Currency union - how Alex Salmond can still win

At the end of January I suggested that after a Scottish yes-vote, there would be a currency union.  That was before George Osborne, Danny Alexander and Ed Balls stuck their heads above parapet and declared that there wouldn't be.  In the face of which it now looks a pretty big claim.

I'm not going to do an about face straight away - maintaining a position for just three weeks isn't what you would call steadfast - but it's worth considering why there might not be a currency union, what that does to the Nationalist case, and whether it makes a blind bit of difference to the outcome of the referendum.

There are economic reasons for not having currency union, as you might expect.  As Sir Nicholas Macpherson, Permanent Secretary to the Treasury, wrote to George Osborne last week, "Successful currency unions are based on the near universal belief that they are irreversible".  Moreover "Scotland’s banking sector is far too big in relation to its national income, which means that there is a very real risk that the continuing UK would end up bearing most of the liquidity and solvency risk which it creates".  Thirdly the rest of the UK "would be at risk of providing taxpayer support to the Scottish financial sector and sovereign. An independent Scottish state would not face the same risk as it is inconceivable that a small economy could bail-out an economy nearly ten times its size . . ."

"Finally," Macpherson concludes, "Treasury analysis suggests that fiscal policy in Scotland and the rest of UK would become increasingly misaligned in the medium term. Of course, if the Scottish Government had demonstrated a strong commitment to a rigorous fiscal policy in recent months, it might be possible to discount this. But recent spending and tax commitments by the Scottish Government point in the opposite direction, as do their persistently optimistic projections of North Sea revenues, which are at odds not just with the Treasury but with the Office of Budget Responsibility and other credible independent forecasters".

Alex Salmond's supporters counter these arguments with the views of their own Fiscal Group (including, as the Nationalists always say, two Nobel prize winners).  This group's report suggests a currency union is perfectly possible.

Which it is.  I don't think anyone seriously disputes that a currency union could take place, and I'm absolutely sure there are economic arguments in favour as well as arguments against (the most obvious reason currency union might be good for rUK is the threat of transaction costs for some cross-border businesses, although the Yes campaign would probably argue these would be offset by lower English tax rates post-independence).

But to assume that the existence or otherwise of a currency union will depend on economic arguments is naive of both sides, particularly so of Alex Salmond.  It will depend instead on realpolitik.

The Nationalists will demand a currency union.  Westminster will refuse.  The Nationalists then say they won't accept Scotland's share of the national debt.  That is also possible, but consider this.

Without a currency union Scotland will have no central bank, no lender of last resort and no control over interest rates. This is serious for many reasons, one of which is that, as Macpherson noted, Scotland has an outsized banking industry employing an awful lot of people which will be threatened by being inconveniently sited in a country other than the one with which it does most of its business; post-independence the Bank of England will not be bailing that industry out.

(Interestingly, a couple of days after I posted this, Lloyds, technically a Scottish company, announced that its new 600-branch TSB business is to be incorporated in London instead of Edinburgh. There's a report here. The banking sector is not taking any chances)

Like the rest of the UK, Scotland will be running a deficit, and it will have to borrow on the money markets from day one.  How is it going to do this if it has just walked away from all its existing debts?

A couple of weeks ago the Treasury did something rather strange.  It announced that post independence it would assume responsibility for Scotland's debts come what may.  This was billed as a sop to the markets, but I wonder whether it was something more.

According to the NIESR, Scotland's share of our historic debt is in the region of £150 billion.  It is only about a tenth of Britain's total historic debt, and, to put it in context, roughly the amount Britain had to borrow in one year at the height of the last recession.  It might be possible to imagine David Cameron shrugging his shoulders and saying, "So walk away.  The money markets already know that we're on the hook for the total sum.  It'll make no difference to our bond yields.  Walk away from the debt, but no currency union.  Ever".

Actually I can't imagine Cameron shrugging his shoulders. That isn't his style. But it is George Osborne's style.  And behind this Treasury manoeuvre lies the MP for Tatton.

Alex Salmond is a master tactician and a brilliant poker player. But he is a poker player with a truly terrible hand, and his ability to wing it has run out of road.  His response yesterday was angry and incoherent. Westminster's ruling out currency union was "demeaning and insulting". Anyone would think a country no longer in the UK had some kind of right to a currency union.

