Plan A or Plan B spell misery for Scots

Currency unions between sovereign states are a dangerous business for ordinary people as Greeks under the hammer of Troika-imposed austerity will confirm. Or Italians, whose grand coalition of all the parties is systematically destroying living standards and pensions in the name of the euro. Or Spanish people living in poverty as unemployment climbs above 26%.

So when Bank of England governor Mark Carney, addressing business people in Edinburgh yesterday, stressed the dangers of a currency union that doesn't impose shared fiscal policies on all its members he was only stating the obvious. But at least he was bluntly honest.

 "The euro area is now beginning to rectify its institutional shortcomings, but further, very significant steps must be taken to expand the sharing of risks and pooling of fiscal resources. In short, a durable, successful currency union requires some ceding of national sovereignty," he said before delivering his real message.

Carney then confirmed that if this year's referendum vote goes in favour of independence, the   Treasury in London will want a major say in Scotland's tax and spend plans before it agrees to any sterling currency union.

As a Treasury spokesman explained: "Governor Carney today highlights the principled difficulties of entering a currency union: losing national sovereignty, practical risks of financial instability and having to provide fiscal support to bail out another country. This is why the UK government have consistently said that, in the event of independence, a currency union is highly unlikely to be agreed. The Scottish government needs a Plan B."

Scotland’s first minister Alex Salmond’s response is that he does indeed have a plan B. It is to simply go on using the pound without any currency union agreement – a kind of self-supporting Scottish pound. So we are talking about a globally tradable currency, with no reserves behind it, in a country where the banks are amongst the ropiest on earth - what a recipe for disaster!

The 2008 bailout of RBS cost the taxpayers £45.2 billion. Scotland's annual output is just £216bn. At present, RBS has loans and investments of £1.3 trillion, equivalent to more than six times that. It also has £36bn of toxic loans in its “bad bank account” and faces fines for wrongdoing that could be as much as £1 trillion. And we haven't even mentioned the Bank of Scotland, which posted an £8bn loss last year. What price would Scotland's population have to pay to bail that lot out?

The economic choices for ordinary Scots are not looking good, either way. Inside the union it's austerity for generations and misery for the poorest. In an independent capitalist Scotland the choice is either a currency union where key decisions on spending are still imposed by the   Treasury or a level of fiscal uncertainty as a new currency tries to find its feet in a market that is descending into turmoil. Just look at what happened to the Turkish, South African and other currencies this week.

But there is another way to resolve the currency question and the political and economic issues too. We need to move away from a nationalist agenda for a capitalist Scotland to one where we have a say on what kind democracy, what kind of constitution, what kind of economy, what kind of currency ordinary people want.

With that as the focus of a campaign for a “Yes” vote, we could turn the referendum away from narrow nationalism into a debate about what real self-determination means. The message should go out loud and clear: we don’t want the rule of the banks and corporations wherever we live or a political system that leaves the elites firmly in control.

And that would undoubtedly inspire people in England, Wales and the north of Ireland to find their own route to challenging and defeating the power of the common enemy.

Penny Cole

FT turns to Lenin in desperation

Mark Carney isn’t due to move from being governor of the Bank of Canada to governor of the Bank of England until next July. But the intensity of the global economic crisis is so severe that policy makers can’t wait that long.

Chancellor George Osborne, who tempted him here, and the other beleaguered leaders of the capitalist world are prepared to discuss Carney’s ideas and put them into effect as soon as possible – preferably before the likely effects begin to be appreciated by those who’ll suffer the consequences.

Since the global crash in 2007/8, the top financial and economic brains in the world have tried everything they know to bring about a recovery. The shock of seeing the sudden shutdown of the credit markets bringing world trade to a virtual standstill after the decision to abandon Lehman Brothers prompted emergency action.

Governments encouraged central banks to pour trillions of every currency into the world’s financial institutions and, it must be admitted, the treatment had an effect. The patient’s heart was restarted. But capitalism has been on life-support ever since. The system has drawn its energy from the millions suffering the effects of “austerity” – soaring unemployment, falling incomes, smashed up pensions, wrecked health and social care.

Interest rates offered by central banks have been held at historic lows for years now, hovering just above zero – but below inflation, so negative in real terms. Low rates paid to savers mean the few people lucky enough to have any, have seen the income from their savings decline. The majority with debts to service find above inflation rates charged driving them further into poverty. It’s a deliberate policy called “financial repression”.

So what’s Carney’s big idea, and why is it so attractive? Does it really amount to a revolution as the Financial Times suggests?

Put simply, Carney says that its time to turn the attention from keeping inflation at bay to a more positive focus on promoting growth. The new target should be based on “nominal gross domestic product” – which brings growth and inflation together in a single figure.

It’s a way of convincing themselves that governments and their central banks can turn their attention from just rescuing the financial system to “prioritising growth”, by which they mean furthering the interests of the global corporations. It’s a refrain shared by the newly-elected centre-right government of Japan, led by prime minister Shinzo Abe.

But Carney and friends fail to understand that whatever the subjective intentions of the central bankers, or anyone else wishing for a “return to growth”, the objective conditions of the capitalist economy are what determines their actions. After several decades of growth stretched way beyond its natural limits by the deregulation of the credit system, the crash simply announced that the only way is down.

As the capitalist tide ebbs away, it continues to exposes the desperate measures taken to sustain profits, whilst millions suffer. UBS has joined Barclays in paying fines to the regulators for fixing LIBOR – the world price of financial contracts – so that it favoured them and their clients. As the regulators summed it up: “They manipulated UBS’s submissions in order to benefit their own positions and to protect UBS’s reputation, showing a total disregard for the millions of market participants around the world who were also affected.”

No surprise there.

In its article on Carney, the Financial Times actually quotes Lenin’s famous dictum that “a revolution is impossible without a revolutionary situation” to try to stand up their story. The situation is indeed pregnant with revolutionary possibilities – but not as the FT means. 

In December 1917, Lenin drafted a decree for attention of the revolutionary government. It called for joint-stock companies and the banks to be taken into social ownership. Something to consider over the holidays.

Gerry Gold

Economics editor