UK says "no clear reason" to let independent Scotland use the pound

LONDON Tue Apr 23, 2013 12:04am BST

A woman poses with a Bank of England twenty pound note bearing the image of Edward Elgar in Edinburgh, Scotland June 29, 2010. REUTERS/David Moir

A woman poses with a Bank of England twenty pound note bearing the image of Edward Elgar in Edinburgh, Scotland June 29, 2010.

Credit: Reuters/David Moir

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LONDON (Reuters) - The euro zone's experience of countries sharing a currency but not a government shows there is no clear case for an independent Scotland to use the pound, the Treasury said on Tuesday.

The nation of 5 million will hold a referendum on September 18 next year to decide whether to split from the United Kingdom, at the instigation of the Scottish National Party that runs the country's devolved government.

Pro-independence campaigners want Scotland to keep sterling, at least in the early years of independence, and then to decide later whether to switch to its own currency.

But in a report on Tuesday, the Treasury said there was no clear case for the United Kingdom to agree to a formal currency union with an independent Scotland, which would have an economy of a similar size to New Zealand's.

"The economic rationale for the UK to agree to enter a formal sterling union with a separate state is not clear," said the report, which was prepared by non-partisan civil servants.

"The recent experience of the euro area has shown that it is extremely challenging to sustain a successful formal currency union without close fiscal integration and common arrangements for the resolution of banking sector difficulties," it added.

Conservative Chancellor George Osborne and his Lib Dem deputy Danny Alexander, who insist Scotland would be better off remaining part of the United Kingdom, are due to present the report in Glasgow later on Tuesday.

Financial markets are unperturbed by what they see as a remote prospect of Scottish independence, but there could be major implications for sterling and the British government bond market if this perception changed.

Markets could easily force a currency union to break up after independence if they did not think there was a solid commitment to it on both sides, imposing costs on both Scotland and the rest of Britain, the report said.

Moreover, there would be complex issues to be decided on whether the Bank of England could continue to be a lender of last resort to Scottish banks, and Britain would want "rigorous oversight" of an independent Scotland's fiscal policies.

The report reached a similar conclusion and highlighted further risks for Scotland if it decided to use sterling unilaterally, join the euro or create its own currency.

Scotland's economy was heavily exposed to the volatile oil and gas sector, and more similar to the economy in the rest of Britain than to that of the euro zone, the report said.

"The current currency and monetary policy arrangements within the UK serve Scotland well," the report said. But after independence, "the status quo would not be one of the options".

"All of the alternative currency arrangements would be likely to be less economically suitable for both Scotland and the rest of the UK."

The report is part of a series by the British government that it hopes will inform the referendum debate.

Opinion polls show around 30 percent of Scots are currently in favour of independence, while 50 percent are against.

(Editing by Alison Williams)

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Comments (3)
mgb500 wrote:
Scotland could always join the euro-funny money club…and then they could get dictated to by every 3rd rate euro province…..:)

Apr 23, 2013 7:51am BST  --  Report as abuse
JohnWL wrote:
Scottish Nationalists seem to believe that the population of the rest of Britain is sympathetic to its idea that Scotland is a colonial vassal whose ‘mistreatment’ should arouse sympathy. Very nearly the exact opposite is true. Just because the Scots excuse all their own failings by blaming the English, that does not produce any corresponding guilt south of the border. Objectively, Scotland has been treated rather generously for a long time and independent Scotland would find it onerous indeed to maintain a social model as generous as it is in the Union.

In a way, it is lucky for the Scots that the weakness of currency union in the absence of political union has been demonstrated so clearly by the travails of the Eurozone. That ought to stimulate opposition to the sentimental but unrealistic pronouncements of the Scots Nats. It should alert Scots to the real possibility that an England released from obligations of the Union will be an unsympathetic neighbour, able to pursue its own interests even if they are opposed to those of Scotland.

Apr 23, 2013 12:14pm BST  --  Report as abuse
Raymond.Vermont wrote:
Sterling is a UK currency, if SNP wants out of the UK, it wants out of Sterling too… The two are inseparable.

UK currency and with it UK union.

Salmond is trying to play King, when he is little more than a wretch!

Apr 23, 2013 8:55pm BST  --  Report as abuse
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