Saturday 27 June 2015

Don’t import #Grexit into the UK

Some Scottish nationalists have recently been arguing that Scotland ought to have Full Fiscal Autonomy (FFA), while at the same time recognising that this would leave a gaping hole in the Scottish budget. Their solution is that Scotland should have the best of both worlds. They think that Scotland ought to have FFA, but that fiscal transfers between the parts of the UK should continue. This sounds like a case of wanting two incompatible things, but it might also be worth recognising a welcome admission of reality. If Scotland cannot afford FFA without fiscal transfers, then neither can we afford independence. More importantly no-one in a currency union can afford independence. The reason for this is that no-one in a currency union can afford to be without fiscal transfers.  Without them any currency union is liable to become dysfunctional.  If you don’t understand this, then you haven’t been watching the news recently.

It is in the interests of everyone, not just Scots, that fiscal transfers continue, no matter what happens constitutionally in the UK. It might not seem so to those who do the transferring, but a stable currency with similar standards of living for everyone in Britain is in everyone’s interest. Having it is worth any amount of transfer, losing it would damage our shared economy and single market more than any of us realise. Again compare and contrast the UK’s stable currency with events elsewhere. It’s not much fun to be a debtor, but anxiety levels are rather high even with the creditors.

Without fiscal transfers Scotland’s best chance of reducing our deficit to manageable levels would be through devaluation, which would entail leaving the poundzone. This would naturally be painful for Scots, but breaking up one of the world's oldest currency unions would hardly be likely to be a picnic for anyone else. If you think breaking-up currency unions is easy, once more, you haven’t been paying attention.

Do we really want to go down the route of Eurzone bailouts and the possibility of Grexit? We already have a currency that works, that is stable and that everyone wants. Above all let us not jeopardise that. This is something that both sides of the independence debate can agree on. So I’m inclined to agree with those nationalists who want fiscal transfers to continue. I want to keep the pound and I recognise that a currency union requires a transfer union. Without one it is liable to end up rather like the Euro. So whatever happens let’s keep fiscal transfers.

But having recognised the need for fiscal transfers, we must clearly recognise that this puts limits on what is politically and economically possible. Just as there are at present rules for membership of the EU, which can limit what the UK parliament and the Scottish parliament can do, so too there are rules which must apply if there are to be fiscal transfers. Being part of a currency union implies some limits on what each part can do, not least because others may have to transfer money if something goes wrong. We cannot expect an arrangement that amounts to Scotland being given a credit card which never runs out, but that the other parts of the UK pick up the bill. There must be a joint account with everyone being given a say in how we spend the money. This is in everyone’s interest including ours. After all there have been times in recent history when Scotland has paid more into the pot than we took out. These times are liable to return at some point in the future.

In principle, it is possible to come up with a number of different arrangements by which the parts of the UK run their affairs. It is possible, while we all remain in the same currency union for us to have a situation where Scotland is given some more devolution (Smith), we could have FFA, or we could even have independence. This situation could be described as Home Rule, Federalism, Devo Max or going all the way, but sometimes we get too bogged down in the words. What matters is not so much what a thing is called, but what it in fact is.

The principle that local matters are decided locally is not a bad one, but given that we are going to retain fiscal transfers we have to accept that not all decisions can be taken locally, for some of them are about matter where we all have a shared interest. Retaining fiscal transfers implies that the centre must exert some control. Whatever we share must be decided in a shared way.

Even when a country is independent, it can find that its actions are limited by other countries. This has been particularly illustrated by the examples of countries like Greece which have been subject to bailouts. Greece’s independence is limited by the fact that it depends on others to remain solvent. Those others provide conditions which Greece must follow in order to receive the money.

A transfer union works rather differently than the Eurozone. It is this above all that they lack. When we transfer money throughout the UK, it’s not in the form of a loan, but as a gift. It all happens automatically, but this is because the centre can control to an extent what the parts of the UK do. This is the limit of devolution. It is also the limit of independence that is possible given that Scotland remains part of the poundzone and the poundzone remains a transfer union.

If Scotland were living beyond its means rather more than the UK average, it would be reasonable for others in the UK to suggest to Scotland that we reduce our spending. The reason for this is that ultimately they would have to pick up the tab if we didn’t spend less. In the end, being part of a transfer union will imply following the rules in the same way that those in the Eurozone have to follow the rules.  Of course Scotland can choose to elect who we wish, but we cannot choose to party with someone else’s money.

In order to be in a well ordered currency union we are going to need a means of debating these issues. We are going to need a means of deciding those issues that we hold in common, even if we decide all issues that only apply to us by ourselves. What this means obviously is that we are going to need not only a transfer union, we are going to need a political union. How else are we going to decide issues of macroeconomic policy that enable us to keep our currency union functioning smoothly? How are we going to regulate matters that everyone recognises are best done in a cooperative way, like defence and those aspects of “social union” that everyone on all sides likes and values.

