No matter the political situation, it's always the economics that triumphs in the end. Photo: Getty
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The best currency for an independent Scotland would be Norway’s kronor

If Scotland votes for independence, it will create a completely different economic context for the two new countries that emerge.

Scotland’s referendum debate has so far centred mainly on practical issues and medium-term choices like currency, new entities' share of public debt, and membership of the EU.

Far less has been said about how the different players influenced by the outcome will be affected in the longer term. It is well worth considering how independence would eventually affect the Scottish and UK economies, particularly in relation to North Sea oil. The reality is that this constitutional change could alter the macroeconomic foundations of the political map of Europe.

Aside from the UK, Norway and Denmark are the two other countries which now explore the North Sea. In 2013 the total proportions of North Sea oil produced by these three countries were 27%, 66% and 7% of the total respectively. By my estimates, Denmark’s oil sector provided around 5% of the country’s GDP, once you include petroleum production and dependent industries such as petroleum services, pipelines, refineries and so forth. For the UK it was somewhere approaching 20%, while for Norway it was 23%.

Oil and European integration

There is a strong correlation between these oil sector figures and each country’s economic and political choices. Norway stays out of both the EU and European monetary union. It has its own independent currency, whose rate of exchange is determined by the market.

At the other end of the spectrum Denmark is a member of the EU and is part of European Exchange Mechanism II (ERM II). The Danish krone’s exchange rate is tied to the euro, making it practically another form of euro. The UK is in the middle: a member of the EU but not in ERM II or the euro.

If Scotland votes for independence, it will create a completely different economic context for the two new countries that emerge. This new macroeconomic framework will work against the currently declared goals of both countries' governments.

The economy of an independent Scotland would of course be much smaller than the economy of the new UK. This means that with the same absolute oil extraction, you can estimate that the sector would contribute more than one-third of Scotland’s GDP. In the new smaller UK, on the other hand, it would only contribute something like 1% (coming from the mainly gas fields off east England).

Future choices for Scotland and the UK

This suggests that it would suit the two countries to make completely different economic and political choices. If North Sea oil dominates the Scottish economy to an even greater degree than in the case of Norway, it would suggest that it would be even less inclined towards the EU and euro than the latter country.

The logic behind this point is that oil changes the economic cycle of a country. The easiest way to think about this is to reflect on the effect of the oil price. If the oil price is high, a country that heavily relies on oil production does well and non-producers tend to do less well, because they are paying higher prices for their fuel. When oil prices are low, this reverses.

Anyone who had a passing interest in the eurozone crisis will know that the problems between the Mediterranean periphery countries and their northern neighbours were partly caused by the fact that they needed different levels of interest rates to suit their economies. An independent Scotland would suffer a similar fate, albeit for different reasons. The more that oil dominates an economy, the less well suited it is to European integration.

For the same reason, the rest of the UK would be inclined much more towards these European institutions than beforehand. The Danish experience suggests that it might lead not only to membership of ERM II but also even to adoption of the euro.

In turn, this would also lead to changes in the EU. The sheer size of the new UK would enhance the core of EU international member states, greatly increasing GDP for example. At the same time, the relative strength of socialist-inclined France would be reduced, raising the prospect of a more Atlanticist free-market approach to European unification.

On the other hand, Scotland and Norway would be naturally pushed closer to each other. They might be joined by Sweden and Iceland – Iceland and Norway share fishing interests, while Sweden and Norway’s economies are closely aligned. This could lead to much closer political co-operation between these countries, plus a kind of monetary co-ordination, if not monetary union.

Some might dismiss these arguments, pointing out that Scotland has aspirations towards the EU and that England is increasingly eurosceptic. But such people should remember the example of the UK’s brief membership in the first European Exchange Mechanism in 1990-91. The lesson was that no matter the political will, the economics will be fundamental in determining how situation evolves.

In view of these observations, it is hard not to reach several final conclusions. The Scots are not making a choice in September that is fully informed in economic terms. And the UK and EU do not seem to be fully aware of the possible long-term consequences either.

The ConversationPiotr Marek Jaworski does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

This article was originally published on The Conversation. Read the original article.

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The biggest divide in politics is not left against right, but liberals against authoritarians

My week, including a Lib Dem membership rise, The Avalanches, and why I'm putting pressure on Theresa May over child refugees.

It is a boost for us that Nick Clegg has agreed to return to the front line and be our Brexit spokesperson. I hadn’t even had a chance at our meeting to make him the offer when he said: “Before we start, I’ve been thinking about this and want to take on the fight over Europe.”

