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.

Matt Forde
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Matt Forde: “Jeremy Corbyn and Theresa May are indistinguishable on Brexit”

The Dave host and former Labour adviser on why comedy is so much better than politics.

Matt Forde gave up his Labour Party membership after Jeremy Corbyn’s first leadership victory, according to Wikipedia, because he is a “committed Blairite”. Presented with that information two years later, the host of Dave’s satirical chat show Unspun, and former Labour adviser, says the description isn’t entirely accurate. “I left politics because I wanted to concentrate on my comedy career full-time. I’d always done both; I did my first gig when I was 16 and carried on doing them during my early activism. I guess when I was working for MPs and Labour, I didn’t have as much time and I wasn’t sure if it was appropriate. I also felt that the direction Labour was going in wasn’t for me. I don’t write my own Wikipedia page, in any case.” 

Forde’s admiration for Tony Blair, though, radiates off him. The ex-Prime Minister appeared as a guest on Unspun last year. Pressed on Blair’s legacy, Forde insists that it encompasses “far more than people care to admit” beyond the Iraq War. “I think a lot of people on the hard left would equate Blairism to Iraq and I really struggle with that," he says. "Millions of people voted for New Labour and millions of people still reflect on that period of politics in a positive way.

"Social justice was still at the core of New Labour. It was about tackling inequality and using the state to do that. But it was also about being pro-business, pro-Europe and having a pragmatic view of the world.” That Labour won three general elections on Blair’s watch, Forde suggests, is considered by some factions of the party to be an inconvenient truth.

The Nottingham-born comic believes Labour’s broad church represents a double-edged sword. On the one hand, the party’s lurch to the left has resulted in its biggest increase in the share of the vote by a party leader since Clement Attlee in 1945; on the other, the success is only relative, as it still hasn’t been enough to get back into government. For all the talk of renewed unity under Corbyn’s bright banner of socialism, Forde says there remains a distinct disunity regarding the party’s position on Brexit. “The thing is, on Brexit, Jeremy Corbyn and Theresa May are pretty much indistinguishable from each other," he says. "They will allow it to happen and deny us access to the single market. Brexit is the single biggest threat to our economy and society and I don’t feel like the scale of that issue is being reflected by the two major parties. It feels like those of us who do care about it and can see what a car crash it’s going to be are stood screaming behind a piece of soundproof glass.”

In fairness, the idea of a Labour split along European faultlines is not one that started with Corbyn. Aside from not being in government, what makes the current Labour squabbling different? Forde smirks. “I know there’s a view that Blair sort of hijacked Labour and rubbed a lot of noses in the dirt. The difference between that era and this one is that people like Corbyn and John McDonnell were actually allowed to rebel. They weren’t threatened with deselection for having a different opinion. The leadership and culture of the party at that time understood the broad church. At the end of the day, it was better to have a hard left MP in Islington than to deselect him and not have one at all. The idea that some Corbyn supporters would rather that a Blairite MP lost their seat is baffling.”

The Labour MP Chuka Umunna recently tabled an amendment on the Queen’s Speech calling for the UK to stay in the single market post-Brexit. Some shadow ministers decided to join him in defying the whip. Was Umunna right to table the amendment? “Yes, I think so,” says Forde. “We don’t have plurality right now. We’re too binary in Labour. There’s an idea that you’re either with us or against us. That’s not just immature, but deeply disrespectful to some very valuable assets in the party.” 

Arguing against Corbyn in the context of Europe does seem a bit of a moot point – “it shouldn’t” Forde objects – but it does. Whatever Corbyn’s perceived failings on Brexit are, he has mobilised a formidable youth wing and campaigned with immeasurably more verve than the current Prime Minister. Forde nods. “The Maybot did herself no favours, sure. He’s a natural campaigner and he deserves credit for that. Look, Corbyn is a nice guy. He’s affable; you can talk football with him. But as for the culture around him, that isn’t always the case.” 

Is Corbynism a cult? Forde sighs. “The problem with investing so emotionally in an individual is that all of your politics end up being processed through them. You suspend critical thought. You think that if this person represents what you believe, then they can never do anything wrong.” 

Corbyn, though, won’t be Labour leader forever. “Tell that to his supporters,” jokes Forde. What happens post-Corbynism? Who should be in the frame to take over? “I guess that depends on whether he does actually become  Prime Minister, which to be fair is a distinct possibility now. If he does, you might see the party want to stick with that far-left tract, but then what happens to the rest of us? You’ve already seen Paul Mason [the journalist and Corbyn supporter] telling centrists that if they want a pro-European centrist party then they should leave Labour. That’s horrendous.” 

Forde’s frustration with the Brexit imbroglio is forthright. It’s something that clearly troubles him and overarches his comedy. So, would he ever go back into politics himself? “I doubt it. Comedy is so much better. Politics is exhausting and for a lot of the time a thankless task that ages people at a rate that no other industry does.” At 68, incidentally, Jeremy Corbyn is entitled to retire. 

Matt Forde performs A Show Hastily Rewritten In Light Of Recent Events - Again! at Pleasance Forth at the Edinburgh Festival Fringe from 2-27 August.

 

Rohan Banerjee is a Special Projects Writer at the New Statesman. He co-hosts the No Country For Brown Men podcast.