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‘Other options’ without pound pact

The chair of an expert group that advises Alex Salmond’s Government has said it is “entirely possible” that Westminster politicians would stick by their pledge not to agree a currency union with an independent Scotland.

Crawford Beveridge, chair of the Fiscal Commission Working Group, insisted the Scottish Government’s preference for a formal currency union remained the best option.

But he said he was “not that worried” about currency because there were other viable options if “politics trumps economics”.

A currency union has been ruled out by the three main parties at Westminster, with Chancellor George Osborne joined by Labour shadow chancellor Ed Balls and Liberal Democrat Chief Secretary to the Treasury Danny Alexander in stating they would not sign up to it.

Pro-Union campaigners have been increasing pressure on the nationalists to set out a ”plan B” for currency.

Mr Beveridge said: “We’ve got several viable options out there just in case the politics trumps the economics.

“It is entirely possible that we would get through the Yes and because so many people have done so much around the statements they made in advance they would say, despite the fact this is going to be bad for England, ‘We’re not going to do it’.

“It is always possible, but we can say there are many other viable options and that’s why I say I’m not that worried about currency, because every country has one and we’re going to have one too.”

Mr Beveridge also said that it was possible that Scotland could renege on its debt after independence.

He said: “One would expect that if we were to bear a proportional burden of historic liabilities then we would reasonably expect a reasonable share of the assets.

“If we were unable to get that agreement it is likely to lead to a lower debt share, perhaps even a zero debt share, than we initially set out.

“However while a low debt share may appear to be attractive, it would not be in the interests of the UK. Hence that is why a reasonable, sensible engagement to share assets and liabilities is likely, despite the posturing we see now.”

He said that the Fiscal Commission considered sterlingisation – keeping the pound without the backing of the Bank of England – was an option to “help manage a transition and as a mechanism which might help us open up other options over the long-term”.

Mr Beveridge argued that the risks of a currency union had been “seriously overstated” by critics.

He concluded: “We remain of the view that a well-designed monetary union would be in the clear economic interests of Scotland and the UK immediately post-independence.

“The advantages to Scotland would be an agreed and accepted monetary framework whilst securing a wider range of economic and fiscal policy levers than at present.

“The advantages to the rest of the UK would be support of the single market with its estimated second biggest export market. This is in addition to the other well understood advantages of a monetary union such as reducing transaction costs and exchange-rate risk, encouraging trade, competition and economic efficiency.”

Of other currency options Mr Beveridge said it was “nowhere near the right time” to consider the euro, but said a freely-floating Scottish currency could be established, although this would not generate the same benefits to trade and investment as a monetary union.

In a question and answer session following his lecture at Glasgow Caledonian University, he was asked how long he envisioned any transitional period of sterlingisation would last.

He said: “If you look at various places where this has happened, it’s been transitional sometimes for as little as six months to a year, three or four years.

“It’s been transitional in Ireland for more than 50 years.
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You can’t tell. It’s a transition that you take, which could last for a short period or a long period so that people can make the best decision about what the right currency for them would be.”

Asked about the negative consequences of an independent Scotland reneging on its debt, he said: “Obviously it has to be managed very carefully. Many people will call it a default.

“Technically economists will tell you it’s not, because since you’ve never owned the debt in the first place you’re not defaulting on it, but they’re not rating agencies.”

Commenting on the lecture, Mr Salmond said: “I welcome the Fiscal Commission’s confirmation today that a currency union remains the best option for both Scotland and the rest of the UK.

“Indeed, the proposals they have put forward have been greatly enhanced and strengthened by recent developments, and while the Fiscal Commission demonstrate that other viable options are available for Scotland, keeping our pound as part of a formal currency union is the clear and best way forward.”

But Mr Beveridge’s c omments were seized on by pro-Union campaigners, who described the lecture as a ” disaster “.

Labour’s Douglas Alexander said: “Today was supposed to be the start of Alex Salmond’s fight back on Plan B.

“Instead his chief currency adviser has publicly accepted that a currency union is not in the gift of Alex Salmond.

“The First Minister’s chief currency adviser also admitted that an independent Scotland might end up using a foreign currency for only six months. Scots deserve to know what happens after that. Is it the euro or a separate currency? We need to know Plan B.”

Scottish Liberal Democrat leader Willie Rennie said: ” It is nothing short of a disaster for Alex Salmond that his own adviser has said sterlingisation could be a transition currency for anything from six months to 50 years.

“With further significant admissions that debt could be seen as a default by the international markets and an acceptance that a formal currency union might not happen, Alex Salmond must answer whether he stands by his adviser on all counts.”

Jack Perry, a former chief executive of Scottish Enterprise, said: “It is deeply worrying for business and families in Scotland that so near to the referendum vote there is still no certainty about what currency Scotland would use.

“If the Scottish government’s Plan B is ‘sterlingisation’, as has been hinted at, the people of Scotland should be told what it means for public spending, interest rates and so rents, mortgages and the cost of living.”

Speaking after the event, Mr Beveridge said: “I was delighted to make a speech this evening at Glasgow Caledonian University on behalf of the Fiscal Commission Working Group which offered a clear analysis of the reasons why a currency union will happen.

“I’ve always been of the view that while anything is possible, in reality economics will overcome what I’ve described as political posturing and that what the Westminster political parties say now is entirely different to what they say the day after a Yes vote.

“I’m certain that should the people of Scotland vote for independence the highly charged political atmosphere will subside and common sense will lead to a common currency.

“My fellow colleagues and I on the Fiscal Commission Working Group have been privileged to prepare a substantial body of work for consideration by the Scottish Government.

“This work consists of a number of policy options that we believe are not just in the interests of Scotland but in the interests of the rest of the United Kingdom as well.

“Perhaps the most important conclusion of all is that everybody now accepts that Scotland can be a successful independent country.”

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