February 17, 2014
Excluding the Scots from sterling would be juvenilePosted in Economic History · 22 comments ·
My earliest memories of Castle Street, Dalkey, were Saturday mornings in Dom McClure’s barbershop with my father. Dom cut my Grandad’s hair, my Dad’s hair and now he was shearing mine.
As usual when I peeked into the shop on a Saturday morning, Dom put on his best Scottish accent – which he called ”Scotch – gently mocking my grandfather who came from Scotland to Dalkey in the 1920s. According to Dom, both my grandparents had ”shocking Scotch accents.
My grandparents must’ve been the only people to emigrate to Ireland in the 1920s, when it seemed that half the nation was leaving. After independence being a Scottish ”mixed marriage might also have brought its own difficulties, but if it did, it was never talked about.
Growing up, my Dad always told me that I was half-Scottish and the Scottish dissenter gene was something to be proud of. I think he was getting at the endemic sleeveenism that he saw all around him, even if he never made that too explicit.
As a boy, this bond with Scotland was made flesh in the form of Ally’s Army in the 1978 World Cup. Scotland’s side was the dream-team, with Dalglish, Buchan, Gemmill, Robertson, Jordan, McQueen, Souness and the like. They were going to win the World Cup – until they crashed against the giants of Peru and then Iran.
Our family is originally from miles up in the Outer Hebrides – a wild place called North Uist. Today, I have relations in Scotland who wear both the blue of Rangers and the green of Celtic – which isn’t that typical in a country where sectarianism is still extraordinarily virulent.
The first thing that has perplexed me in the debate on Scottish independence is not economic but cultural. It shows how this vote is more complex than we appreciate at first blush.
There are 800,000 Catholics in Scotland. This is a big bloc. Traditionally they have been Labour voters, but as Irish people in Scotland have ascended the social ladder in the past two or three generations, this Catholic equals Labour equation is no longer as firm as it used to be. But the question is: why are many anti-royalist, Celtic fans voting ”unionist in the referendum?
The reason is that they feel, rightly or wrongly, that an independent Scotland would be an Orange Scotland. They would be a small Catholic minority in a Scottish population of five million Protestants. This had never struck me until I spoke with a bunch of Catholic ”Weegies – as Glaswegians are known in Scotland. They admitted that they saw London as an honest broker in the Scottish context and their fear, somewhere deep down, was that they would end up living in a big Northern Ireland. As someone who also has Northern Irish family, on the Rangers side, it is not hard to imagine how the average Scottish Catholic might fear an independent Scotland, even if the chance of this happening was more alive in the nightmarish memory of their grandparents than the reality of modern Scotland.
So you can see how complex the independence debate is.
There is also no contradiction in an independent Scotland retaining a monetary union with sterling. The best model for this is Ireland. We severed our ties with London in 1922 but kept the monetary union with sterling till 1979. I never know why the Scottish nationalists don’t bring this up when they are squirming, as they were doing last week, in arguments about the currency for a new independent Scotland.
Despite George Osborne’s bully-boy tactics of last Friday, when he said the Scots couldn’t be in the sterling zone, every sensible person knows that it is in the interests of both Scotland and England (and indeed Wales) to have Scotland in the currency union with sterling. Osborne is just playing politics and, frankly, I don’t know what part of Scotland he doesn’t understand. The notion of a plummy Sasanach coming up to Scotland to threaten them is exactly why Scots feel the need to be independent – it’s enough to bring the Renton, Begbie and Spud from Trainspotting out in all of us.
In economic theory, countries should be in currency unions with the country that (a) they trade most with and (b) with whom they have labour movement.
These two conditions mean the economic cycles of the countries in the union will not be out of kilter, causing massive problems such as the problem Ireland faced 2000-2008 where the interest rates in EMU were too low for us, triggering a massive credit boom, ending in disaster.
These two conditions are satisfied between Scotland and the rest of Britain, so much so that a currency union with anyone else would be stupid. Trade between Scotland and the rest of Britain was worth nearly £110 billion a year, with British companies also making £47 billion a year from their bases in Scotland. When you take oil exports out, £47 billion of a total £73.6 billion goes to the rest of Britain and almost half of its oil and gas exports were to the rest of Britain.
Scotland’s exports of oil and gas to the rest of Britain and international markets were worth an estimated £30 billion in 2012. There is little doubt that this can be a functioning independent country.
However, my only doubt is that when a nationalist movement gets bogged down in an argument about economics, balance sheets and pounds, shillings and pence, it has already lost.
National movements tend to get swept to power on a sense of injustice, hurt and ethnicity rather than a rate of interest, profit and accountancy. I could be wrong and how fitting would it be if the Scottish nationalists win because they won the argument on prudence and money? If it ends up being the case, it will have been a very Scottish coup indeed.
David McWilliams writes daily on international economics and finance at www.globalmacro360.com