Scottish Independence – What If..

I was listening to some Scottish people debate whether Scotland should become an independent nation. It struck me that the politicians in the debate mostly tried to reduce the argument into one of whether Scotland would be economically better off or worse off as an independent nation. The people who are not politicians were not buying into what the politicians were selling. Good for them.

 

I cannot see that the present proposals for an independent Scotland would make Scotland genuinely independent. I do not think a nation can be truly independent unless it controls its whole economic policy. The proposals for independence would enable Scotland to control most of its economic policy, but would tie Scotland to the most important and effective economic policy of the rest of the United Kingdom because Scotland would still use as its sole currency the pounds sterling.

 

For decades now monetary policy by control of interest rates has been the most effective lever of economic policy of governments everywhere. We have seen that the key problem with the euro is that different nations cannot set interest rates at levels that suit them; what suits Germany does not usually suit Greece. With interest rates in Scotland being set in London, as opposed to being set in Edinburgh, an independent Scotland would be dependent upon the rest of the United Kingdom for this major way in which governments can control, or attempts to control, the economy. Continue reading