Winners - and losers

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Remember how, not so very long ago, the gamblers and speculators did their very best to wreck the Euro in their greedy attempts to turn a few pennies?  We were told often and bluntly at the time that we should count our lucky stars that we hadn’t joined the Euro project, and that it had been doomed to fail from the start.

Since the referendum on June 23^rd, those same gamblers and speculators have seen a new chance to turn a few pennies by betting against the pound, and the result has been to drive the value of sterling down.  Strangely, those same people who told us when this happened to the Euro that this showed what a disaster the Euro-zone was now seem to be telling us how wonderful this is for the sterling zone. 

Of course, the situation is not identical, but there is one clear point of similarity, and that is that the movements in currency aren’t being driven (despite what the news reports regularly say) by ‘investors’ making their wisest guesses as to what the future holds, but by gamblers and speculators who allow their computers to trade autonomously in pursuit of very narrow margins by repeatedly buying and selling the same things.  It’s a complete distortion of what ‘markets’ are supposed to be about, namely fixing the price at a level acceptable to both those who want to buy a product and those who want to sell it.  It’s gambling, pure and simple – and like all gambles, there are losers as well as winners. 

And, just as with the problems of the Euro-zone, there’s no need to guess who the losers are.

Would a Plan B really help?

Tweet The brief extracts of the Salmond-Darling debate on Scottish independence which were aired on the UK news concentrated heavily on the question of the currency to be used in an independent Scotland.  The ‘Better Together’ campaign has clearly decided that the ‘uncertainty’ over currency is a weak point for the ‘yes’ campaign, and are plugging the issue for all it’s worth.  It’s a less than entirely honest position, not least because much of the claimed uncertainty has been created by the three unionist parties attempting to exclude the issue from any post-referendum negotiations, even though they all know full well that negotiation there will have to be in the event of a yes vote.

When it comes to uncertainty, it isn’t just currency of course; there are many details of the implications of independence which will remain unclear at the time of the vote on 18^th September (and although the implications of continued union are actually no clearer over the medium to long term, humans psychologically attach greater uncertainty to an obvious and visible change).  That is both completely clear and entirely inevitable, and the only alternative to a lack of clarity would be to have conducted the detailed negotiations before holding a vote – a commitment of effort which the UK Government would never have been prepared to make without knowing whether the Scots actually wanted to be independent.

Without sorting out such detail in advance, the vote on 18^th September could only ever have been about the principle rather than the details, although the efforts to which the Scottish Government has gone to try and set out the implications as clearly as it can in the face of intransigence from the other side is commendable.  The ‘no’ side are more responsible for any lack of clarity that the ‘yes’ side, who’ve done their best to set out their aspirations – the ‘no’ campaign has spent more time rubbishing that than on setting out any vision for a changed union.  But a decision in principle has been the normal way by which countries gain their independence, so it’s not exactly a unique situation.

On the specifics of the currency, there can really be little argument with Salmond’s position that if Scotland wants to go on using the £, then the RUK Government couldn’t actually stop them.  As Salmond said: “There is literally nothing anyone can do to stop an independent Scotland using sterling, which is an internationally tradable currency”.  Just as some countries use the dollar, or the euro, without formal currency union, so countries can, if they choose, use the pound sterling.

Whether doing so without a formal agreement on a currency union is a good idea or not is another matter entirely; there are upsides and downsides to so doing, as there are with all the options facing Scotland.  But as a simple statement of fact, Salmond is unquestionably right to say that Scotland can keep the £ if it wishes.  The only question which causes uncertainty is the terms under which it continues to do so; and the biggest problem in relation to that is the intransigence of people like Darling, who knows as well as anyone else that the ultimate outcome will be a negotiated agreement of some sort.

Whether Salmond is wise to continue to reject any suggestion of a Plan B is another question.  Being right in fact isn’t always the same as being right in terms of a political campaign, and I can well understand the call by Jim Sillars last week to start talking about Plan B, a Scottish pound pegged to the value of sterling, probably as the precursor to Euro entry.  (The fear of talking about the Euro is understandable, but the currency continues to expand.  A fortnight ago, the final terms for Lithuanian entry on 1^st January 2015 were agreed – the subject isn’t a no-go zone for discussion everywhere.)  No doubt a change of tactic at this stage would be portrayed as flip-flopping – it’s a bit of a no-win situation for Salmond.  The real question is whether Scots will see through the unionist bluster on the subject.

