Full Fiscal
Autonomy (FFA) so problematic. The reason for this is that FFA would apparently
get rid of the fiscal and the transfer unions. If the fiscal and transfer
unions were to be retained, Full Fiscal Autonomy would be neither Full, Fiscal
nor Autonomous, which is all rather pointless. Moreover, Full Fiscal Autonomy really
already equals independence. West Germans were willing to transfer billions to
East Germans as they thought of them as compatriots. They are at present
unwilling to transfer billions to Greeks as they see them as foreigners. It is
this willingness or unwillingness to transfer which marks the distinction
between one independent nation state and another. Therefore FFA equals
independence. With FFA the UK would turn into a mini Eurozone. Moreover, given
that Scotland had its own parliament and that parliament had Full Fiscal
Autonomy, what purpose would it serve to send MPs to Westminster? On what
issues would they vote? Logically FFA makes even political union pointless. All
the issues that affect Scottish constituents would already be decided at
Holyrood. What’s left?
But it’s worth remembering that FFA is not an ideal
situation for anyone in the Eurozone. It is the absence of fiscal transfers
that is causing such trouble there. Of course, countries like Greece, Spain and
Portugal are doing worst out of the arrangement, but it’s not as if the
Northern European countries are particularly happy either. Likewise, in the UK it is hardly an ideal arrangement for England to be put into the Eurozone in
relation to Scotland. After all, isn’t it precisely this that everyone has been
so desperate to avoid all these years?
Scotland with FFA would cause the UK the same
dilemma as the Eurozone. Scotland would require huge levels of austerity in
order to remain in the Poundzone, just like Greece et al. It costs more to
provide services in Scotland owing to the rural nature of most of the country.
It is for this reason that it has been right and proper that Scotland has over
the years received rather more from Central Government than places that are
more densely populated. But anyway why would a patriotic UK Government want to
treat a part of the UK as if it were Greece? We didn’t act in this way towards
Northern Ireland when a proportion of their population were opposed to the UK.
Rather we stuck by the pro-UK people of Northern Ireland through thick and
thin. The majority of the Scottish population, as measured by the referendum, want to stay in the UK. Why treat us worse than our compatriots in Northern
Ireland?
FFA in Scotland would lead to years of austerity
undreamed of up to now. It would lead to a huge increase in taxes for ordinary
Scots, it would lead to job losses and massive cuts in public services. The SNP
may or may not be blamed for this. My guess is that Cameron would be blamed
just as the Greeks blame Merkel. If you think Nicola Sturgeon would be blamed,
you don’t understand nationalist psychology. Anyway, soon enough the logic of
currency union would be made plain.
Either Scotland would eventually find its position
in the Poundzone untenable and would be forced to leave, or the UK would be
forced to reintroduce a political, fiscal and transfer union. There isn’t a
third option. If leaving a currency union were so easy, why hasn’t it happened
in the Eurozone? Why is everyone going to such desperate lengths to prevent the
breakup of the Eurozone? Spain, Portugal, Ireland, Italy and Greece have had to
endure huge levels of austerity in the last few years. They could have avoided
this by defaulting, devaluing and leaving the Euro. Why didn’t they? The answer
is simple. It would have caused chaos, not only for the country leaving, but
also for the countries remaining.
Whether Scotland is “independent”, or has FFA it is
not really possible for us to leave the Poundzone. The talk during the referendum of Scotland
being forced to leave the pound was, of course, nonsense. When push came to
shove, the central bankers would have knocked heads together and pointed out the
damage to both Scotland and the other parts of the UK of Scotxit. It would
cause economic chaos not only in Scotland but in the rest of the UK as Scotland
leaving the Poundzone would involve default and devaluation with shock waves rather
larger than Lehman Brothers. It would
have the potential to make 2008 look like a minor blip. But the logic of this
works both ways. Given that Scotland is in a currency union with the other
parts of the UK, independence is not really possible, nor for that matter is
FFA. We can harm ourselves hugely testing this by experiment, but the logic of
currency union is relentless. Currency union quite simply requires political,
fiscal and transfer union. The mere fact of being in the currency union acts as
an elastic band pulling you back to the centre. The attempt to become
independent is like a Tom and Jerry cartoon where Tom is running with an
elastic band tied round his waste. He runs and runs, but eventually he’s yanked
back to where he started. Of course, a lot of energy is wasted in this attempt
to get away and it may well cause chaos to not a few of us, but it’s all futile
and illusory. The Bank of England and the markets anyway determine what is
politically possible. Full Fiscal Autonomy would provide the illusion of
autonomy just as independence would amount to little more than flag waving and
an opportunity for minor grandstanding on the world stage.
Ireland made a choice in the 1920s which looks like
it may have a long term political consequence unforeseen back then. If the EU
becomes a United States of Europe, then Ireland will find its independence and
sovereignty subsumed into the USE. They will have a football team and they’ll
still no doubt be called a country, but in reality they will have no more
sovereignty than Saxony or Bavaria. All will in the end be ruled by the
paymaster in Berlin.
In the same way for Scotland there is a choice. Choose
the EU, choose Scotxit be a nation again, but just like with Ireland you will eventually end up putting a hard border between your fellow English speakers and largest
trading partners, and you will end up being ruled by people who don’t speak your
language.
The alternative is a semi-detached UK with rather a
lot of sovereignty big enough to be a Japan to the EU’s China. Devolved power
in a relatively independent UK looks a better long term bet to me.
On the other hand, and this is highly unlikely, if
the whole of the UK decided to join a United States of Europe, i.e. if we
joined the Eurozone, what difference would it make where we drew the borders? After all, in the USA it hardly matters now whether there is a border between
West Virginia and Virginia. The former seceded in 1861, but now that there is
one USA, it makes no difference whether that act of secession occurred or did
not. It is an accident of history and of no consequence.
The whole debate both about independence and the EU
is sterile and ultimately meaningless. Scotland can no more leave the Poundzone
than Greece can leave the Eurozone, or at least it can’t without economic
disaster for all concerned. There is an important debate to be had about the
UK’s relationship to the EU and it would make sense for our special status to
be recognised and for concessions to be made. But having a vote on the UK leaving
the EU is for the most part meaningless because we have already left. The
difference between voting to leave and voting to stay is only a difference of
emphasis, for whatever happens, we will need some sort of relationship with the
EU, but it is of very small consequence compared to what the Eurozone itself decides
to do. That far more than anything we decide will determine the nature of our future relationship.
If you like my writing, you can find my books Scarlet on the
Horizon, An Indyref Romance and Lily of St Leonards on Amazon. Please follow
the links on the side. Thanks. I appreciate your support.
