Thursday, 13 December 2012

Chicago, Chicago..

13 December 2012

One of my old tales was raised at First Minister's Questions today, when Labour MSP Ken Macintosh asked Alex Salmond if he was still in favour of a fiscal stability pact if Scotland becomes independent and keeps the pound.

Macintosh referred to a speech Salmond had given in Chicago in September in which he appeared to U-turn on his previous desire for such a pact.

I reported on the comments in the Sunday Herald, and also blogged on the subject.

Today, Salmond said he said "no such thing in Chicago".

The First Minister: I said no such thing in Chicago. I pointed out that, if we look at the Government expenditure and revenue Scotland figures and have a borrowing limit arrangement with the Bank of England and the Treasury in that year, we would be £2.7 billion relatively better off than the UK fiscal position—the Institute of Fiscal Studies has confirmed that point in recent weeks.

Macintosh then raised a point of order and read out Salmond's quote in full:

Ken Macintosh (Eastwood) (Lab): On a point of order, Presiding Officer. I am sure that none of us wants to drag the First Minister back here at the end of the day to correct himself, so I offer him an opportunity to do so here and now.
In response to my question earlier, the First Minister did not say whether he supported a fiscal 
stability pact or otherwise, but he specifically said that my quote was incorrect, saying that he said no such thing in Chicago. The full quote from Mr Salmond reads:
"I don’t believe that a monetary policy restriction would have to have a fiscal stabilisation pact. I think we can have plenty of room for manoeuvre within a currency union."
Those words are as quoted by Tom Gordon in the
Sunday Herald on 30 September. Through your offices, Presiding Officer, I ask whether the First Minister made such a statement.

The Presiding Officer: Mr Macintosh well knows that that is a matter not for me, but for the First Minister.

After listening to the audio recording, Macintosh returned to the subject at 5pm and said that the Sunday Herald report was accurate.

Salmond said I had missed out a sentence.

The First Minister (Alex Salmond): Perhaps I can help with my weekly affirmation—which is what I am going to do from now on with nonsensical points of order. Tom Gordon’s report missed out a sentence. [Interruption
The Presiding Officer:
The First Minister:
The point that I made in Chicago was that, in the context of a borrowing arrangement, Scotland would have a £2.7 billion relative surplus compared to the rest of the UK—£500 a head for every man, woman and child in the country. That is exactly the point that I made to Mr Macintosh at First Minister’s question time.

The First Minister is right. I did leave out a sentence in which he referred back to one of his earlier points about £2.7bn. I left it out because it refers to Scotland's relative fiscal strength to the UK, not the monetary union which was the subject of the question and the rest of the answer. It does not alter what was said about a fiscal stabilisation pact (or lack of one) for a sterling zone.

It was striking today that the FM never actually got round to answering Macintosh's question on whether he still wanted a pact or not.

In the interests of completeness, here's the full Chicago quote, with the quotes I used in bold.

Salmond is asked about currency union and whether there could be a repeat of Eurozone woes.

Referring to a putative sterling zone, Salmond asks rhetotically:

Is that the same as the euro? No. The euro’s central difficulty it that it embraces a substantial number of countries with radically different productivity levels, everything from the Ruhr valley to the southern tip of Greece - you know, dramatic difference and divergence in productivity, which is the euro’s central difficulty. Maybe by 40, 50% difference in manufacturing productivity.
"We don’t have that differential between Scotland and England. That’s why it’s an optimal currency and why it’s not the euro.
"Does it inhibit or restrict your ability to pursue an independent economic policy?
"Well obviously in economics, in politics, in life, no country is independent totally, you’re inter-dependent within a context, but it does still give you control of fiscal policy, which has a primacy in my opinion.
"As I was mentioning earlier, the people who said no taxation without representation knew what they were talking about, and control of fiscal policy strikes me at the heart of economic independence.
"We currently control 10%, we will control 15% in the next couple of years.
"That’s not independence. With independence we’d control 100% of the taxation base of Scotland.
"That’s independence in economic terms.
"Restriction in terms.. I don’t believe that a monetary policy restriction would have to have a fiscal stabilisation pact.
"As I’ve just mentioned, if we’d had that last year we’d have been able to deploy 2.7 billion of resources, either to lower borrowing or increase capital spending.
"So I think we can have plenty of room for manouevre within a currency union, and I think using sterling is, on balance, of benefit to both countries.
"Why, incidentally, should England agree?You [the questioner] mentioned it’s our major competitor. We prefer to see it as our friend and neighbour and major market place, but, of course Scotland is a major maket place for England.
"But why should the Westminster government agree to it? Well, it is true when Scotland becomes independent that we’ll have title to our natural resources as any other independent country has - oil and gas revenue - but of course oil and gas impact on the UK economy is not just as direct revenue to government, it’s also the protection that oil and gas provide to sterling, and that amounts to something like thirty thousand million pounds a year protection to the balance of payments. So my view on that would be that any sensible Westminster government would bite our hands off to keep that protection of sterling in the international market place.
"So I think it suits both countries, it’s a positive proposition looking for cooperation and agreement."