Even the Eurozone, while lacking political union still has a shared parliament. But it’s precisely the lack of a political and transfer union that means it ends up as a lot of large countries ganging up on poor Greece. We in our poundzone, no matter what happens need to do rather better than European Parliament in order to ensure that our currency union doesn’t end up in the same sort of mess that the Eurozone is in. We need to keep what they lack. In theory what we have is what they are tending towards, but if they had it right now all their problems would be solved at a stroke. Why would we give it up? It would be as if we wanted to import Grexit along with olive oil and Feta cheese.

Given that we in the Scotland ought to keep what the Eurozone lacks, what shall we call the arrangement? We could call it FFA, Devo Max or even independence, but it frankly is not that different from what we have right now. The principle of Scotland deciding matters that only affect Scotland is perfectly reasonable, but just as the SNP recognise that matters in England sometimes affect Scotland, so too they must realise that sometimes what Scotland decides affects the rest of the UK. If we are to remain in a currency union, if we are to have a similar standard of living throughout the various parts of Britain, if things are going to work with a degree of harmony, then we are going to need political union no matter what happens in our debate. If the EU needs a common parliament, why should we suppose that the UK doesn’t?

Even in a group of independent nation states like the EU, each state’s independence is constrained. A large percentage of UK law originates in the EU. But the UK doesn’t have a currency union with any EU member state. It would be reasonable to suppose therefore, that being in a currency union would imply a greater degree of shared law and regulation. So even if Scotland were independent, but within a currency union and transfer union, we would need rules and laws to regulate this arrangement. To what extend would this arrangement differ from that of devolution?  All of these things are matters of degree. A currency union ultimately means that we have to share through fiscal transfers and share political decisions about how we run our union. The difference between what we have now and “independence” within a transfer union is frankly not much, so long as the other parts of the UK would agree to the arrangement. They would, for there is no escaping our shared interest and our shared currency. The logic is remorseless, but it cuts both ways. The UK too is a building with no exits. The trick is to prevent it burning.  The only way to do that is for us to keep what Greece and Germany lack. We need to keep fiscal transfers in the UK or else sour our relationship in the same way that theirs has been soured. But above all we must recognise that a union with fiscal transfers, which is the only long term way of preventing the poundzone from turning into the Eurozone, would require political union also. So even if Scottish nationalists at some point won a vote, even if they decided to call the arrangement “independence”, the reality is that it would be pretty much what we have now. In the course of negotiation we would all find that we needed to keep both the fiscal and political aspects of our union. We would be “independent” within the UK. There might be some unnecessary turmoil getting to this point, but nothing really would change, though the words we used to describe the reality might suggest something different. But that is mere flag waving and has as little substance. You cannot eat flags.

I find myself taking part in a debate that is becoming ever more sterile.  It’s all really a matter of semantics. But then so much of modern life has become a matter of playing with words. I can choose to describe myself and my situation in any way I please so long as I redefine the word and maintain vehemently that the word applies to me. But the reality does not change, which is why there is frequently such vehemence. Scottish nationalists want Scotland to be an independent country like Greece. But Scotland right now has much more independence than Greece does. If you don’t understand this, you simply don’t understand the reality and are just concerned with words.

The only true independence would be for Scotland to become a country like Iceland. Iceland has its own currency and is not part of the EU. It can do more or less what it pleases and it can do so even though it has a tiny population. Having its own currency meant that Iceland had room for manoeuvre when it got into trouble in 2008 and it saved itself  from Greece’s difficulties precisely for this reason. There are massive advantages to having your own currency.  If that’s what you want be my guest, but it means Scotxit, it means devaluation and it means default. Alternatively recognise that what we have now is the best of both worlds. By all means call it “independence” if you wish. But in the context of being in a currency union we have already reached the maximum of devolution possible and indeed the maximum of independence. If you don’t like it and forever want more, the only alternative is to go it alone in the fullest sense of the word. That too is possible, but let us at least be honest about what we are debating. Let’s not play with words.   

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.

Saturday 6 June 2015

We must find a common purpose in Scotland

The difficulty we have in Scotland is that around half the population desperately want independence while half the population desperately don’t. If there were to be another independence referendum this September what would be the result? I’ve no idea. It might be that another passionate Yes campaign would take them over the line. On the other hand, the same arguments that No put forward last time would still apply and in addition Scotland’s fiscal position is rather worse than was portrayed last summer by the SNP. The economics would again be scrutinised by experts and the vast majority of those experts would say that Scotland would be much poorer as an independent country. This would all be portrayed as very negative. No doubt it is. I would hope that any Pro UK campaign in the future would talk much more about how great a country the UK is. But economics is a vital part of elections and so I have no doubt that many people would reflect on the impact independence would have on their personal circumstances.

