During the Scottish Referendum campaign, the question of a sterling currency union was controversial. There were claims that the pound was as much Scottish as English, which were true but which cunningly sidestepped the fact that the pound is not English either. It is the currency of The United Kingdom.
In previous posts on this blog I have discussed the difficulties that are bound to beset two economies of disparate size and structure that attempt to share a common currency. I concluded that the Chancellor was right to rule out a currency union between the UK and an independent Scotland.
Current discussion about Full Fiscal Autonomy for Scotland has so far failed to recognise the same currency problem dressed up in different words. What will happen when a single UK monetary policy is undermined by a fiscally autonomous Scotland adopting a borrow-and-spend stance whilst UK policy is still following a strategy of deficit reduction?
The answer is to be seen in the continuing Eurozone crisis. Under the monetary aegis of Germany, Greece, with Full Fiscal Autonomy because nobody respected the European Stability and Growth Pact, borrowed excessively because borrowing was far too cheap relative to the performance of the Greek economy.
In consequence for Greece the financial crisis of 2008 speedily became a debt crisis. This week's efforts are but the latest attempt by the Eurozone leaders to kick the can down the road one more time, still without addressing the fundamental absurdity of linking Germany and Greece within the straitjacket of a common currency.
It should not have escaped anyone's attention that the Greeks blame the Germans for not lending them more, whilst the Germans are tired of what they see as Greek profligacy. Is it really very difficult to look a little way into the future and see insults being traded between the Scottish and UK governments in remarkably similar circumstances?
The oil revenues that were to be the foundation of Scottish solvency now look like pie in the sky and no-one has much idea how to plug the huge pending revenue shortfall. Vague appeals to the extra revenue that economic growth might yield in the longer term, even if they turn out to be more than just wishful thinking, cannot hide the fact that in the short term Scotland must either tax or borrow heavily, or more likely both.
Full Fiscal Autonomy is incompatible with a common currency. Before our half-baked, less than half thought-through devolution process goes anywhere near it we need a clear, written federal settlement and firm fiscal constraints upon the budgets of all UK member states.