George Osborne delivering his speech on Scotland and the pound at the Point Hotel on February 13, 2014 in Edinburgh. Photograph: Getty Images.
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The flaw in Osborne’s pre-emptive strike against a currency union

The Chancellor may think he is a realist playing hard politics. But these are tactics the Scottish government could also successfully employ.

Recently, misleading presumptions about what international law requires and seeming indifference to the necessity of negotiations following a possible pro-independence vote in Scotland on 18 September have framed the referendum debate.  Politicians can always craft arguments around faulty presumptions and then make a dire outcome sound eminently plausible.  But the fate of Scotland cannot be so easily disposed of by George Osborne.

The Chancellor’s 13 February speech in Edinburgh, in which he rejected any currency union between Scotland and the remainder of the United Kingdom (rUK) in the event that Scotland’s voters approve independence, was partly based on the presumption that the rUK would be the “continuator” state of the existing United Kingdom.  This means that the United Kingdom would continue as essentially the country it currently is (shorn of Scottish territory), oblivious to any equitable claims by Scotland and dictating that Scotland start from scratch, or with a “clean slate”, to establish a resurrected independent nation. 

The alternative to the antiquated continuator argument would be to view both Scotland and the rUK as two co-equal successor states (even though the rUK is obviously the larger of the two) whose fates are tied to an amicably negotiated transition from one nation to two nations following a “yes” vote on the referendum. International law recognises that possibility of a negotiated outcome, one that can be easily embraced by both Holyrood and Westminster if their mutual intent is to facilitate a smooth transition, rather than one seeking to sabotage it.

By laying down the gauntlet of rejecting any currency union with Scotland even before any referendum vote has taken place, and promising to “punish” the Scottish people if they vote for independence, Osborne overlooked an inconvenient truth.  His entire argument rests on the presumption that no workable currency union is plausibly negotiable between Scotland and the rUK in the aftermath of a vote for independence. He simply assumes nothing can or would be negotiated in terms of the character or functioning of a currency union that would work to the benefit of both the rUK and Scotland. 

Yet there will be negotiations following a pro-independence vote. Otherwise, the rUK would have far too much to lose on other fronts that also require negotiations, talks London will be keen to take up but which the Scottish government, if it follows Osborne’s punitive example, could refuse to negotiate about at all.  Scotland need not negotiate sharing the UK debt and could simply let Westminster shoulder the entire estimated UK debt of £1.6trn in 2016/17. That is certainly the logic of the rUK being a continuator state.  Nothing in international law requires Scotland to pay one sterling pound of UK debt if the rUK is deemed the continuator state.  Nonetheless, the Scottish government has already  offered to accept the liability of an estimated £100-£130bn as an independent Scotland’s share of the overall UK debt, but only as the end point of post-referendum negotiations. 

Dire warnings that Scotland’s credibility in the markets would somehow nosedive if this transfer of debt were to happen overlook two simple facts. First, the UK Treasury already has agreed to cover all UK gilts in the event of independence, a point Osborne made in his speech.  So there is no default on the horizon to panic investors. Second, Scotland would start afresh as a debt-free nation with the apparent agreement, indeed blessing, of the rUK.  Perhaps Westminster really has decided to absorb completely the UK debt and thus not negotiate, but rUK taxpayers may wonder about the wisdom of such folly, particularly by a Conservative government.  Creditors and investors might view the Scottish position – one of willing to pay, in good faith, its fair share of the UK debt but reluctantly avoiding that financial burden if London insists on being a continuator state and rejecting negotiations – as a sign of financial strength and political acume,  rather than weakness or naivety in Edinburgh. 

If Osborne’s pre-emptive rejection of a currency union stands, Scotland could sit back in the aftermath of a pro-independence vote and watch the rUK potentially lose a permanent seat on the UN Security Council, impose extremely onerous conditions on removal of the entire British nuclear submarine fleet from Faslane by Independence Day, force the rUK into a much more difficult relationship with the European Union that may accelerate British withdrawal, and, perhaps most importantly, refuse to negotiate a reasonable division of UK assets in a manner that would hurt the rUK more than Scotland.

None of this silly face-off has to happen. The logical outcome of a pro-independence vote is negotiations to facilitate a smooth transition with the goal of advancing the best interests of the citizens of each nation. Indeed that is exactly what was indicated in Clause 30 of the Edinburgh Agreement signed in October 2012 and which is internationally admired as a model of consensual deal-making. 

Instead, Osborne launched a pre-emptive strike to kill post-referendum negotiations.  He may think he is a realist playing hard politics to bring Scotland to heel, but these are tactics the Scottish government could also successfully employ but smartly has rejected - at least for now.

David Scheffer is a law professor and director of the Center for International Human Rights at Northwestern University School of Law in Chicago.

Photo: Getty Images
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Cameron needs to decide what he thinks about Russia

David Cameron's words suggest one thing, his actions quite another.

David Cameron needs to decide whether he takes Russia seriously.

He certainly talks a good game, calling Vladimir Putin to account for crimes against Ukrainian sovereignty and for supporting the wrong side in Syria, claiming credit for bolstering the post-Crimea sanctions regime, and demanding that Moscow’s behaviour change. And the new Strategic Defence & Security Review, published last week, puts Russia front and centre among the threats Britain faces.