Saving the £?

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Tom Bodden’s report on the SNP’s drive for independence refers to one aspect of the SNP’s proposals which I hadn’t previously realised.  An independent Scotland, he says, “would retain the pound as its currency and any decision to join the Euro would be taken in a referendum”.  That surprises me somewhat.

I can understand the political imperative behind it.  It makes the independence option look a little ‘safer’.  And I’ve heard many nationalists in Wales arguing that an independent Wales should retain the pound as well.  But it’s the economic rationale that I don’t understand.

As a part of a unitary state called the UK, with its own currency called the pound, Wales and Scotland send MPs to the Parliament in London, where they have as much (or as little) influence over monetary policy as any other MPs.  As direct members of the European Union and part of the Eurozone, Wales and Scotland would have as much (or, again, as little) influence on monetary policy for that zone as any other states of comparable size.

But to be part of a currency union with another country whilst having completely separate governing arrangements would mean having no influence whatsoever over monetary policy, and being completely at the mercy of decisions taken elsewhere.  I don’t understand why anyone would want to go from ‘not having very much influence’ to ‘having no influence at all’ over one of the main levers of policy affecting their economy.

I sympathise with the desire by some to see an independent Wales (or Scotland) adopting a currency of its own.  It makes a certain sense from a nationalist perspective, and puts the maximum level of power over monetary policy into the hands of the Welsh Government.  But it also seems to me to be attempting to swim against the tide of history.  For all its troubles, I’m still convinced that european currency union is here to stay, and that membership of that union is the least worst option for a newly independent state.

I’d rank an independent currency as the second option though.  But being an independent country and sticking with the pound looks to me like the worst of all worlds option.

The £ in your pocket?

Tweet Inevitably, a number of politicians have seized on the news that the pound has hit a new low against the Euro, largely as a result of the Chancellor's extremely gloomy assessment of the economic prospects. A government which attempted to build its whole reputation on the basis of sound economic management can hardly complain if its opponents make political hay when things go wrong.

Fluctuating exchange rates may seem a bit academic to most of us – except when it comes to buying our holiday money – but they can cause real problems for all of us. A low pound makes it easier to sell our exports, but increases the cost of our imports – which will make the fuel price crisis even more acute as winter approaches. Fluctuating exchange rates can also give massive opportunities to the speculators in the money markets to bet against one currency or another – often making the crisis worse than it needs to be.

Whilst any business involved in importing or exporting has its own view of what the exchange rate should be, most business people that I talk to want stability even more. Instability makes it hard to plan and invest for the future.

The arguments against joining the Euro were always at two levels – the economic and the political. When we last discussed this inside Plaid, it was the economics which we were debating mostly. There was clearly a belief that the Euro would succeed, and a feeling that we should be part of it; but there was also a fear that the exchange rate at the time would be relatively unfavourable to us. So, with the pound at a new low, is it time to reconsider the question?

Entering the Euro at or around current exchange rates would be a lot better for what's left of Welsh industry than it would have been at the higher level which pertained at the time that the Euro was created. And for as long as I can remember, the European interest rate regime would have been better for Wales than the regime under which we have been living, with interest rates set in London, often as a reaction to overheating in the housing market in the SE of England. For businesses trading across Europe, joining the Euro-zone would provide the benefit of stability against which they could plan their investment and strategy.

I've always felt that the real reason for the UK's reluctance over the Euro was more to do with a Little Englander mentality than with the economics. For the separatists of UKIP, 'keeping the pound' is axiomatic, but many LabourTory politicians are also afraid to support 'scrapping the pound' - either because of a fear of losing ground to the separatists, or else because, deep down, they harbour some pretty separatist views themselves.

Plaid doesn't suffer from those hang-ups. Being a full part of the European project is an essential part of our vision for Wales. To me, the damage to the government's economic reputation looks like a good opportunity to set aside blinkered British nationalism and start a sensible debate about the economic advantages of joining the Euro.