With Labour apparently willing to give the Tories a free pass to take us out of Europe, the Liberal Democrats are the only UK-wide party that will go into the next election campaigning to maintain our membership of the EU. The stage is remarkably clear for us to remind Theresa May precisely what she would be risking if we abandon free trade, free movement, environmental protection, workers’ rights and cross-border security co-operation. More than a month on from the referendum, all we have heard from the Tories is that “Brexit means Brexit” – but they have given us no clue that they understand what that means.

 

Premature obituaries

Not long ago, the received wisdom was that all political parties were dying – but lately the supposed corpses have twitched into life. True, many who have joined Labour’s ranks are so hard left that they don’t see winning elections as a primary (or even a desirable) purpose of a party, and opening up Labour to those with a very different agenda could ultimately destroy it.

Our experience has been happier: 20,000 people joined the Liberal Democrat fightback in the wake of the 2015 general election result, and 17,000 more have joined since the referendum. We now have more members than at any time this century.

 

Breaking up is hard to do

Journalists have been asking repeatedly if I want to see the break-up of the Labour Party, with moderates defecting to the Liberal Democrats. I have been clear that I am not a home-wrecker and it is for Labour to determine its own future, just as I focus on advancing the Liberal Democrat cause. Yet I have also been clear that I am happy for my party to be a home for liberals of whatever hue. I enjoyed campaigning in the referendum with a variety of progressive figures, just as moderates from different parties shared platforms in 1975. It struck me that far more unites us than divides us.

That said, not all “moderate” Labour figures could be described as “liberal”, as John Reid demonstrated as Labour home secretary. The modern political divide is less left v right than authoritarian v liberal. Both left and right are looking increasingly authoritarian and outright nasty, with fewer voices prepared to stand up for liberal values.

 

What I did on my holidays

Time off has been virtually non-existent, but I am reading A Wilderness of Mirrors by Mark Meynell (about loss of trust in politics, the media and just about everything). I’m also obsessively listening to Wildflower by the Avalanches, their second album, 16 years after their first. It’s outstanding – almost 60 minutes of intelligently crafted dialogue, samples and epic production.

During the political maelstrom, I have been thinking back to the idyllic few days I spent over half-term on the Scottish island of Colonsay: swimming in the sea with the kids (very cold but strangely exhilarating ­after a decent jog), running and walking. An added bonus is that Colonsay is the smallest island in the world to have its own brewery. I can now heartily recommend it.

 

Preparing for the next fight

The odds are weirdly long on an early general election, but I refuse to be complacent – and not merely because the bookies were so wrong about Brexit. If we have learned one truth about Theresa May as Prime Minister so far, it is that she is utterly ruthless. After her savage cabinet sackings, this is, in effect, a new government. She has refused to go to the country, even though she lectured Gordon Brown on the need to gain the endorsement of the electorate when he replaced Tony Blair. Perhaps she doesn’t care much about legitimacy, but she cares about power.

You can be sure that she will be keeping half an eye on Labour’s leadership election. With Jeremy Corbyn potentially reconfirmed as leader in September against the wishes of three-quarters of his MPs, Mrs May might conclude that she will never have a better chance to increase her narrow majority. Throw in the possibility that the economy worsens next year as Brexit starts to bite, and I rule nothing out.

So, we are already selecting candidates. It is vital that they dig in early. As we are the only party prepared to make the positive case for Europe, such an election would present us with an amazing opportunity.

 

Sitting Priti

David Cameron pledged to take an unspecified number of unaccompanied children from camps across the Continent. I am putting pressure on Theresa May to turn that vague commitment into a proper plan. Having visited such camps, I have been fighting for Britain to give sanctuary to a minimum of 3,000 unaccompanied children, who are currently open to the worst kinds of exploitation. We have heard nothing but silence from the government, with underfunded councils reporting that they are not receiving the help they need from Whitehall.

Meanwhile, it remains government policy to send refugees to Turkey – whose increasingly authoritarian government has just suspended human rights protection.

As if all of this were not grim enough, we have a new Secretary of State for International Development, Priti Patel, who has said that she thinks aid should be used largely to promote trade. As someone who wants our country to be respected around the world, I find this plain embarrassing. Actually, it’s worse. It’s shaming. As with Europe, so with the world: the ­Conservative government is hauling up the drawbridge just when we need more than ever to engage with people beyond our shores.

Tim Farron is the leader of the Liberal Democrats. To join the party, visit: libdems.org.uk/join

Tim Farron is leader of the Liberal Democrats.

This article first appeared in the 28 July 2016 issue of the New Statesman, Summer Double Issue