The problem is, his government’s foreign policy seems calculated to make no one happier than Putin himself.

At fault is not a failure of analysis. It has taken Whitehall 19 months since Moscow annexed Crimea to develop a new Russia policy, replacing the old aspirations of “strategic partnership based on common values”, but the conviction that Russia be treated as a significant threat to the U.K.’s security and prosperity is solid.

Five years ago, when the coalition government published the last Strategic Defence & Security Review, Russia was mentioned once, in the context of rising global powers with whom London could partner to help solve planetary problems, from nuclear proliferation to climate change. The new SDSR tells a very different story. Russia gets 28 mentions this time around, characterised as a “state threat” that “may feel tempted to act aggressively against NATO allies.” Russia’s annexation of Crimea and instigation of a separatist civil war in eastern Ukraine are mentioned in the same sentence with Assad’s chemical weapons attacks on Syrian civilians and the rise of the Islamic State as key examples of how the world is becoming a more dangerous place.

How that threat will be countered, however, is not a question Whitehall can answer: it is a question for Westminster, and it gets to the heart of where this government sees its place in the world, and in Europe in particular. What Whitehall cannot say – but what the politicians must recognise – is this: the best bulwark against the Kremlin is a strengthened European Union, with more integrated markets and the force to push a concerted foreign policy in the Eastern Neighbourhood. And that recognition requires Cameron to decide whether Putin poses a greater challenge than Nigel Farage.

The SDSR is right to note that the danger of a military confrontation with Russia is remote. Just in case, the Government has committed to bolstering aerial defences, contributing to NATO’s rapid reaction capabilities and maintaining the sanctions regime until a full settlement is reached that restores Ukrainian sovereignty. These are all reasonable measures, which will go some distance to ensuring that Moscow understands the risks of further escalation in the near term. But they do nothing to address the longer term problem.

From a hard-security perspective, Russia is a nuisance. The real danger is in the threat Moscow poses to what the SDSR calls the “rules-based order” – that system of institutions, agreements and understandings that underpin stability and prosperity on the European continent. That order is about more than respecting national borders, important as that is. It is also about accepting that markets are impartially regulated, that monopolies are disallowed and political and economic power reside in institutions, rather than in individuals. It is, in other words, about accepting rules that are almost the polar opposite of the system that Russia has built over the past 25 years, an order based on rents, clientelism and protected competitive positions.

Russia, after all, went to war over a trade treaty. It invaded Ukraine and annexed part of its territory to prevent the full implementation of a Deep and Comprehensive Free Trade Agreement that was designed to make Ukraine function more like Europe and less like Russia. From Moscow’s point of view, the European project is a very real geopolitical threat, one that promises to reduce the territory in which Russia can compete and, eventually, to increase the pressure on Russia itself to change. In somewhat less pernicious ways Moscow is seeking similarly to derail Moldova’s and Georgia’s European integration, while working hard to keep Belarus and Armenia from straying.

This is not a problem of vision or diplomacy, a failure to convince Putin of the value of the European way of doing things. For Putin and those on whose behalf he governs, the European way of doing things carries negative value. And unless the basic structure of politics and economics in Russia shifts, that calculation won’t change when Putin himself leaves the Kremlin. For the foreseeable future, Russia’s rulers will be willing to go to extraordinary lengths to prevent the widening of Europe, at the cost of instability and dysfunction in the region.

European willingness is another question. A chorus of euro=sceptics both left and right have demanded that Europe stop provoking the Russian bear, leaving the Eastern Neighbourhood countries to fend for themselves – sacrificing Kiev’s sovereignty to Moscow in order to bolster their own sovereignty from Brussels. Cracks, too, are emerging in the centre of the political spectrum: as French President Francois Hollande pledged to work with Moscow to fight ISIS in Syria, Prime Minister Manuel Valls declared that such an alliance would necessitate the lifting of sanctions on Russia, thus trading stability in Syria for instability in Ukraine.

As a member of the EU, London has a role to play. Together with Berlin, London could exert pressure on Paris and keep the margins of the political spectrum marginal. London could through its weight behind a common energy market, forcing Gazprom to play by EU competition rules. London could bolster anti-corruption systems and ensure that ill-gotten gains have no safe haven in Europe. London could insist on the legitimacy of the European project from one end of the continent to the other.

Instead, London is threatening Brexit, relinquishing any leverage over its European allies, and seeking EU reforms that would eviscerate the common energy market, common financial regulation, the common foreign and security policy and other key tools in the relationship with Russia.

In their February 2015 report on EU-Russian relations, the House of Lords raised the question of “whether Europe can be secure and prosperous if Russia continues to be governed as it is today.” To be sure, Europe can’t change Russia’s government and shouldn’t try. But by insisting on its own rules – both in how it governs its internal markets and in how it pursues its foreign policy – Europe can change the incentives Russia’s government faces.

The question, then, to Cameron is this: Whose rules would Westminster rather see prevail in the Eastern Neighbourhood, Europe’s or Russia’s?

Samuel A. Greene is Director of the King’s Russia Institute, King’s College London.