There is, as someone pointed out in the Guardian this morning, an element of "we're getting a divorce but I want to keep using the car" about all of this.

Unlike Alex Salmond, George Osborne is a strategist. Only a strategist would co-ordinate the Treasury's pledge on the debt months before it could possibly become a live issue, and raise the issue of currency union in time for wavering Scots to get angry but then to calm down sufficiently to see the problem. Tantalisingly, Osborne has left the Nationalists time to come up with a Plan B. But this too would be a trap, because the adoption of a Plan B would open Salmond to the accusation that he is making policy up as he goes along.

There is one other matter of realpolitik worth considering.  It is that post-independence there will be no electoral advantage to be had in England in being nice to Scotland. Even if the economic arguments overwhelmingly favoured a currency union (and they don't, not overwhelmingly), politicians don't necessarily do the sensible thing, not when their voters are telling them otherwise.

You might imagine that weaknesses of the Nationalist case which the scrapping over currency union reveal would be desperately damaging to Alex Salmond.  But it might actually make no difference at all. I heard some vox pop Scotiae on The World Tonight last night. The level of ignorance and disengagement was quite staggering.  It was of the "What fur wud they tak awa' the poond?" variety. Such people, with no understanding of the economic issues which make or break the case for independence, have a vote.  And their resentment at the home truths currently emanating from Westminster is very easily exploited by Alex Salmond.  He might have lost the argument, but could still win the war.

Slavery and the Jamaicans - whose compensation is it anyway?

Opportunities for cynicism abound as news breaks that Leigh Day, an activist firm of solicitors in London, are to sue the UK Government on behalf of descendants of Jamaican slaves.

Slavery, to be clear, was not invented by the British.  It is thought to have existed across the overwhelming majority of cultures for over 10,000 years.  The British did not even invent it in Africa.  Five hundred years ago, long before the Europeans started interfering on a grand scale, there were parts of Africa where 50% of the population consisted of people enslaved by other Africans.  What the Europeans did however was approach slavery on an industrial scale, buying slaves in Africa and shipping them to the other side of the Atlantic.

Once the worm turned the British were instrumental in the fight against the slave trade, banning it throughout the British empire in 1807, encouraging other countries to do the same and finally devoting considerable naval resources to stopping the transatlantic trade by force.  In the following 50 years the British navy seized 1,600 slave ships and freed over 150,000 Africans aboard them.

It would seem fair to suggest that Britain's record on the slave trade is no worse than most and a lot better than some.

The plaintiffs in Leigh Day's cases will be ordinary Jamaican individuals.  They were not slaves themselves. The Torygraph today features one such, an elderly (please note) Jamaican called Willie Thompson, whose great-great-grandmother was sold for work in the sugar cane plantations.

Some facts.  Mr Thompson would almost certainly not have been born were it not for slavery.  Otherwise his great-great-grandmother would have had to meet his great-great-grandfather in Africa, give birth to his great-grandmother (or father), who would then have had to meet his great-grandfather (or mother), also in Africa, give birth to his grandmother (or father), who would then have had to meet his grandfather (or mother), in Africa, who would then have had to sire his mother (or father), who would then have had to meet his father (or mother), who would also have had to sire Mr Thompson.  In Africa.

It is of course beyond unlikely that this should happen.  Far from suffering from slavery, Mr Thompson in fact owes his life to slavery.  And the fact that he is living in Jamaica, not in Africa.

To illustrate how lucky Mr Thompson is, the average male life expectancy in Jamaica is about 74 years.  In the Democratic Republic of the Congo, by way of example, it is slightly under 50.

So Mr Thompson is dead lucky.  But he wants the British government to compensate him for the undoubted suffering of his great-great-grandmother.  Leigh Day are a very effective law firm.  I'm pretty sure they will succeed in gouging some pretty fat compensation out of the UK government, netting themselves some fat fees in the process.

Although actually of course it's not the UK Government's money at all. It's ours, yours and mine. Personally I don't remember profiting very much from slavery.  It would be strange if I had.  It was illegal for one hundred and fifty years before I was born.  Yet Mr Thompson thinks some of my tax should be given to him.

So people who did not suffer from slavery (who in fact have benefited dramatically as a consequence) are now looking for a payout from people who did not profit from it either. Funny old world.

