BM Research

I wish to propose a thought experiment. Imagine that another country – for argument’s sake we’ll call this country Belgium – proposed a currency union with the UK. Now say that UK is such a big fan of Belgian chocolate that it would like to consider this prospect seriously. As an UK voter what would I expect my elected representatives to suggest to make this acceptable to me?

Well, I’d expect them to propose some safeguards. Economically Belgium is much smaller than the UK, but not insignificant. I’d be worried that in the future they could do something irresponsible that could affect the currency, and hence me, badly. For example, Belgium could print lots of currency, have a large bank that may need bailed out (Dexia anyone?) or run up lots of debt. So I’d expect my government to insist on some conditions. I’d want them set fiscal and monetary controls on Belgium. I might think that Belgian banks should come under UK regulation. I would probably want that in the event of significant problems that any decisions that affect the currency, and my well-being, would be taken by my government and not that of Belgium.

Now consider a Belgian voter. Would they like this? Probably not – in essence a lot of control over their country’s economy has been given to another one. And one that in times of crisis will probably look after its own peoples’ interests ahead of mine. So this is probably a deal-breaker.

But Belgium does have an alternative. It could propose that some sort of joint government is created with the aim of looking after both countries equally. For this to work both countries would be committing to a path of ever increasing economic integration and to work to create a single indentity (Sterlingland?) to which all parties would be equally committed. Without that there will always be the danger of the politically larger group (the UK) looking after their own interests ahead of the Belgian minority.

Could you imagine either country accepting this? No way! So at this point we conclude that the UK government should forestall those difficulties and just say no.

Scotland

Most readers will have realised long before now that I’m not really talking about Belgium, but about Scotland. Considered this way is it really surprising that the Treasury advice is that a currency union of the residual UK with an independent Scotland is not really on? Or that the UK political parties agree with that advice? To my mind it is so obvious that the only surprise is that it was SNP policy at all.