The leader of the Scottish National Party (SNP), Alex Salmond, has promoted panic in international markets with the assertion that an independent Scotland would not repay its debt should a formal currency union with the United Kingdom fail.
Despite Mr Salmond recently claiming “it’s our pound, and we’re keeping it”, the SNP leader has been under pressure to provide information on an independent Scotland’s currency should a formal agreement with the UK fail.
The leader of the Better Together campaign, Alastair Darling, voiced back in January that a currency union with an independent Scotland seemed “increasingly dead in the water”:
“It appears that the First Minister needs a basic lesson in economics. The UK Pound is a monetary system underwritten entirely by the UK Government. It’s not an asset to be shared like the CD collection after a divorce.
“Keeping the Pound would need a political agreement between what would then be two foreign governments to have a veto on each other’s tax rates, spending plans and borrowing levels. But it is an idea that is increasingly dead in the water. We need to know what Alex Salmond’s Plan B is – will we set up our own currency or will we adopt the Euro?”
In open letters to readers of The Sun, Mr Salmond recently ended the speculation of what a ‘Plan B’ might look like by declaring that such a plan did not exist.
“Plan B implies settling for what’s second best. And neither myself, my colleagues in the SNP, or the wider Yes campaign will ever settle for second best for Scotland.”
The currency question is not one which will go away for Mr Salmond, as it remains a weakness in his proposals for an independent Scotland. However, the SNP leader’s tactics have turned more aggressive in recent days through his commitment of defaulting on Scotland’s debt should he win September’s independence referendum without gaining a formal currency union.
“If Westminster tells us we can’t get a fair share of the Bank of England, a public asset which Scots have helped pay for, then we cannot be expected to pick up a share of the UK’s £1.3trillion debt.”
This tactic places Mr Salmond’s campaign on unfavourable ground: Should Scotland vote Yes at the polls in September – despite knowing that there would be no formal currency union – and default its debt repayments, investors may be very reluctant to consider Scotland as a market for their investments; moreover, should all of the above take place, and Scotland needs to create its own currency from scratch – a time consuming and expensive process – would it be able to borrow in order to do so? And lastly, because Scotland would be seen as a higher risk to investors due to defaulting, future borrowing rates – should it be able to negotiate them – would be far higher than what Scotland currently enjoys as a part of the UK, making life more expensive for its citizens.
It’s not an ideal situation for any new country to find itself in, but I suspect that this announcement is more of a cavalier remark rather than actual policy because Mr Salmond finds himself stuck between a rock and a hard place, and as the referendum looms in the not too distant future, he is running out of options.