This thread’s recent humour is an nice antidote to AS absurd desperation. It’s actually quite pathetic (in the true sense of the word) at how ill-prepared he is in such a key issue. Flip-flopping from one idea to the next is absurd as it the notion of sterlingisation, he even has Krugman attacking him, so that is quite a diverse group of people who are pointing out the folly on which the BoD and yS plans are currently based. That is quite an achievement to unite such a diverse bunch of opponents to his plans.
It’s true, as pointed out here, that England, I mean the rump UK, I mean continuing Britain, whatever, can’t prevent the Scots from using the pound, just as the United States can’t stop Ecuador from using dollars. But the lesson of the euro crisis, surely, is that sharing a common currency without having a shared federal government is very dangerous.
In fact, Scotland-on-the-pound would be in even worse shape than the euro countries, because the Bank of England would be under no obligation to act as lender of last resort to Scottish banks — that is, it would arguably take even less responsibility for local financial stability than the pre-Draghi ECB. And it would fall very far short of the post-Draghi ECB, which has in effect taken on the role of lender of last resort to eurozone governments, too.
Add to this the lack of fiscal integration. The question isn’t whether Scotland would on average pay more or less in taxes if independent; probably a bit less, depending on how you handle the oil revenues. Instead, the question is what would happen if something goes wrong, if there’s a slump in Scotland’s economy. As part of the United Kingdom, Scotland would receive large de facto aid, just like a U.S. state (or Wales); if it were on its own, it would be on its own, like Portugal.
Now, Scotland would presumably have high labor mobility — assuming it manages somehow to join the EU (although that too would be surprisingly tricky) it would be under the Single European Act, and it sort of shares a common language with England (even if you sometimes wish there were subtitles). But that’s not necessarily a good thing: what we’re seeing in places like Portugal is large-scale emigration of young workers, leaving a diminished population to bear the fiscal burden of caring for the elderly.
Again, I can understand Scots grievances. But if they really want to do this, they had better get real about money.
Paul Krugman, NY Times yesterday