[Closed] Osbourne says no to currency union.

Anyway, have we done this yet?

http://www.theguardian.com/commentisfree/video/2014/aug/27/spoken-words-luke-wright-video

Brilliant 😉

@ben excellent !

We let that chap Brown have a go, auch no

If you ever make the split, you'll fail as we'll see to it

sadmadalan - Member

The bill that set up the Independence vote, came with the statement that NEITHER side would enter into any pre-negations discussions.

It's a technical default

Definition of technical default:

A deficiency in a loan agreement that arises not from a failure to make payments as promised, but from a failure to uphold some other aspect of the loan terms. Technical default indicates that the borrower may be in financial trouble, and can trigger an increase in a loan's interest rate, foreclosure or other negative events.

Is there a different definition of "technical default" or are you just making shit up?

 

@wanman - there will be many definitions of a technical default. A default is when you don't pay. A technical default is typically when you have breached some other obligation or financial test but as you haven't [b]yet[/b] missed a payment.

A technical default is typically when you have breached some other obligation or financial test but as you haven't yet missed a payment.

What would that other obligation or financial test be in this case, given that the treasury has said that it is liable for all the UK debt?

"Just making shit up" obviously.

It has been explained numerous times on this thread. Even yS have made an attempt at explaining this and did a good job. It cannot be an actual default because there is not actual debt to default on. Hence failing to pay Scotland's share is best explained as a technical default. In the eyes of capital markets, the impact is the same. An iS would be extremely foolhardy to even threaten non payment. Financial markets need to be warmed up for all the future borrowing not pissed off from the start. The DO is not doing a good job at creating credibility. No wonder he doesn't actually want to be independent after all.

It has been explained numerous times on this thread.

No - you have mentioned a technical default several times on this thread and presented no evidence to back it up.

http://singletrackworld.com/forum/search.php?q=%22technical+default%22

So can you now explain in detail how Scotland would be technically defaulting on a debt that it is technically not liable for?

What would that other obligation or financial test be in this case, given that the treasury has said that it is liable for all the UK debt?

Since the Scottish government hasn't been borrowing money from anyone, I don't think it can be in any kind of default on loans it hasn't taken out, technical or otherwise.

But annoying its largest trading partner and closest neighbour from the get-go does seem a bit self-defeating.

For the advocates of sterlingisation, the Scottish Government summed it up like his

7.26 As an aside, there is the option for Scotland to adopt Sterling through an informal process of 'sterlingisation'. While this option would retain some of the benefits of a formal monetary union there would also be some additional drawbacks. In this instance, the Scottish Government would have no input into governance of the monetary framework and only limited ability to provide liquidity to the financial sector - this would depend on the resources and reserves of the country. The amount of currency available would depend almost entirely on the strength of the Scottish Balance of Payments position.

7.27 [b]The two clear options for Scotland are therefore to seek to join a formal monetary union with Sterling or the Euro[/b].

From the horses mouth. Funny that they also ruled sterlingisation out from the start. Where are the 3Bs Alex, or where they the original ones? So full of **** it's unbelievable.

And from the same source

8.63 Upon independence, the Scottish Government is expected to inherit a share of UK public sector debt. In 2015-16, UK public sector debt is forecast to peak at 80% of GDP, equivalent to almost £1.5 trillion - the highest since the 1960s.

Box 8.05 of their document is about how it all works and where you see how they propose to do it. I am surprised supporters don't don't read their own stuff. They know that a default is not an option. That is folly in the extreme.

So can you now explain in detail how Scotland would be technically defaulting on a debt that it is technically not liable for?

I'm assuming that you didn't see this question the first time and have just missed it. I in no way think that you're avoiding answering the question because doing so would be impossible without making yourself out to be a liar.

[img] [/img]

There is the figure which explains the options for currency to which THM is referring above - just because his text has lost some of the context of the document.