Floods, housing and population

In the bad old days of the 80s Tory ministers were fond of telling us we were being "flooded" or "swamped" by immigrants.  I've been reminded of this rhetoric by the apocalyptic scenes from the Thames Valley of watery inundation, made all the more shocking and bizarre by taking place in the blandest parts of the Home Counties.

There is a linguistic clue here that past generations seems to have missed.  The low land of the Thames Valley is a flood plain, and the phrase "flood plain" contains the word "flood".  If you build houses in such a plain, every hundred years or so the river is going to rise and wipe you out.  And the south of England is full of such lowlands.

There is by common consent a housing crisis in Britain.  We don't have enough houses to accommodate our growing population.  Part of the recent increase is attributable to immigration - 800,000 Eastern Europeans cannot all be occupying the same Portakabin by a Lincolnshire turnip field.  Moreover we have built in places that aren't really suitable, and as pressure for more housing grows this is something we're going to be doing more and more.

Both Labour and Conservatives have been looking at schemes to build new towns.  Putting aside the elementary point that there won't be enough jobs to occupy their inhabitants, not even in the south, that the people will have to commute to earn a living, and that the towns will quickly become extended satellites of a vast, cancerously-expanding London, they are also likely to be built on low ground sites which flirt with flood risk.

There is another way of looking at the housing problem, however, which is to say that our population might be too big for a small island, and that a managed decline - deaths from old age exceeding the birth rate - might offer a better long term solution.

You will think this marks me out as a crank, and it's a shame that population control is, like immigration control used to be, the cause that dare not speak its name.

But the issue's flagship organisation, the Optimum Population Trust, is supported by luminaries such as David Attenborough and Jonathan Porritt. Are they cranks too?

PS Four days after this post the Torygraph printed the following story to the effect that not only have many Councils in southern England earmarked for housing land which is at risk from flooding, but some of the sites are currently underwater.

Sometimes real events are beyond the reach of satire.

Kicking Mario Draghi's OMT into the long grass

It takes a special kind of saddo to have any interest in the decisions made by the German Constitutional Court, but I am that person so here goes.

The Court has this morning pronounced on the legality of a scheme devised by the head of the European Central Bank, Mario Draghi, known as the Outright Monetary Transaction (OMT).  Eurozone watchers have been waiting for this Court decision for months.

The background is that a couple of years ago southern European countries (Italy and Spain in particular) were having to pay alarmingly high interest rates on their government borrowing.  The markets feared that these countries had got into a kind of vicious circle where the closer they got to insolvency, the more expensive their borrowing became, pushing them closer still to the edge.  Doomsayers like me were predicting Eurozone exits, but suddenly in August 2012 ECB chief Mario Draghi came up with OMT, a scheme whereby in exchange for stringent economic conditions, the ECB would buy afflicted countries bonds. No country has had to apply for funding, because Draghi's assertion that the ECB would do "whatever it takes" was sufficient to lower bond prices. Almost overnight the debt markets calmed down.  OMT is widely perceived to have saved the Euro.

The only problem was that OMT is probably illegal, infringing the ECB's mandate, which does not include paying to prop up member countries' economies. The ECB is not, the argument goes, a lender of last resort. These sentiments are particularly strong in Germany, which has used its association with the weaker economies of southern Europe to export its way to massive (and sanctimonious) prosperity.

So last year the issue was referred to Germany's Constitutional Court in Karlsruhe, and Eurozone nerds like me have been wondering what the Court would do.

One of the lessons of the Eurozone debacle has been that the great and the good, people my age growing up in Europe in the aftermath of the 39-45 war, are so wedded to the idea of European unity (and so dependent on it in terms of career advancement) that they are capable of any kind of ingenious sophistry (and OMT is itself a prime example) if it helps keep the project going.

In other words the Court's ruling was always going to be political as much as legal.

This morning came the verdict.

Das Bundesverfassungsgericht has said that "there are important reasons to assume that (OMT) exceeds the ECB's monetary policy mandate and thus infringes the powers of Member States, and that it violates the prohibition of monetary financing of the budget . . . primary law stipulates an explicit prohibition of monetary financing of the budget and thus unequivocally excludes such powers of the ECB".

