Friday, 15 November 2013

GEORGE KEREVAN ON THE POUND STERLING

Much has been made of Alistair Darling's warnings that we cannot take for granted the Bank of England (they forgot that it covered other unimportant countries when they named it) allowing us to use "their" currency after independence. 

Apparently Ed Balls has gone so far as to say that (in the unlikely event of him being the chancellor during the negotiations) he will not allow sterling to be used in Scotland.

"You'll have to join the Euro", they say, putting the fear of hell into people who haven't kept abreast of the Euro crisis. 

Of course, when push comes to shove, they will change their mind about this, even Ed Balls. Recently the new, apparently heavyweight (and I'm not talking girth) Alistair Carmichael showed off his lack of economic nous in his first major speech since taking over as Secretary of State "for" (or "against" given his take on shipbuilding) Scotland from Mr Moore.

Here is an economist's take on his pronouncements from ex-Labour councillor and Scotsman journalist, George Kerevan.



Mr Carmichael has just given his first major speech on constitutional matters. Readers will remember that he got his new post when the former incumbent, Michael Moore, was summarily fired after being bested in a televised debate by the SNP’s Nicola Sturgeon.

That debate also hinged on economics. Ms Sturgeon waved a negative campaign leaflet published by the No campaign that claimed an independent Scotland would lose it’s triple-A global credit rating – meaning higher interest rates. She reminded a flummoxed Mr Moore that the UK has now lost its triple-A credit rating, as a result of economic policies pursued by the Cabinet in which Mr Moore sat. Game, set and match to Ms Sturgeon.

Enter Alistair Carmichael, who considers himself an Alpha male, politically speaking. Mr Carmichael’s task is not actually to run the Scotland Office (despite a ministerial salary of some £79,000 on top of his MP’s remuneration) but to engage in robust public debate over independence.

This week, in his first big constitutional intervention, Mr Carmichael demanded the SNP Government “stop dodging key questions” and outline its Plan B for a separate currency should the rest of the UK (rUK) not agree to the SNP’s plan to keep the pound post independence.

Here is the answer Mr Carmichael: Scotland will keep sterling anyway, just as Ireland did when it became independent in 1922. We already use sterling, prices and contracts are denominated in sterling, so why mend what isn’t broke? In practical terms, if for some reason the rUK objected, all they could do would be deny Scotland access to newly printed sterling notes from the Bank of England. Even then, sterling notes are available everywhere in the globe. Besides, the Scottish central bank could just print its own new pound notes. Provided it held adequate financial reserves to back them, they would trade one-to-one with Bank of England notes.

But as Alistair Carmichael has decided to enter the economic debate, I have a question for him: what is his government’s Plan B for sterling if independent Scotland did create a separate currency of its own? After all, Mr Carmichael, if (as you argue) a sterling currency union is unworkable, then it’s only fair you tell voters how the rUK Government will handle their side of the situation. As you say yourself: “We cannot be offered a prospectus of ‘it will be all right on the night’.”

Here is the nub of Mr Carmichael’s problem: the present United Kingdom relies heavily on Scottish exports of oil, gas and whisky to generate foreign currency earnings. Even then, the present UK runs a massive current account deficit – importing more than it exports, and borrowing internationally to cover the difference. In fact, this deficit is actually getting worse.

If Scotland retains sterling after independence, its foreign trade earnings will flow into the common pot (as they do at present) helping reduce the current account deficit. But the moment Scotland shifts to a separate currency that changes. Instantly Scotland will start to run a trade surplus, boosting its currency and raising its international credit worthiness. That, all things being equal, will bring interest rates in Scotland down. But just the reverse happens in rUK.

The EU Commission forecasts that the present UK trade deficit will hit 4.4 per cent of GDP next year – the highest of any major industrial country. Take away the circa £50 billion annual export earnings from Scottish oil, gas and whisky and you will near double the trade deficit of rUK. It would climb from 4.4 per cent of GDP to a staggering 10 per cent. That is unsustainable and the financial markets would punish rUK piteously. The rUK’s international credit rating would plunge, sending interest rate upwards, depressing economic growth.

