Following Nicola Sturgeon’s exchange with Andrew Neil, Common Weal director Robin McAlpine offers his guide to some of the most common questions facing supporters of independence
FOR five years now, Common Weal has repeated over and over that, sooner or later but with absolute inevitability, the independence movement will have to provide clear and coherent answers to the kinds of questions Andrew Neil asked Nicola Sturgeon this week. These were not unreasonable questions.
Thankfully (since this work wasn’t being done) Common Weal went ahead and did it. That’s why we have simple, clear, accurate and coherent answers to these questions. If you take a deep interest in Scottish independence and haven’t read How To Start A New Country (or it’s Short Guide summary) then you really should. Watch the film if you want a quick version.
Since there’s an election going on I’ll add no more (for now) other than to say that there is of course a precondition for these answers which is that Scotland needs its own currency. This is not a ‘virility test’ as some advocates of Sterlingised Scotland claim but a fundamental building block of modern, developed nation states the world over.
So, some easy, straightforward, no-bluffing-involved answers you can quickly explain to a lay person which also stand up to scrutiny:
How does Scotland join the European Union?
Scotland can have full access to the European Single Market in a matter of months. The fastest route to do this is to get membership of the European Free Trade Agreement group (EFTA). For Scotland to become a member requires only that its four member countries endorse Scotland joining.
Informal approaches have been made and it is clear there is no resistance to this from the EFTA members and so rapid approval of Scotland joining should be pretty easy to achieve.
This would put Scotland in the Iceland position of having freedom of movement and access to the single market through a pre-arranged trade deal, but it would not give Scotland full membership of the European Economic Area.
Application to join the EEA is usually done in parallel with a full accession process to the EU, but Scotland is in an unusual position in that it is already economically aligned with the single market. This means that Scotland can request that the ‘interim membership’ clause of the EEA charter be used.
That could be agreed through a vote of the other EEA members and would largely allow Scotland to act ‘as if’ it was an EEA member while the rest of the process is completed. For the EEA this means things like putting in place statutory regulatory bodies and implementing EU single market directives into domestic law.
The timetable would depend on whether Scotland was immediately seeking to join the EU. That could take up to five years and certainly requires that Scotland demonstrates for three years that it has the capacity to align its monetary policy with EU rules. EEA membership alone would be much faster.
Monetary alignment means that to join the EU you must show that you can set interest rates and other monetary policy according to EU rules. That means you must either have control over your own currency or be in a currency union with a central bank which is inside the EU. That rules out either a post-Brexit Sterling Union or an application to join the EU until some meandering ‘currency journey’ is complete.
The accession process to the EU is time-consuming but on the whole comparatively straightforward. As it was happening Scotland (like any other accession state) would continuously be integrated into the EU’s structures. The country would in no way be ‘out in the cold’.
Thus an independent Scotland would never be without freedom of movement across Europe nor without full access to the European Single Market and be free to pursue an orderly entry into the EU if it so chose. (Personally, I’d stop at EFTA.)
What happens at the border with England?
There is no such thing as a ‘hard’ or ‘soft’ border; those are purely political concepts that have no basis in law. In fact all borders are a variety of degrees of ‘soft’ or ‘hard’, depending on who or what is trying to cross them. Freedom of movement in Europe only applies to Europeans.
But if the parlance of ‘hard’ and ‘soft’ is to be use, the UK has decided that it is going to have hard borders with everyone, every other country in the world. Scotland will be no exception.
What Scotland will do is set up a system of smart borders like most other developed countries. On Scotland’s side, people crossing the border will experience virtually no difference to present arrangements and no customs checks will take place at the border.
As an independent country Scotland will have no control over what the rUK decides to do at its border, so questions of whether there will be ‘friction’ or not are for rUK. But it would be madness for rUK to implement a ‘hard’ border and it won’t happen.
What about trade friction?
First of all, the bulk of the trade between Scotland and England will not be affected because nearly half of it is either electricity or things like English homeowners paying mortgages to Scottish-registered banks.
That leaves not much more than half of the total, but a lot of that is ‘internal supply chains’ of things like supermarkets which are unlikely to be affected either. Which leaves actual trade between Scottish and rUK businesses.
Common Weal proposes that a Scottish currency should initially be pegged (kept at the same exchange rate) to Sterling. For that period there will be no transaction costs for businesses.
Scotland will then be free to ‘float’ its currency (remove the tie to the value of Sterling) any time it wants. This would result in very small transaction costs for businesses who want to convert between currencies.
However, this obviously already happens inside the EU (there are many different currencies) and the usual pattern is that businesses which trade across currencies simply maintain a bank account in either currency – so do not face any transaction costs.
The regulatory friction at the border (different rules about quality, health and safety and so on) is outside Scotland’s control. Scotland’s regulation will remain aligned with the EU; if rUK decides it wants to start importing chlorinated chicken Scotland’s citizens should be glad of enough friction at the border to keep it out our country.
How can Scotland build up a foreign currency reserve?
This is covered in some detail in a Common Weal’s policy paper and it involves a number of steps, each simple in themselves but reliant on a central bank with money-issuing powers.
First, we take our share of the UK’s currency reserves. Then we issue currency swaps with the UK (we need to hold Sterling, they need to hold Scottish ‘pounds’ so we print them and swap them). Then we keep hold of the Sterling currently circulating in Scotland (that is still of value so as Scotland prints its new money, it can simply keep the old).
This all leaves a gap of up to £10bn (Common Weal assumed a large reserve to enable pegging; if we didn’t peg it could be much smaller). That would be financed by issuing bonds from the central bank. The annual net cost of servicing that debt will be about £70 million – but Scotland is currently contributing £500 million every year to build up the UK’s reserves post-bank crisis.
So Scotland can quickly and easily build up its currency reserves and save £400 million every year – if it has a full central bank with money-issuing powers.
The Growth Commission is austerity, isn’t it?
Yes. The Growth Commission places a double-lock on public spending growth, limiting it to either the increase in tax receipts or one per cent less than GDP growth, whichever is lower. It’s explicit purpose is to shrink the public sector as a proportion of Scotland’s over all economy.
This formula can be applied to the George Osborne period which everyone accepts was a period of austerity. If you do, Scotland’s austerity under the Growth Commission would have been worse. These are verifiable facts and pro-independence Common Weal, anti-independence These Islands and the (notionally) neutral Institute for Fiscal Studies have all agree on this.
The Growth Commission was amateur-hour from the beginning, failing to understand the very most basic facts about international relations, borders and customs, monetary economics or contemporary economic debate. If Scotland is to have a chance of winning an independence referendum, the Growth Commission must be dropped in its entirety and never mentioned again.