Seems clear enough.  OMT infringes Germany's basic law.  But hang on a moment - "the OMT decision might not be objectionable (if) . . . government bonds of selected Member States are not purchased up to unlimited amounts, and that interferences with price formation on the market are to be avoided where possible".

Now it may be that something is being lost in the translation here, but government bonds can never be bought up to unlimited amounts, because if the ECB buys, say, 1 billion Euros worth of Spanish bonds the number, although quite large, has by definition been limited to 1 billion.  And moreover it is always going to be impossible to avoid interfering with "price formation on the market" (that would actually be the object of such purchases).  So it looks as if the Court is giving OMT the green light.

So what was its decision? Well here comes the clever part. The Court hasn't actually made one. It has decided to refer the whole issue to the European Court of Justice. And given that the ECJ is stuffed with apparatchiks devoted to European Unity as well, I wonder if you can predict what their verdict will be?

It will be a couple of years before that verdict arrives. After that the matter will go back to the Verfassungsgericht for a decision as to whether OMT infringes Germany's Grundgesetz or basic law.

Truly a decision on OMT has been kicked well and truly into the long grass.

Meanwhile, southern European bond yields remained steady. Mario Draghi must be feeling pretty pleased with himself.

Mark Carney, Alex Salmond and the chimera of Scottish Independence

After a Yes vote on Scottish independence, there will be a currency union and Scotland will keep the pound.

I hope there isn't a Yes vote, but if there is that's what I think will happen.  I think so because if Scotland votes Yes, the rest of us will want the Scots to take their fair share of the national debt, and we will also want some of the oil revenues.  Realism suggests that a deal will be struck.

But as Mark Carney suggested yesterday, currency union implies a degree of fiscal union, rather like the one we currently have, with a central bank acting both as regulator and lender of last resort.  As Carney implied, this will imply some loss of sovereignty for Scotland, which will have to put up with the indignity of controls on public spending, debt issuance and perhaps even tax levels.  And Alex Salmond knows this, even if many of his supporters don't.

That being the case, why does Salmond want independence at all?

And (I guess) why do those of us opposed to it mind so much?

Ed Miliband - man of principle #3

Once again I am Baffled of Cheadle.  Ed Balls gave a speech yesterday in which he pledged to re-introduce the 50p tax rate.

As someone whose freedom to write music (and the occasional blog) depends partly on the efforts of a top-rate tax payer, I have a personal interest in this.  I can only report what happened the last time Labour put up the marginal rate.  It was that a close relative of mine went to her accountant and took certain (legal) measures to reduce her taxable income.  The Inland Revenue ended up getting less money than they would have done if Labour had left things alone.  

I have a pretty clear idea what will happen if the marginal rate goes up again.  It is that my relative will put a load of money into her pension, the consequence of which will be not only that the government will get less tax, but that it will immediately have to pay several thousand quid into the fund itself.

Of course an incoming Labour government will probably do away with tax deductible pension contributions for top-rate tax payers, and maybe that's a good thing.  But it won't be able to do it overnight.

To be clear, I am all for the rich (by which is actually meant the highest earners, but I'll let that pass) paying their "fair" share of tax.  For what it's worth, the top 1% of earners already pay a whopping 30% of all UK income tax.  That apparently isn't fair enough.  How much would be?  The problem for Labour is that the best paid also have a pretty clear idea of where fairness lies, and people who have never taken much interest in their tax arrangements will suddenly find the topic much more alluring.

To be clear also, all studies show that putting up the top rate didn't bring in vast sums of money last time. Some - the IFS for example - have suggested that it might even have lost the Revenue money; that's certainly been my experience.  Given that Balls and Miliband undoubtedly know this as well, why on earth are they doing it?

The answer would seem to be that they think bashing "the rich" will be popular.  And they may well be right. But popular with whom?  A raft of recent policy announcements now show Labour under Miliband drifting well to the Left of the Blairite centre. Those policies make Miliband popular in his own party, but they may well not be so with the people in the middle ground whose votes Labour needs to get into 10 Downing Street.

It pains me to keep harping on this particular theme, but Miliband increasingly looks foolish as well as cynical.  It's not an appealing combination.