Which is why, after a Yes vote next September, the rUK Treasury (and Alistair Carmichael) will suddenly find advantages in retaining a sterling link with Scotland. Of course, as a quid pro quo Scotland should demand representation on the Bank of England. After all, we don’t want a profligate rUK Labour government running up a Greek-style public sector deficit that it can’t pay back. Another question arises: Why is the present UK suffering a worsening trade deficit? Didn't the coalition, in whose cabinet Mr Carmichael sits, promise to “rebalance” the economy towards exporting?

One reason is the massive contraction in Britain’s industrial base during Gordon Brown’s tenure as chancellor, when he did everything he could to promote those banking wizards in the City of London. This mistake was compounded by the massive economic contraction that followed the 2008 credit crunch. The upshot is that there is not a lot of manufacturing capacity with which to do any exporting. Result: any increase in consumer demand will only boost imports. And that is exactly what is happening today.
 
The Secretary of State and some bloke
Last year, with recovery thwarted by his own daft austerity programme, Chancellor George Osborne cranked up the property market by pumping cash into subsidising house purchases. That has led to a mini boom in property prices and boosted consumer confidence – we all feel richer if the value of our home goes up. Consumer confidence leads to retail therapy. Unfortunately, what we buy in the shops comes from abroad.

The trade deficit and housing boom will end in higher interest rates and dearer mortgages – as the Bank of England warned this week. Stick with the UK next September and that’s what you’re voting for. Personally, I’d like Scotland to stop wasting its export surplus on a perennially mismanaged UK economy. I’d rather use our foreign currency earnings – £50 billion per annum soon adds up – to create a Chinese-style sovereign wealth fund run from Edinburgh.

Yes Mr Carmichael, some day booming Scotland will have its own currency. And the rUK’s B Plan is?

49 comments:

  1. That is one cuddly teddy! Could even give Munguin a run for his money!

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    1. Munguin says that that is utter rubbish and no one, certainly not a bear, would ever give him a run for his money. (Minguin, being a media mogul, is inordinately rich, a bit like old Murdoch.)

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    2. I don't often agree with you Dean but yes it is a cute teddy.

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    3. now, now Munguin, less of the jealousy. The teddy is cute. Not as cute as you, but cute nonetheless.

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    4. I'm afraid Munguin's a bit "Mirror mirror on the wall; who's the cutest of them all?"

      Dean is in serious bother!!!

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  2. Here's a novel idea.
    Why don't we use the currency we were using pre Union?
    The Pound sounds like a good name for our currency.

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  3. If Scotland becomes independent, we'd probably have to commit to joining the eurozone. While this isn't something I oppose, it is a fact that the SNP are being deliberately obfuscating on this.

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    1. Mince as usual Dean look up the EU rules and its a pity you didn't get involved in politics at Uni!

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    2. Forgot link below.

      Euro, Pound Sterling or Scottish Pound?

      In order to adopt the euro a country needs its currency to be committed to the Exchange Rate Mechanism (ERM) for two years. Scotland doesn’t have a currency to commit to the ERM, and as Scotland plans to keep the pound, we therefore cannot adopt the euro, even if we wanted to, and so certainly can’t be forced to either.

      Alistair Darling has said we would have to reapply to the EU from outside, and that means being forced into the euro – however that is inaccurate and even David Cameron can’t help but say he was wrong.

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    3. Yes. And only when the economic situation is right for joining, would a Scottish Pound or Crown, or Skirl or whatever, be able to be traded in for the Euro.

      In truth it is unlikely that that would ever happen (eg Sweden is still using its Kroner after many years in teh EU).

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  4. Dean. For your own sake, look up the facts before posting.
    This uneducated Dundonian that left school at 16, would find your recent posts insulting if they were from a 5 year old.
    I thought you were well educated?
    I'm getting a minter for you!

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    1. LOL...

      Well, you don;t sound that uneducated to me Jutie...

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    2. Dean, I suspect that if the Euro were to be forced on us, Mr Kerevan might have mentioned it.

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    3. Juteman, what exactlyl is a 'minter'!? I hope it's not what I think it is (snigger).

      braco

      P.S. Just to clarify, my only objection would be because of his politics?

