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.
