Tag Archives: eurozone

Offshore politics

When the SNP transited smoothly from “we’ll use to the Euro” to “we’ll use the pound” that was a campaign tactic.

When the Tories, LibDems, and Labour all bounced to their feet and said ha ha, we won’t let you use the pound, that was a campaign tactic.

I do not believe either the Yes Scotland or the Better Together campaigns have really thought this through: or at least, they are certainly not making a fact-based argument based on having thought this through.

Ian Bell writes in the Herald:

“Hardball” is the macho cliche being applied to the Chancellor’s fiat towards a currency union. Despite its protestations, Mr Darling’s team pursues the kind of negative campaigning that never goes out of style in Westminster. No compunction is involved. The referendum must be won at all costs. But what might that cost be, exactly, if the prize is a united kingdom in the aftermath?

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Filed under Currency, Economics, Scottish Politics

Why does George Osborne think he’ll get to dictate Scottish currency?

This is genuinely confusing.

Scotland, right now, is part of the United Kingdom. If after autumn 2014 Scots vote for devomax or status quo, Scotland will still be a part of the United Kingdom. As part of the United Kingdom, Scotland uses the same currency as England, Wales, and Northern Ireland, but different banknotes – under licence from the Treasury, the Bank of Scotland, the Royal Bank of Scotland, and the Clydesdale Bank, and four banks in Northern Ireland, get to print banknotes.

If Scotland votes for independence, then among many other decisions that will have to be made, will be about the currency. There seems no reason why we wouldn’t go on using Scottish pound notes and decimal currency, the familiar patterns of £2, £1, 50p, 20p, and even the newstyle thatchers and majors for 10p and 5p: whether the pre-independence coins and banknotes will be honoured or if we’ll all have to trade in our cash in hand for newly-minted Scottish notes and coins – that’ll be all part of the long complicated process of separating Scotland from the rest of the UK. And that’s just the visible part of the currency change – the rest of the banking and currency iceberg will be a lot larger. Scotland inherits 8% of the UK’s total debt. All of that will need to get worked out.

Sp what on earth does Osborne think he’s talking about when he says:

As politicians on both sides of the Border focused on the detail of the debate, Mr Osborne refused to confirm whether an independent Scotland would be allowed to continue to use the pound officially as its currency. In subsequent briefings, the Treasury confirmed that, while it could not block Scotland from using the currency, it could be reduced to a situation where it had no say in fiscal policy, was prevented from printing its own money and was locked out of any valuation decisions. Treasury officials confirmed this would mean Scottish banks, which are licensed by the Bank of England to print their own notes, would be barred from doing so in the event of independence.

This leader in the Financial Times doesn’t clarify things either. The presumption seems to be that Scotland has no alternative but to keep using English currency or to join the euro:

Mr Osborne refused to say whether the rest of the UK would agree to a currency union with an independent Scotland, telling ITV News: “All these issues are going to be fleshed out now and flushed out. The SNP is going to have to explain what its plans are for the currency of Scotland.”
The SNP’s longstanding support for an independent Scotland in the European Union has implied euro membership, which is a prerequisite for new EU members, subject to a referendum. Mr Osborne said last night that Scots would ask themselves “is that a currency you want to be joining at the moment?”

I really don’t get it – is there something obvious I’m missing, or are they? Just as the referendum should have three options – status quo, devomax, or independence – so an independent Scotland has three options – keep using Treasury sterling, establish Scottish pounds and pence, or join the euro. (And note: Scotland is not a new member of the EU.)

Why would Osborne think it was up to him to decide this? Does Malachi Malagrowther need to write some more letters?

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Filed under Currency, Economics, European politics, Scottish Politics

I need a new boiler

If someone gave you, out of the blue, no strings attached, £1,773.96 – what would you spend it on?

I would probably get new kitchen cupboards. Or I might spend it on getting my house rewired. Or it would go (part-way) towards the cost of a new boiler. If I got it at this time of year, I’d likely spend at least part of it on Christmas presents and other winter goodies. Retrospectively, a couple of hundred would go to pay the plumber who fixed my bath and toilet last month, and who is still lingering in my overdraft – so technically, that part would go to the banks. But most of it would go to small businesses in my local area.

I asked a friend when the idea came to me what he would do, and he said he would probably blow it on eBay – so a large part would go to small businesses all over the UK, a part would go to the Post Office, and a part would go to the multinational corporation eBay.

What would you spend it on?

