Friday, 28 February 2014

Bailing Out Other Countries

Some people perceive double standards between the UK's bailout of Ireland in 2010 and its disinclination to accept a sterling currency union that would include an obligation to bail out an independent Scotland.

The economic logic is actually straightforward. Ireland belongs to the Eurozone. In 2010 the UK contributed about £7b of an EU rescue package of around £85b, in the process extracting the concession that it would not have to bail out Eurozone members again.

In a prospective sterling currency union of two, the whole of the burden of bailing out one partner would fall upon the other. There would be no obligation on EU members to contribute, any more than they contributed to the £46b UK bailout of RBS.

There is one other big reason for the UK not wanting to share sterling. The Bank of England cannot operate two monetary policies. For example, it could not simultaneously create a stimulus in Scotland and apply restraint in England. Money would simply flow between the two.

It is Scotland that is proposing to leave the UK, not vice versa. There are ten times as many UK Citizens outside Scotland as inside. There is no reason for them to let us take away with us a piece of their economic independence.