And here are the paragraphs that follow his last point:

8.65 The proportion of this debt which would be taken on by Scotland post-independence would be subject to negotiation. The Scottish Government should seek to negotiate a fair and equitable share of UK public sector liabilities and assets. One would expect that if Scotland was to bear a proportional burden of historic liabilities that it would receive a corresponding share of both tangible and non-tangible assets.

8.66 There are complex legal issues surrounding existing UK Government debt, particularly around the definition of 'successor state' and the transfer of debt between borrowers without obtaining the approval of the creditors.

Allocation of national debt

8.67 There are no agreed international rules on the division of assets and liabilities in the context of state succession or independence and there is also a lack of clear precedent or consensus. In practice the position on sharing the national debt is likely to be governed by political rather than legal considerations. Any final agreement would form part of wider negotiations on the division of assets and liabilities of the UK State.

8.68 As an illustrative example, if Scotland assumed a population share of UK public sector net debt in 2017-18, it would be estimated to be worth £126 billion, which would be equivalent to 72% of Scottish GDP. This would be slightly lower than the equivalent UK figure of 77%.

Box 8.05: Transferring Debt to Scotland Post-independence

Post-independence, there are, in theory, a number of hypothetical options for managing and servicing Scotland's national debt.

Three options, based upon the assumption of Scotland inheriting a share of debt, include -

Transfer of a proportion of UK gilts to the Scottish Government immediately post-independence;
Transition mechanism in which the Scottish Government pays an agreed share of debt interest on outstanding debt until maturity then repays the principal (with any new debt issued separately by the Scottish Government); and,
Transition mechanism as above followed by issue of Sterling Bonds (i.e. jointly issued by both governments).
The first option would allow for an immediate division of debt and avoid lengthy transition arrangements. However, this may require a change of legal entity in existing contracts or the issue of new Scottish gilts to replace pre-existing UK gilts. There are complex questions surrounding the legality of transferring debt between borrowers without obtaining the approval of the creditors.

The second option would mean that the Scottish Government would gradually assume its own debt through refinancing the agreed share of the original UK debt stock. There would be a corresponding reduction in transfers to the UK for interest payments as the gilts 'rolled-over' onto Scotland's books. In theory, the initial legacy debt servicing payments could be arranged through a bi-lateral arrangement (e.g. a loan) between the Scottish and UK governments.

A final option would be a similar transition mechanism in which the Scottish Government pays a share of coupon payments on outstanding legacy debt to the UK. When the gilts mature, they could be refinanced by new Sterling-bonds [123] which would be jointly issued and guaranteed by the UK and Scottish Governments.

Just looking to keep the context as I see THM likes to do the wee free minister's trick of quoting single lines from a huge document to attempt to make them appear to say something completely different to their intended meaning by removing the context.

Instead of just trying to look silly, just go and read it up. (Edit for cross post, glad to see you have started to do this now)

It's a "technical" default precisely because there will be no [b]actual [/b] debt to default on in practice - although they do suggest that in the Box I mentioned. But you cannot simply split existing debt - that would constitute a real default.

So you have a form of financial compensation instead. The technical default refers to the failing to make the compensation payments. Hence it's technical not actual.

Read your sides stuff. It's explains it simply enough. Notice which currency option is missing from the diagram. Oddly enough Alex's current favourite. Hmmmm....

You mean box 8.05? which has this in it:

Three options, based upon the assumption of Scotland inheriting a share of debt, include -

Pretty big assumption to make. So, assuming that Scotland doesn't inherit a share of the UK's debt due to not getting any of the assets, there is no financial compensation as per the box up there, so there is no default actual, technical or otherwise. If we take the other point where Scotland does take on some of the liability, and it's agreed so not a technical default, and paid so not an actual default - where is the default coming from?

I'm trying to see how anyone can technically default on a debt that you say doesn't exist. Can you explain it to me please in lay terms. You are after all an expert, and experts are good at explaining things simply.

I think I'm just being especially stupid today, but I don't see how there could be any kind of default if Scotland just walked away from its share of the debt.

The Scottish government hasn't taken out the debt, the UK has.

