Martyn Wolf in the FT has been mulling over last week’s statement from the Governor of the Bank of England in relation to any future changes in the currency union between Scotland and what would be left of the UK after independence:
Mr Carney failed to bring out two differences between the eurozone and a currency union between Scotland and the rest of the UK. One is that the rest of the UK generates 90 per cent of UK gross domestic product. The other is that the UK is already a fiscal and financial union. A move towards currency union would reduce the pooling of resources.
The first point means that insurance would go one way: the rest of the UK could insure Scotland, but Scotland could not insure the rest of the UK. The rest of the UK would know it was on its own. Scotland would not. The need for external fiscal and financial discipline would go one way. This could not be a relationship among sovereign equals.
The second point means that the post-independence travel would be towards making the currency union less effective: smaller fiscal risk-sharing; less certainty about the handling of crisis situations; and, not least, less certainty over where the accountability of the BoE would lie.
It must be an asymmetrical union. The BoE would remain subject to the law of the rest of the UK. It would not contain regional representatives. It would have sole responsibility for prudential regulation. Above all, the rules of the union would impose fiscal discipline upon Scotland. But such discipline would essentially be voluntary for the rest of the UK.
If I were Scottish, I would not dream of accepting such an arrangement because it would be far more unequal than the present one. But it is the only arrangement the rest of the UK should accept in return for participating in a worse monetary union than today’s. Mr Carney could not say anything like this. But the Scottish people should not be allowed to believe they can have whatever kind of currency union they want. It would find another and far bigger partner on the other side of the table.