While you’re thinking about that, let me tell you where I got that from. I read on the news that the bailout package now planned for the eurozone – the money that’s going to be given to the banks – is about £870bn. The population of the EU is 490,426,060 – just under 500 million. Divide £870 billion by 490 million, you get £1,733 and change.

We already know from practical experience in 2008 and after, that giving billions to the banking world will do nothing to rescue the economy. The problems we have are due to bank failure: but the banks, given billions, simply go back to what they were doing that caused the crash.

Here’s how the economy works: consider it a year at a time. The government needs money to run the country. So it estimates how much money it will need, and borrows that amount. (In fact the UK’s loans are long-term and mostly internal – we’re a creditor nation, which means we loan more money to other countries than we borrow. Despite the Tory doomsaying, the UK’s national debt is not huge either compared to other similar countries nor in our country’s history.)

The government borrows the money, because it’s completely unfeasible simply to shut down the country and not spend anything to run it for a year – the government’s income comes from taxes, and if the country isn’t running, the government gets no taxes. This is not, despite what you’ve probably heard what the Tories say on TV, like an individual borrowing on their credit card. All governments borrow and lend: it’s how national economies work.

The government will be getting money in throughout the year by taxing us. We give them part of our income via what we earn and what we spend. Businesses – the small local kind that can’t afford to pay armies of tax lawyers – get taxed on their profits. (I’m simplifying enormously, yes.) The richer you are, the more tax you can evade, but most of us pay taxes and thus the government has an income.

At the end of the year, if more income has come in in taxes than the government borrowed, they have a surplus: if less, they have a deficit. Tory doomsayers will try to get you to panic about the deficit, but it’s not really a problem for a rich, stable country like the UK: the government’s security in borrowing is the national economy itself. But if significantly less has come in by taxes than the government expected, then they have a problem. The economy is shrinking. People aren’t earning. They aren’t spending. Businesses aren’t making profits, and so aren’t paying tax on them. The government is getting less money.

The right-wing solution at this point is to cut spending: to make public service workers jobless and to cut services. This is called “austerity”, and it doesn’t work.

It doesn’t work, because, as you can see for yourself, what the government needs is more money coming in. When people lose their jobs, the government loses the tax they paid on their income: people spend less when they’re worried about their jobs (I’ve been putting off buying a new boiler for the past two years because every year I’ve never been sure if I’ll still have a job in April) and perhaps worst of all, in this country, if you’re broke you will tend to spend a higher proportion of your money on the cut-price items in the supermarket – and that means more money for the supermarket (and the big-chain supermarkets are all excellent tax evaders) and less money for the supermarket’s suppliers and therefore ultimately for the government.

When the Tories decided to throw all those people who worked for the government out of a job, they made cheap, short-term “savings” – those people weren’t getting a salary from the government any more. But neither were they bringing in an income. Less tax for the government. Bigger deficit at the end of the year. The Tories thus dealt a serious blow to the economy in the guise of “saving money”.

People use public services to be able to work. Cuts in public services mean fewer people working. Less spending. Less tax. Bigger deficit at the end of the year.

But this isn’t a party rant, because no party is proposing what I’m about to suggest, and no one will. The people of Greece have been denied a referendum – they won’t get to decide if they want to endure two generations of utter poverty as the bankers get the billions, because the only other option that is said to be “realistic” is for them to leave the eurozone. And if Greece left the eurozone, other economically poor countries would leave it too. Soon there wouldn’t be a eurozone.

So here’s my utterly unrealistic, completely Keynsian solution.

Don’t give the money directly to the banks. Give it to the people of the European Union instead, and let each one of us decide how much of it we’re going to let the banks have.

Let every adult claim their seventeen hundred pounds and change. Let mothers claim it for their children. (Statistically speaking, as a general truth of development work, if you want money to be spent as a benefit for the whole family, you make sure the mothers get it.)

The economic benefit across Europe would be huge. Some people would opt to make an extra payment on their mortgage, pay back their overdraft or their credit cards – that part would go directly to the banks, and that would be up to the individual. A solid boost of spending in every part of Europe – a sudden jump in the economy – would bring in profits for businesses, income for individuals, tax for governments, everybody’s happy. If the banks can’t get enough to keep from failing, well, let the small savers (anyone with under £30,000 in savings) get their money back, and let the big savers crash.

We’ll never get this. Not because it wouldn’t work. Not because it would be too complicated.

But because it wouldn’t benefit the banks: and they’re really running the EU. As we see, when the birthplace of democracy doesn’t get to have a referendum because the people’s answer might not suit their real overlords, the banks who got them into this mess.

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Filed under Economics, European politics