(Of course it would be morally reprehensible and would leave a very bitter taste in the mouths of the rUK).

So, please can someone explain where this default would come from. Which creditors would be affected?

In practice the position on sharing the national debt is likely to be governed by political rather than legal considerations. Any final agreement would form part of wider negotiations on the division of assets and liabilities of the UK State.

That's the biggy in how it will all pan out.

For a Currency Union to work, the BoE would be controlling both Monetary and Fiscal policy for Scotland. Thats not really independence is it?

Same thing for joining the Euro and we all know how thats working for the smaller countries of the union.

The only way to be independent is to have your own currency and that will be full of risk and uncertainty. AS may want to play devils advocate on if we cant have the pound, we're not going to take the debt, but hes not really in a strong bargaining position vs rUK.

For a Currency Union to work, the BoE would be controlling both Monetary and Fiscal policy for Scotland. Thats not really independence is it?

That's a shite argument and probably incorrect.

A couple of definitions:

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.

Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.

Which creditors would be affected?

All Governments need to borrow money (even if you're running at a surplus) to cover short term shortages in cash flow.

Need to pay this weeks pension payments, but havent collected the tax receipts yet, you'll have to borrow the money from the financial markets.

I'd be very surprised if Alex Salmond has not already discussed the "default" position with potentail sources of finance. He's a man who is expert at getting all his ducks in a row.

That he is so blase about it suggests he already knows what the answer of the big financiers will be.

Alex Salmond spent a few days working as an economist once:

In 1978 he joined the Government Economic Service as an Assistant Economist in the Department of Agriculture and Fisheries for Scotland. In 1980 he joined the Royal Bank of Scotland where he worked for seven years: first as an Assistant Economist before being appointed Oil Economist in 1982, and from 1984 combining that role with duties as a bank economist. He has also been a visiting professor of economics at Strathclyde University.

He can't possibly know anything whatsoever about economics though can he. Or indeed political and economic interactions.

 

That's a shite argument and [b]probably[/b] incorrect

If theres a Currency Union whos going to set interest rate?
The BoE, and they'll be set on a London bias, reguadless of if thats right thing for Scotland or not. That may be the same as now, but as you'll know Monetary and Fiscal policy need to be linked to simulate growth and control inflation, so the BoE will be controlling that for Scotland as well.

For a Currency Union to work, the BoE would be controlling both Monetary and Fiscal policy for Scotland. Thats not really independence is it?

Same thing for joining the Euro and we all know how thats working for the smaller countries of the union.

Ah, you're going for THM's argument that European countries aren't really independent. Which is nonsense.

Ok, in reponse to the polite edits (liar and not answering the question)

There are in fact several ways a technical default could happen. The first is the option one above ie transferring an proportion of the existing debt to a new borrower (in this case iS). The Scottish government's text acknowledges this in the bit about legality. In short, you cannot separate debt in this manner. This would be a technical default but in this case by HMT (the issuer or the debt management office). Hence the need for clarification in Feb when HMT made it very clear that it would take full responsibility for the actual outstanding debt. The idea of this being split or not be paid by iS was spooking investors at the time. Nice responsible behaviour from the First Minister.

Ok, so as you cannot physically spilt the debt you need an alternative method of allocating the liabilities. Some of the detail and methods you have quoted above. Put simply, Scotland would make financial compensation to the rUK in a manner that either mirrors the maturity of the outstanding debt or more dramatically but less likely (due to the cost) a one-off big break payment.

In practice what would happen would be a form of loan between the two parties. Now if an iS failed to make payments on this then in effect it would be defaulting on the original debt but in an indirect manner. Hence it is referred to as technically rather than actually defaulting on the outstanding current debt. In practice again (and in the eyes of the investors) it is the same thing.

But Salmond's BS aside (1) an iS would never walk away from it's financial obligations that would be economic and financial suicide and (2) in talk of assets don't forget that currency is NOT an asset. Look which side of the central bank balance sheet it is recorded on. The same as the debt. A little clue there.