At the moment the SNP while in theory wishing to have Full Fiscal Autonomy (FFA) don’t want it now. It’s rather like Saint Augustine’s statement “Lord make me chaste, but not yet” One of the SNP MPs George Kerevan has described (FFA) as economic suicideScotland requires money from the UK government to break even. If we did not have that money we would have to raise taxes hugely and cut public spending massively. One wonders rather then why Mr Kerevan is an SNP MP given that he has so ably pointed out one of the main benefits of Scotland being a part of the UK.
The reason Mr Kerevan is an SNP MP, probably has nothing to do with the economics. He no doubt thinks Scotland ought to be independent simply because Scotland is a country. The "independence come what may argument" has a lot going for it. I have no quarrel with someone who says I don’t care if Scotland would be poorer as we would have our own sovereign parliament and it would be worth it. Lots of people around the world have argued in this way.  Independence made Ireland worse off materially for 50 years it also caused civil war partition and years of terrorism in Northern Ireland. It's clear then that many people are willing to go through tough times to get independence.

But this is not the argument that was presented to us. The SNP argued during the referendum not so much that Scotland ought to be independent come what may, but rather that we’d all be much better off. They convinced rather a lot of people, but mainly among those who either don’t care about the economics, the fundamentalists who want independence come what may, or amongst those who were willing to be led by the fundamentalists.  Would that tactic work again? It might. We live in a Scotland that has just voted for 56 SNP MPs. It isn’t exactly as if the SNP record in government in Scotland deserves such a level of support. They haven’t done wonders with those areas of Scottish life that they control. Quite the reverse. Moreover what these MPs are supposed to want, i.e. Full Fiscal Autonomy they in fact don’t want, that is if they actually all understand what FFA is. But if they don’t want FFA just yet, they clearly don’t want independence just yet either. Independence is after all FFA with bells on. So the Scottish electorate just voted for 56 MPs who represent a party that has not made a particularly good job of running Scotland and who have a policy they don’t in fact want. At least not yet.  As I frequently say, can we have another electorate please?

It’s all very well getting your supporters all worked up about nationalism. Isn’t it great when they treat politics as if it were a football match involving Scotland? I've long thought that Scottish nationalism stands on the shoulders not so much of giants as on the shoulders of Scottish football. If I had a time machine the one thing I would do would make the UK play football as one team. We wouldn't be having this argument in that case. When politics becomes a football match, then people vote for the SNP like they like they cheer on Scotland. It all becomes rather tribal almost instinctual and very far from intellectualBut thinking nationalists must realise that if Scotland did vote for independence we would all have to deal with the consequences and that means people who are not fundamentalist nationalists would have to deal with the consequences too. Those SNP supporters who believed the stories about Scotland being much better off after independence might react rather unpleasantly if they found out the reverse was true. Others who always knew that the figures didn’t add up, would most likely vote with their feet. This is not an ideal situation for anyone who cares about Scotland. Surely we all do.

We need to be grown up about this. We need to think about the idea of "not yet". Scotland is not yet able to achieve Full Fiscal Autonomy and for the same reason we are not yet able to achieve independence. Let’s then put off further debate on this subject until such time as we are ready. Scotland needs to be more or less breaking even before we should even think about going it alone. So why not let all of us work together as a united people towards the goal of Scotland breaking even?  As a UK supporter, I would support Scotland breaking even and living within its means, for I think it would show that the UK is working well for all its citizens including those in Scotland. But an independence supporter could likewise support this goal, for it would provide the condition for the possibility of Scotland becoming an independent country without too much pain.

It would be wise of Nicola Sturgeon to tell her supporters that independence while remaining a long term goal, is off the table for the next few years. This would help everyone to get over the division caused by the referendum. It would also provide businesses with the security of knowing that investing in Scotland was more or less risk free. We need to focus on bringing jobs to the poorer parts of Scotland, we need to focus on getting more value for money out of public services, we need to earn more and spend rather less. This would give us a Scotland that created jobs and had wealth and that was dependent not on natural resources but on our own initiative.

If at some point in the coming years Scotland was demonstrably breaking even or better still making a small profit, we could revisit the independence campaign again. I would still oppose independence. My country is the UK and I see Scotland as forming an integral part of it. I see advantages to Scotland forever being a part of the UK. But fundamentally I want the UK to remain together as one country, for the same reason that an American wants the USA to remain united as one country. This has nothing whatsoever to do with being better together. The UK Is one country and for that reason alone it ought not to break up. 

But those Scottish nationalists who wanted independence would be able to make their case from a much better position if Scotland were actually making a profit and this profit did not depend on the fluctuating price of a commodity. The best thing of all is that if Scotland were actually more prosperous than it is now, if there were less poverty and more opportunity, it would matter less to everyone whether we were independent or not. Independence would not be seen as the great disaster that most No voters think it would be, nor would it be seen as the only way to solve our problems as many Yes supporters think. In this way it might be possible for us all to unite behind whatever that future decision might be and so become one people in a way that is just not possible today.

We have the same task then whether we are Yes or No. We should work towards creating a fairer, more prosperous, more efficient country that lives within its means. Having done so, we could equally well argue that this economic situation has vindicated Scotland’s position as a part of the UK or that we are now ready for independence. But let us at least have a common purpose for the next few years. Let us cease this endless squabble about constitutional matters. Let us pause, make peace and discuss the issue again some years from now. 

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.