Alex Salmond addresses a Business for Scotland event on February 17, 2014 in Aberdeen. Photograph: Getty Images.
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Salmond's plan to use the pound without permission would be dangerous for Scotland

Scotland would be left with no central bank, no lender of last resort and no control over its interest rates, and would breach EU membership conditions.

Ever since the Westminster parties united to rule out forming a currency union with an independent Scotland, Alex Salmond has faced demands to reveal his "plan B". Would Scotland form its own currency? Would it seek to join the euro? Or would it use the pound without permission? (As Panama and Ecuador use the dollar). In his interview on the Today programme this morning, Salmond gave the clearest hint yet that he would pursue the latter course. "Of course the pound is an internationally tradable currency," he said. "It's not a question of keeping the pound, it's a question of whether there would be agreed a currency union." 

It's easy to see why Salmond is attracted to this idea. After the events of recent years, the euro, to put it mildly, lost its former appeal it, while the creation of a new currency, with an unknown exchange rate, would create unavoidable instability. But the option of using the pound without the approval of the approval of the rest of the UK (known as "sterlingisation")  is far from a safe alternative. It would leave Scotland with no central bank, no lender of last resort (who would have bailed out RBS and HBOS?) and no control of its interest rates (which would be set by a foreign country: the rump UK). For these reasons, the Scottish administration's own Fiscal Commission warned that sterlingisation, "though an option in the short-term", "is not likely to be a long-term solution". It said: "International evidence suggests that informal monetary unions tend to be adopted by transition economies or small territories with a special relationship with a larger trading partner (e.g. between the UK and Jersey, Guernsey and the Isle of Man). Advanced economies of a significant scale tend not to operate such a monetary framework. Though an option in the short-term, it is not likely to be a long-term solution." Awkwardly for Salmond, for instance, a functioning central bank is a precondition of EU membership. 

Here's Alistair Darling's response to the interview: 

It’s quite clear that a currency union is off the table. Alex Salmond needs to tell us what will replace the Pound. Adopting the Panama Plan, which is rejected by his own Fiscal Commission, would leave Scotland with no financial back-up and no central bank to stand behind its banking system.

On top of that, the Panama Plan would mean Scotland’s interest rates would be set by what would then be a foreign country. Worse than that, a separate Scotland would have to make substantial cuts in public spending. The Panama Plan would cost jobs and put up the cost of mortgages.

The idea that an advanced economy like Scotland's would follow the lead of Panama or the Isle of Man is simply not credible.

The currency we use isn't just about the pound in our pocket. It keeps down costs for our mortgages, credit card bills and car loans. Leaving the UK means losing the strength and security of the Pound, which would result in higher costs for Scottish families. Why would we want to take that risk?

But worse for Salmond, Paul Krugman, exactly the kind of economist revered by social democratic Scots (and an agonistic about independence), has derided the idea on his New York Times blog. He wrote: 

It’s true, as pointed out here, that England, I mean the rump UK, I mean continuing Britain, whatever, can’t prevent the Scots from using the pound, just as the United States can’t stop Ecuador from using dollars. But the lesson of the euro crisis, surely, is that sharing a common currency without having a shared federal government is very dangerous.

In fact, Scotland-on-the-pound would be in even worse shape than the euro countries, because the Bank of England would be under no obligation to act as lender of last resort to Scottish banks — that is, it would arguably take even less responsibility for local financial stability than the pre-Draghi ECB. And it would fall very far short of the post-Draghi ECB, which has in effect taken on the role of lender of last resort to eurozone governments, too.

Add to this the lack of fiscal integration. The question isn’t whether Scotland would on average pay more or less in taxes if independent; probably a bit less, depending on how you handle the oil revenues. Instead, the question is what would happen if something goes wrong, if there’s a slump in Scotland’s economy. As part of the United Kingdom, Scotland would receive large de facto aid, just like a U.S. state (or Wales); if it were on its own, it would be on its own, like Portugal.

Now, Scotland would presumably have high labor mobility — assuming it manages somehow to join the EU (although that too would be surprisingly tricky) it would be under the Single European Act, and it sort of shares a common language with England (even if you sometimes wish there were subtitles). But that’s not necessarily a good thing: what we’re seeing in places like Portugal is large-scale emigration of young workers, leaving a diminished population to bear the fiscal burden of caring for the elderly.

Again, I can understand Scots grievances. But if they really want to do this, they had better get real about money.

Salmond's hope is that the spectacle of English Tories vetoing a currency union, and of Labour siding with them, will redound to his political benefit (although the most recent polls continue to give the No campaign a comfortable lead). But his policy credibility is being shredded. 

George Eaton is political editor of the New Statesman.

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Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.