This morning in his speech in Glasgow, George Osborne, the Chancellor of the Exchequer, set out the government’s economic grounds for opposing full Scottish independence. The emotional and historical arguments in favour of full independence for Scotland are well understood, but in his comments about the economic problems that a newly-independent Scotland would face, Osborne poses a question that should give the Scottish National Party pause for thought.
What currency would an independent Scotland have, Osborne asked? The euro is surely not a viable option. Therefore Scotland would presumably keep the pound. But if it did, it would then be subject to the monetary policy of what remained of the United Kingdom, an economy with a very different structure to that of Scotland and with very different needs. The UK economy, with its huge services sector, would be set interest rates in a manner to suit itself, not the resource-driven economy of an independent Scotland.
To see an example of what happens when economic union is pursued without full monetary and fiscal union, Osborne noted, see the eurozone.