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    4. A 'minter' is Dundonian for a red face. I think the west coast calls it a 'riddie'? :-)

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  5. Even if we wanted to adopt the Euro, we couldn't.
    You have to be a member of the ERM for two years before you can use the Euro as your currency.
    New members (which we won't be) must promise to join the Euro. That is compulsory. Promising to adopt the Euro is compulsory. Joining the ERM isn't!
    That is how some Scandinavian countries have managed to be members for years without adopting the Euro.
    It is a pragmatic organisation.

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    1. It certainly is Juteman.

      The EU was somehow able to allow in the entire population of the former GDR in 1990 (16 million people, along with their completely crocked economy and infra structure) without the requirement to ask any of the other member states, by say, putting it to a vote on internal enlargement for instance.

      They did not even require the Germanies (either one) to hold a 'legally binding referendum' to ensure they were following the democratic will of the affected population, who were to become EU citizens by reunifying with a member state. (Sounds like the reverse of re emerging as a Nation state, doesn't it?)

      Seems pragmatism is certainly their watchword, and the necessary legal requirements always seem to follow right behind the most pragmatic political solution.

      Now, what do you think they would feel about losing an energy rich, wealthy, northern European, net contributing country whose 5 million population have already been EU citizens for 40 years and whose legal system and trade mechanisms have been integrated into EU law for just as long, given an 18 month negotiating period? Add into that the re emergent nature of it's historic Nationhood and I don't think the answer is difficult is it?

      That's right.
      Well done everyone!

      I am so sick of this shit, day in day out!
      braco

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    2. But they have nothing else to crow about unless they start on torture, concentration camps, how slavery made Britain, exterminating a complete race of people which even Hitler couldn'achieve etc etc.

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    3. Bang on Braco.

      The EU is expansionist. It started with 6 members and has now 28. As you say, and I had completely forgotten about, it absorbed East Germany, a completely moribund state, without anyone voting on it. Germany had always promised that when communism failed it would take other Germans back into its fold.

      When Greenland (Kalaallit Nunaat) got home rule it decided that there was little point in it being member of the EU and withdrew (perfectly rightly as it is really in North America, has very little agriculture and would have lost badly on fishing rights. Again none of us was asked to vote on this,. It was the decision of the government taken in Nuuk, not in Brussels.

      The only country that has not been accepted in the EU despite years of trying is Turkey, possibly because it is really an Asian state,

      This has been scaremongering from Better Together, which is odd because BT is largely funded by the Tories, many of whom with to take the Uk out of the EU, and may manage yet to do that.

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  6. Sorry but you've misunderstood what I was meaning (my fault, with hindsight I wasn't as clear as I'd have liked)

    I was meaning if we do become independent, we may have to commit to joining the Euro if we need to renegotiate (likely) or even reapply to join (less likely) the eurozone.

    I was speculating that the SNP are keeping very quiet on this aspect.

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    1. I think no one denies that there will have to be negotiations about Scotland membership. I don’t think anyone, either the SNP or the Greens or indeed Allan Grogan's Labour group have tried to hide that.

      But as an expansionist organisation the EU is not likely to say no.

      Who might object?

      rUK, but, it might not be in the EU by that time. Also it would be seen as churlish to try to exclude Scotland. It would be sour grapes. They have everything to lose if they are still members themselves.

      Spain? Well Spain has never indicated this to the best of my knowledge.

      Scotland’s laws meet EU standards and its citizens are already EU members holding passport and driving licences (and probably other documents) issued in the name of Brussels, not London. I just can’t imagine where, except in the minds of rabid Better Together officials, anyone could find a reason not to accept a rich northern European country. They have been trying to get Norway for forever.

      As for joining the currency, as we have said, you have to match the requirements, which means being in the ERM (the thing Britain fell out of when major’s government lost the plot).

      I think that people like Darling and Carmichael use these as scare tactics. It works with people who haven’t studied it, or thought it through but still have to vote. Oh we will be like Greece.

      It’s a bit like the pensions thing. Scotland won’t be able to pay the pensions they say!

      My response is… Will Britain be able to pay the pensions?

