Monday 19 April 2021

A Salmond with Wings


The Scottish nationalist movement is not merely split in terms of leadership between Alex Salmond and Nicola Sturgeon, it is more importantly split in terms of its vision for an independent Scotland. The SNP wants Scotland to use the pound unilaterally and to join the EU. Alex Salmond’s Alba proposes instead to seek EFTA membership and to almost immediately set up a Scottish currency.

Four European states are presently members of EFTA, Iceland, Liechtenstein, Norway, and Switzerland. These four states are part of the European Single Market and Schengen Area, but are not part of the European Union Customs Union. Salmond then is arguing for the Norway option which appealed to some people as an option for the UK after Brexit.

Membership of EFTA would enable Scotland to trade freely with the EU. It would allow Scots to live and work in EU and EFTA member states. But it would do so at the cost of Scotland having to follow EU rules and regulations with no say whatsoever. It would be the equivalent of Scotland remaining in the UK but without any MPs at Westminster.

The argument that Scottish MPs are outnumbered and that we get Conservative Governments even when we don’t vote Conservative is the basis of the Scottish nationalist complaint about being in the UK, but EFTA would see us not so much outnumbered as not present at all in the decision making processes. It completely undermines the Scottish nationalist argument. If we cannot bear to be part of the UK where we have the same representation as every other British citizen how could we bear to be part of EFTA when we would have no representation at all in the EU decisions that would affect our lives. To complain about a democratic deficit in the UK while choosing a still greater democratic deficit looks like mere prejudice. Europe good, Britain bad.

Salmond hopes that EFTA membership would enable Scotland to avoid some of the consequences of EU membership such as a hard border between England and Scotland with customs and passport checks. He hopes that EFTA would allow Scotland to retain access to the UK internal market, be part of the UK customs union and remain a part of Common Travel Area which would allow free movement within the former UK and Ireland.

But the problem for Salmond is that membership of the EU Single Market requires Scotland to allow free movement between EU member states and Scotland. There would be no need for people to set up camps in Calais and cross the Channel in rubber boats. Once they had access to the EU, they could just get a flight to Glasgow and a train to London. It is for this reason that a future former UK Government might prefer to have passport and visa checks at the border between Scotland and England. EFTA does not change this.

The main objection to the UK remaining in the EU’s Customs Union was that it would have prevented the UK from making trade deals and would have required us to impose the EU’s Common External Tariff. The EU would have negotiated trade deals on behalf of the UK, but the UK would have had no say whatsoever about them. But if Scotland tried to be part of a UK customs union, the same logic would apply to Scotland. We would be a rule taker with relation to UK customs and would have to accept whatever trade deals the UK entered into and whatever tariffs the UK chose to apply.

But how in practice could Scotland accept both the rules that went with membership of the EU’s Single Market and the rules that would be necessary to remain closely aligned economically with the former UK. The rules might be incompatible, and Scotland would have no say either in relation to the former UK or the EU. It’s an odd kind of independence when do what you are told more than you did previously.

Brexit means that if Scotland chose EU membership it would mean that Scotland left the trade bloc with which we trade most (the UK) in order to trade freely with those we trade least (the EU) which was always senseless economically. EFTA is an attempt to straddle the EU and the UK, but at the consequence of having very little say in our relationship with either. Scotland would be standing on the middle of a seesaw with the former UK at one end and the EU at the other. The balancing act would be precarious at best and it is hard to see how it could be preferable to simply remaining in the UK.

Salmond’s idea of quickly creating a Scottish currency involves both advantages and disadvantages. A Scottish currency would allow Scotland to have its own monetary policy. The SNP plan would see the Bank of England set Scotland’s interest rates and Scotland would have no say whatsoever in its own monetary policy. A Scottish Central Bank would enable us to print Scottish pounds so it would be less likely that Scotland would go bust, but there would be more risk of Scotland having high inflation if we printed too many.

The main disadvantage is that a Scottish pound would most likely fall against pound Sterling which would mean that anyone with savings in UK pounds would see our purchasing power fall too. If UK pounds became Scottish pounds and the Scottish pound fell 20%, we would need more Scottish pounds to buy things in the former UK. Any Scot with sense would move all of his money to an English bank prior to independence. It would be impossible unfortunately to move houses, whose value would fall in relation to their price when we were part of the UK. Still we would move everything moveable. But such capital flight would make life rather difficult a Scottish Central Bank. It might have to introduce capital controls, which would encourage everyone to make sure they did all their moving prior to that.

It is not obvious how Scotland could remain part of former UK’s internal market if we had a different currency and if we were part of the EU Single Market while the former UK was not. Scotland would have different regulations from the former UK and there would be the cost of converting former UK prices into Scottish prices. Former UK citizens would be less likely to use banking or insurance in Scotland because it would involve using a different currency and accepting that the lender of last resort would be the Scottish Central Bank. Their money would be guaranteed by a foreign bank with no track record as opposed to the Bank of England with centuries of probity. The Scottish financial sector would therefore have to relocate southwards.

Salmond’s plan ruins the SNP’s argument that we should vote for independence because Scotland was dragged out of the EU against our will. It ruins it because Scotland would not join the EU, perhaps not for years, perhaps not ever. Disappointed Remainers must reflect that there is probably a significant proportion of Scottish nationalist opinion represented by Salmond and so there is no guarantee that if Scotland became independent that we would follow the Sturgeon path to the EU rather than the Salmond path to EFTA. We might go through all the struggle to gain independence only to end up neither Salmond nor Sturgeon, neither in the EU nor out. We would be a sort of fish with characteristics of a fowl and it is far from obvious that we could fly even if we had wings.

Brexit is causing problems for the Scottish nationalist argument, which is why Salmond just like in 2014 is trying to have the best of both worlds. But nothing either he or Sturgeon is offering equals staying in the UK. If you did not already support independence for nationalistic reasons, you would not choose either EU membership with the hard border that goes with it, or EFTA membership. Both offer no obvious economic advantages to Scotland simply because Scotland trades most with the UK. Salmond recognises this, which is why he is attempting a compromise. But a compromise between a fish and a foul is merely a mutant. A Salmond with Wings.