And again, where is sterlingisation on the Scottish Government's nice little picture. Why is it missing? Did someone forget to brief alex properly?

I'm no economist, and I might be wrong, but surely interest rate setting is monetary policy, no?

Not denying that monetary and fiscal policy need to be linked, but there are lots of things that are linked which are independently controllable by different people.

Can you explain in simple terms why and indeed how we would need to have our monetary and fiscal policy controlled by the BofE?

Ben, watch this space. No control over their monetary policies, unelected bureaucrats placed into positions of power, fiscal constraints determined by others and in the meantime a catastrophic impact on youth employment. Which bit of not having independence do you not get.

Just watch Italy and google past week for number of references on the need to re-interdict the lira. The debt dynamics in Italy a screwed and everyone knows it. We are just delaying the inevitable.

So, THM to make this clear I'll ask you a couple of deliberately closed questions- are you saying that it would be the rUK that would be defaulting on its debt rather than Scotland?

Also, you say that currency is not an asset, that's fair enough it's a reasonable position to take and makes sense. However, would the Bank of England count as an asset?

Edit: Italy and Scotland aren't really all that similar but just to allow you to make your point clearer - can you tell me in what ways Scotland and Italy are similar and different from political and economic perspectives please?

Because current unions require integration of monetary policy AND fiscal policy. The euro doesn't work partly because the latter is missing and for the obvious reason that EU is not an optimum currency union (google that too).

The fundamental lesson of the Euro is the need to integrate fiscal policy too - but guess what, nations dodnt like doing that do they! Go and read the FT's editorial today. Towards the end, it makes this same point very clearly.

Ah, you're going for THM's argument that European countries aren't really independent. Which is nonsense.

Ah, you're going for THM's argument that European countries aren't really independent. Which is nonsense.

You might want to take a look at whats just happened within the French Government...

Because current unions require integration of monetary policy AND fiscal policy. The euro doesn't work partly because the latter is missing and for the obvious reason that EU is not an optimum currency union

Is that statement strictly true, given that you've immediately contradicted yourself and given an example to prove disprove your first sentence?

Oops I should not have mentions the first default. But tbc, there are two possible defaults. Both technical. If the debt was split and some given to rUK and some to iS then that would constitute a technical default. This is the legality stuff mentioned above - but just ignore this as it's technical and not what people are really talking about (although it is important). Legally, in this case the issue (DMO on behalf of HMT) would be defaulting.

If Scotland chose not to make the financial compensation that overcomes this type of default (sorry) then that too would constitute a default albeit another technical one. In practice it would be a default on a loan (but we are really getting into nitty gritty now) but in the eyes of the investor it's the same thing. When I have been talking about a Scottish technical default, it is this (and other slight variations) that I am referring to - not the first paragraph.

The BOE is not an asset. The things on the asset side of the balance sheet are eg, reserves etc. A currency is not an asset either. In essence it is neither but when issued it becomes a liability. But the talk of currency = assets is a deliberate smokescreen that the DO has used to good effect. Successful political rhetoric but still a blatant lie.

Can you explain in simple terms why and indeed how we would need to have our monetary and fiscal policy controlled by the BofE?

Both control the supply of money. ie. The amount of cash you have in your pocket.

If i want to boost the economy i'd reduce Interest rates to give you more money to spend on stuff (creating jobs) (Monetary), i'd reduce Taxes so you have more money to buy stuff (creating jobs)(Fiscal) and i'd spend money on Government projects (creating jobs)(Fiscal).

If the economy as growing too fast and inflation was out of control i'd do the opposite.

Thats why Monetary and Fiscal policy need to be aligned as if they were separate you really would be in a mess 😉

The BoE is always going to control Monetary policy and heavily advise the Treasury around Fiscal policy.

Ooh, do rUK get to keep RBS then? Actually, you can have it ;))

Is that statement strictly true,

Yes. If you don't believe me, read what the Governor of the BOE says in testimony. He tends to tell it straight under such circumstances.

