Scottish First Minister Alex Salmond is in no position to promise that an independent Scotland would keep the British pound after separation, said Ed Balls, the Treasury spokesman for the U.K.’s Labour opposition.
Whatever currency option Scotland ended up with after a vote in favor of independence would be less advantageous than the present arrangements, with a big cost in terms of jobs, investment and living standards, Balls said in an article in the Scotsman newspaper today.
“The promise that Scotland would continue to share a currency with the remainder of the U.K. simply isn’t one the nationalists can make,” Balls said. “Sharing something requires both partners to agree.”
Independence is the cornerstone of Salmond’s ruling Scottish National Party and a referendum is being held on Sept. 18 next year. Salmond’s economic advisers, including Nobel Prize-winning economists Joseph Stiglitz and James Mirrlees, have recommended a formal sterling currency union as the best option for an independent Scotland.
The idea of Scotland informally adopting sterling without a central bank or lender of last resort if a formal currency union couldn’t be agreed was too big a risk for a complex economy like Scotland’s, said Balls, who would likely be responsible for negotiations on the currency if Labour wins the 2015 U.K. general election.
“Without the backing of the Bank of England, large financial institutions such as banks or insurance companies would not base themselves in Scotland,” Balls said. “In the real world, an independent Scotland could only use the U.K. pound if a deal could be struck with the rest of the U.K.”
The only reason Salmond advocated keeping the pound was because his preferred option of the euro seemed too unstable and unpopular to put at the heart of the referendum debate, Balls said. Yet the nationalists were proposing a currency union modelled on the euro, he said.
The very things that would make a currency union work, including a truly integrated single market, common financial regulation and the ability to share tax revenues to even out economic imbalances, were what the nationalists wanted to dismantle, Balls said.
It was highly unlikely that the rest of the U.K. would agree to a formal currency union, U.K. Chancellor George Osborne said in April, citing the tumult in the 17-nation euro region during the debt crisis.