      The answer to that is probably only by creating even more money that doesn’t exist.

      But it works marvellously as a scare story to OAPs on the doorstep Think of our pension. Scotland's too wee to be able to pay it.

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  7. There was no mention of the Gestapo in your original post Dean, so surely you can see where the misunderstanding occurred?

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  8. Jutman Nazi pig

    If Scotland becomes independent(nazi led nation ), we'd probably(snp gestapo ) have to commit to joining the eurozone.(SS) While this isn't something I oppose,(concentration camps ) it is a fact that the SNP are (the fecking Nazi scum ) being deliberately obfuscating on this.

    Oh I dunno Juteman you are obviously not reading it with our unionist eyes

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  9. Nationalist scum


    just love this story

    http://www.theguardian.com/uk-news/2013/nov/15/armed-taxi-driver-london-kill-david-cameron-irfaq-naz

    Heavily armed taxi driver was on his way to kill David Cameron, court hears
    Irfaq Naz was stopped in London with a 950,000-volt stun gun, a Samurai sword and masking tape in his Vauxhall Astra

    He drove his blue Vauxhall Astra the wrong way down Camden High Street, a one-way street, for three-quarters of a mile, causing oncoming traffic to take evasive action.

    "It was then that the defendant stated that he was on his way to kill the prime minister, David Cameron," Nick Dry, prosecuting, said.

    "He was found to have a knuckleduster in his shirt pocket and an 18-inch hunting knife in the waistband of his trousers."

    "A search of his vehicle revealed other weapons. "In the driver's door panel were three eight-inch kitchen knives. "Between the driver's seat and door was a samurai sword, its sheath found nearby in the passenger footwell.

    "From the rear seat officers recovered a claw hammer, a lump hammer and an axe which were in a plastic bag that also contained masking tape.

    "In the boot they found a machete and a stun gun, shaped as a knuckleduster.

    Police were concerned about his behaviour

    yeah well i spose they may have a point

    The judge felt his delusions, which included a desire to kill a world leader, posed a serious risk to the public

    cant see that after trying to eliminate Cameron isnt all bad
    I mean Cameron is doing his best to eliminate the disabled
    and psychologically impaired.

    whats good for the goose etc

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    1. If he was trying to kill a world leader wasn't he in the wrong city, Niko?

      Washington, Beijing, Moscow, Berlin, even Brazilia, but London... to kill that idiot who hangs off Obama's coat tails.

      pfffff

      No one would notice. They would just have another public schoolboy, Oxford, nob.

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  10. Your malady is worsening niko.
    Does it involve copious spittle and a rictus snarl?
    Seriously, you require help.

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    1. David my new best friend

      My therapist tell me my personality disorder is incurable
      but then thats unionism for you

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    2. No Niko. In an independent Scotland there will be hope for people with your malady.

      Saor Alba.

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  11. One every 8 hours Niko.
    Seriously, stick with the plan your doctor gave you.

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    1. Juteman

      and what about sleep ?????

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    2. Did you mean digitalis?

      Isn't that poison?

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    3. You chaps are so random! This could be a sitcom, 'A problem like Niko' featuring the same sex partners Tris & Munguin taking in a mentally unbalanced but generally unpredictable Niko...

      I'm tellin you, Fox laps this sh~t up...

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    4. Munguin says that it is hard enough being a cross between a penguin and a monkey without being in a same sex relationship... but adding trying to sort out Niko's mental instability is pushing it too far...

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    5. I suppose if he wore a pair of fox gloves and a monks hood should slow him down a bit.

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    6. Ho ho...

      On the other hand Switzerland is nice this time of the year...

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  12. Replies
    1. By rather a big majority too...

      Well done guys...

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  13. Replies
    1. Dear mr Goodwin,

      We are happy to inform you that you have won an all expenses paid trip to Vietnam.

      Yours sincerely

      Munguin.

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  14. Brilliant. As he always is. Respect, Mr Hamilton.

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  15. Replies
    1. That's the mice left home...

      And the snakes and spiders.

      Lord even the slugs have packed up and left the garden since they saw that horrific image.

      Thanks for the nightmares.

      PS... anyone seen Anas?

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