(Appreciate the edit BTW!)

Is that statement strictly true, given that you've immediately contradicted yourself and given an example to prove disprove your first sentence?

.You might want to take a look at whats just happened within the French Government...

So in that case, was it Brussels which made the French government dissolve? No, it was forced by the people of France. That's a perfect example of independence, the people of a country telling the government what to do.

Every country in the world (with the possible exception of North Korea) gives up some manoeuvring room by signing up to treaties and conventions with other countries. That's completely normal. What makes countries independent is that they can decide to enter or leave these agreements.

If Scotland chose not to make the financial compensation that overcomes this type of default (sorry) then that too would constitute a default albeit another technical one. In practice it would be a default on a loan (but we are really getting into nitty gritty now) but in the eyes of the investor it's the same thing. When I have been talking about a Scottish technical default, it is this (and other slight variations) that I am referring to - not the first paragraph.

I'm not seeing how that can be a default: if the newly-created Scotland had never agreed to take on that debt in the first place, it's not failing to meet it's obligations.

Or is becoming independent an implicit agreement to take on the debt?

If the debt was split and some given to rUK and some to iS then that would constitute a technical default.

If Scotland chose not to make the financial compensation that overcomes this type of default (sorry) then that too would constitute a default albeit another technical one.

The BOE is not an asset.

The BoE is always going to control Monetary policy and heavily advise the Treasury around Fiscal policy.

There is a massive difference between advising and controlling. I advise my patients to do all sorts of things, but I cannot control what they do - it's a consent thing....

Ooh, do rUK get to keep RBS then? Actually, you can have it ;))

It employs most of its workforce and does most of its business in London, so it can't stay here apparently - good luck. 😉

Right - I need to go and collect my bike from the train station. I'll be back in a bit.

On (1) exactly, my point all along. It cannot actually be split. Therefore non-payment by iS has to be a technical rather than an absolute default. But you are correct, the debt cannot actually be spilt. Scotland makes a financial compensation instead. It's all there in the small print.

On (2) that is exactly what is being threatened because of (1). As you said, AS is an economist (we had the same teachers) so he knows this just as I do. But again you are correct. It will not happen. Even he is not that stupid. It is just deceit to fool yS voters and it is working a treat. But it remains a lie.

Glad the asset points are sinking in!!!!!

There is a massive difference between advising and controlling. I advise my patients to do all sorts of things, but I cannot control what they do - it's a consent thing....

Therefore non-payment by iS has to be a technical rather than an absolute default.

Why would Scotland be paying for a debt for which it is not liable? You've already said that it cannot be split - are you suggesting that Scotland takes on all UK debt? 😀 I cannot for the life of me see how Scotland could default on a debt which it is not liable for. I can however easily see how rUK could technically default on a debt if it tried to split it though. Is that the bit that you are afraid of? rUK trying to split the debt and technically defaulting because of that? Or is it more that you think Scotland might not be good for paying it's compensation?

There is one way to avoid both of those: Westminster to stop talking bollocks and stop playing politics.

There is no way on this earth that Westminster would be stupid enough to not agree to a currency union. If it doesn't agree, it removes a willing source of income for a fair sized percentage of it - political suicide. I can see why trying to scare people into voting no based on the threat of "defaulting on a debt" might work and could be a useful political tool - it's a bit dishonest though as Scotland cant default - it's the rUK that can default.

I have to say I admire the political thought process that has gone into getting that slight of hand trick to go on for as long as it has. I think you have personally played a blinder by getting people to think that you were implying that it was Scotland who would be defaulting when all along you've tried to stay away from stating that, and only now do you say that it's rUK who would default. Good work.

It has been a pleasure discussing the matter with you. It has certainly cleared up a few outstanding queries that I had - thanks. 😉

By S

The UK will not default, it has made its responsibilities clear. If only AS would do the same instead of being irresponsible. And this is the kind of guy you want running an iS. Already threatening a default. Amazing!