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.

Photo: Getty
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Like it or hate it, it doesn't matter: Brexit is happening, and we've got to make a success of it

It's time to stop complaining and start campaigning, says Stella Creasy.

A shortage of Marmite, arguments over exporting jam and angry Belgians. And that’s just this month.  As the Canadian trade deal stalls, and the government decides which cottage industry its will pick next as saviour for the nation, the British people are still no clearer getting an answer to what Brexit actually means. And they are also no clearer as to how they can have a say in how that question is answered.

To date there have been three stages to Brexit. The first was ideological: an ever-rising euroscepticism, rooted in a feeling that the costs the compromises working with others require were not comparable to the benefits. It oozed out, almost unnoticed, from its dormant home deep in the Labour left and the Tory right, stoked by Ukip to devastating effect.

The second stage was the campaign of that referendum itself: a focus on immigration over-riding a wider debate about free trade, and underpinned by the tempting and vague claim that, in an unstable, unfair world, control could be taken back. With any deal dependent on the agreement of twenty eight other countries, it has already proved a hollow victory.

For the last few months, these consequences of these two stages have dominated discussion, generating heat, but not light about what happens next. Neither has anything helped to bring back together those who feel their lives are increasingly at the mercy of a political and economic elite and those who fear Britain is retreating from being a world leader to a back water.

Little wonder the analogy most commonly and easily reached for by commentators has been that of a divorce. They speculate our coming separation from our EU partners is going to be messy, combative and rancorous. Trash talk from some - including those in charge of negotiating -  further feeds this perception. That’s why it is time for all sides to push onto Brexit part three: the practical stage. How and when is it actually going to happen?

A more constructive framework to use than marriage is one of a changing business, rather than a changing relationship. Whatever the solid economic benefits of EU membership, the British people decided the social and democratic costs had become too great. So now we must adapt.

Brexit should be as much about innovating in what we make and create as it is about seeking to renew our trading deals with the world. New products must be sought alongside new markets. This doesn’t have to mean cutting corners or cutting jobs, but it does mean being prepared to learn new skills and invest in helping those in industries that are struggling to make this leap to move on. The UK has an incredible and varied set of services and products to offer the world, but will need to focus on what we do well and uniquely here to thrive. This is easier said than done, but can also offer hope. Specialising and skilling up also means we can resist those who want us to jettison hard-won environmental and social protections as an alternative. 

Most accept such a transition will take time. But what is contested is that it will require openness. However, handing the public a done deal - however well mediated - will do little to address the division within our country. Ensuring the best deal in a way that can garner the public support it needs to work requires strong feedback channels. That is why transparency about the government's plans for Brexit is so important. Of course, a balance needs to be struck with the need to protect negotiating positions, but scrutiny by parliament- and by extension the public- will be vital. With so many differing factors at stake and choices to be made, MPs have to be able and willing to bring their constituents into the discussion not just about what Brexit actually entails, but also what kind of country Britain will be during and after the result - and their role in making it happen. 

Those who want to claim the engagement of parliament and the public undermines the referendum result are still in stages one and two of this debate, looking for someone to blame for past injustices, not building a better future for all. Our Marmite may be safe for the moment, but Brexit can’t remain a love it or hate it phenomenon. It’s time for everyone to get practical.