PS In Ball's speech the Shadow Chancellor tried to position Labour as a business-friendly party.  I have to say this claim made me laugh out loud.  Straight away came a letter to the Torygraph signed by 24 business leaders which stated that Labour's policy would "kill investment and cost jobs".  And, they might have added, damage the tax revenues on which public services depend.

Lord Rennard and the smugness of now

It's always been a source of embarrassment and perplexity to me that some of my favourite childhood cultural items betoken a degree of racism and sexism on behalf of their protagonists and creators. John Buchan's Portuguese Jews, if not actually waiting to biff Richard Hannay over the head, were certainly lurking in the background pulling the levers of finance; then there was Guy Gibson's dog in The Dambusters, awkwardly named for a remake, you might think; and reading The N-word of the Narcissus by Joseph Conrad on the bus down to Notting Hill required a certain amount of discretion, if not the actual brown paper cover.  Girls knew their place (although they were certainly sometimes "spirited") and Johnny Foreigner was always untrustworthy, unless he happened to be a loyal servant, perhaps in Kipling or John Masters.

("Loved by all", reads an inscription to a dead officer in the chapel at Sandhurst; underneath continuing, apparently without irony, "Killed by his servant").

As I have written many times here, people did things differently then.  Attitudes were different.  People behaved differently.  Some of this phenomenon is visible in the multiple trials of celebs which are giving the courts something to do in these relatively crime-free times.  To be clear, Jimmy Savile, Stuart Hall and some of the other 70s behemoths did things which would be inexcusable in Britain at any time in the last five hundred years; but we are also guilty now of judging past behaviour by current standards.

One of the women giving evidence against Dave Lee Travis said that when he came up behind her as she was on air and put his hands over her breasts, she did not at the time think of it as a sexual assault.  At the time.  Again and again we hear the words "The BBC did nothing about it".  Those two things are connected. One of the reasons for pusillanimous management at the Corporation might just have been that, like the complainant, they did not at the time think that the type of behaviour she alleges (and which Travis denies) constituted a sexual assault.  The entire culture of the 60s and 70s was predicated on the free-sex-let-it-all-hang-out premise which in practice merely resulted in a lot of women getting their bottoms felt. But no-one would have described being goosed in a lift a sexual assault. Not then. It was merely bad manners, and someone who did it was a nuisance or a boor.

We imagine in our smugness that future generations won't look at our conduct and point the accusing finger.  But the values which look permanent to us are about as stable as a chocolate fireguard.  They will shift again, and we will look as stupid and outdated as colonials urging one another to "play the white man".

What has any of this got to do with the Chris Rennard affair?  Maybe not much.  The conduct Lord Rennard is accused of is quite recent and is, so far as I can work out, much less serious than the awful things Jimmy Savile - probably - did.  So Lord Rennard is supposed to have given the impression that a little bit of slap and tickle would lead to party advancement?  Who could possibly have thought that a man in a position of power would do that?  And thank goodness that women have always resisted the temptation to flutter eyelashes or to don high heels at a job interview.

I feel sorry for Chris Rennard for two reasons.  One is that a substantial part of the vitality in this news story comes from the fact that Rennard is physically unattractive.  He looks fat, complacent and venal.  If he had occupied the corpus of Colin Firth I wonder whether we'd be hearing as much about him.

The second reason is that he has been subject to just about the most incompetent public witch trial by the Lib Dems it is possible to imagine. That Alastair Webster QC should have concluded that Rennard was not guilty beyond reasonable doubt, but then added the rider that the allegations were "broadly credible" defies belief.
The Lib Dems deserve every iota of contempt that is coming their way at present.

As for Nick Clegg's bizarre assertion that a man found not guilty under his own party's internal procedures should nevertheless apologise, this proves Clegg's unfitness to run so much as a petrol station, let alone the office of Deputy Prime Minister. Incidentally my sources tell me that Rennard is not the only senior member of the Lib Dem hierarchy who has the reputation of being a serial groper and adulterer. There is a whiff of hypocrisy here as well as incompetence.

Rennard may or may not be a loathsome creep.  I don't know, and neither probably do you.  But in fifty years I'm pretty sure observers will look back at our sex-obsessed society, where hardcore porn is available to all at the touch of a button, and marvel that although we turn a blind eye to teenage boys surfing for lesbian action on the net, touching someone's bottom will get you sent straight to prison.