:00:00. > :00:00.teach us. We have to leave it behind to po custody more intently on our
:00:00. > :00:10.own anxieties and hopes in the brief time we're all allotted.
:00:11. > :00:18.Tonight, on Newsnight Scotland. Amidst frenzied speculation and
:00:19. > :00:22.ballyhoo, the governor of the Bank of England comes to Edinburgh to
:00:23. > :00:26.talk about the future of the pound in an independent Scotland. Is a
:00:27. > :00:29.currency union a good idea? His answer? Well, we still don't know
:00:30. > :00:32.what his answer is. Instead, Mark Carney delivered a lecture on the
:00:33. > :00:35.economics of monetary union which had even the most fervent admirers
:00:36. > :00:40.of the dismal science struggling to pay attention. Needless to say, the
:00:41. > :00:43.speech was hailed as a groundbreaking triumph by both sides
:00:44. > :00:51.in the referendum debate. Which, if either, is right? Good Evening.
:00:52. > :00:54.Well, the issue at stake is straightforward enough. The SNP say
:00:55. > :00:57.if there's a Yes vote in the referendum they want a formal
:00:58. > :01:00.currency union with the UK. The Treasury says it's "highly
:01:01. > :01:05.unlikely"" such an arrangement would be negotiated. So, over to the man
:01:06. > :01:08.who would run such a currency union -Mark Carney, the governor of the
:01:09. > :01:12.Bank of England. Does he think a currency union is a good idea? He
:01:13. > :01:16.spent much of the day in Edinburgh trying to answer any question but
:01:17. > :01:20.that one. Huw Williams reports. Arguably the most important thing
:01:21. > :01:23.about today was not the detail of exactly what Mark Carney said, but
:01:24. > :01:28.the fact that he came to Edinburgh to say anything at all. The
:01:29. > :01:33.pioneering work of Scottish economists from Adam Smith to my
:01:34. > :01:37.former supervisor have had a great influence on my profession. Among
:01:38. > :01:50.them is David Hume who was born a short walk from here...
:01:51. > :01:59.This is David Hume, immortalised by the sculptor sandy Stoddart. He is
:02:00. > :02:03.best-known as a philosopher, but he did write an essay on trade between
:02:04. > :02:07.nations that share a common currency. At the time, that meant
:02:08. > :02:11.gold. Things have moved on since then. Mark Carney described his
:02:12. > :02:17.speech as a technical assessment of how you make a currency union work
:02:18. > :02:21.between independent countries. Sharing a currency can also promote
:02:22. > :02:26.investment by reducing uncertainty about currency movements and giving
:02:27. > :02:29.businesses access to deeper more liquid financial markets. It can
:02:30. > :02:34.reduce costs for countries with a history of high inflation and
:02:35. > :02:39.currency devaluations. That was one of the Mott vaguses for many of the
:02:40. > :02:44.countries to join the ERM and ultimately Europe. He pointed out
:02:45. > :02:48.that joining a union means ceding sovereignty. In other words, giving
:02:49. > :02:54.up your freedom to tailor policies according to what you most need. It
:02:55. > :02:57.can be risky. In the extreme, adverse fiscal dynamics could call
:02:58. > :03:01.into question question the country's very membership of the currency
:03:02. > :03:05.union, creating the possibility of self-fulfilling runs on banks and
:03:06. > :03:11.sovereigns absent central bank support. Such feedback loops turned
:03:12. > :03:12.recessions into depressions in several European countries in recent
:03:13. > :03:23.years. Not entirely by coincidence, just
:03:24. > :03:26.across the road from Mark Carney's speech, the Royal Society of
:03:27. > :03:28.Edinburgh has been hosting a seminar today looking at currency, banking
:03:29. > :03:39.and tax in the referendum debate. The event focussed on banking and
:03:40. > :03:43.financial services, and the implications of independence on
:03:44. > :03:47.Scotland's fiscal regulation, tax and public spending, but governor
:03:48. > :03:55.Carney's speech was on everybody's mind. There was nothing new. The
:03:56. > :04:00.importance of governor Cairney's speech was that the governor said
:04:01. > :04:05.it. The governor is talking about how to make independence work. The
:04:06. > :04:11.Bank of England has to do that as the governor said, they're public
:04:12. > :04:14.servants. It's their job to implement whatever constitutional
:04:15. > :04:19.settlement politicians negotiate. Honest with you, if you have one
:04:20. > :04:23.part of the currency union 90% value and the other side 10% it make it is
:04:24. > :04:26.look like the rest of the UK would have the upper hand. The Scottish
:04:27. > :04:30.Government say though that independence would give it control
:04:31. > :04:34.over tax, employment and social security policy. Immigration, oil
:04:35. > :04:38.and gas and a range of other levers. The reality of it is they would have
:04:39. > :04:42.those powers. They would have all those taxes. They have to put
:04:43. > :04:45.together a plan which will show how they would spend the taxes they
:04:46. > :04:49.would raise. Indicate how that would have an impact on its borrowing
:04:50. > :04:55.requirements. The plans would need to be approved. If they didn't meet
:04:56. > :05:00.the UK's requirements there would be a negotiation around, how do you use
:05:01. > :05:04.the levers in the way you want to if they don't immediate meet the
:05:05. > :05:07.expectations of the UK Government. Monetary unions work if there is a
:05:08. > :05:10.considerable amount of fiscal integration. But you get into
:05:11. > :05:14.trouble if there isn't. What is the point of independence if you hand
:05:15. > :05:20.over important controls to someone else? Everybody in Scotland knows
:05:21. > :05:23.that there has to be some degree of shared sovereignty, just as there is
:05:24. > :05:27.between the European Union and the various member states. The question
:05:28. > :05:32.is, how much are you prepared to accept? What does independence mean
:05:33. > :05:39.if you have to cede a whole lot of sovereignty? That's it. It's over.
:05:40. > :05:43.Mark Carney, of course, resolutely refused to say if he thinks Scotland
:05:44. > :05:47.should become independent or stay in the union. So far, at least, David
:05:48. > :05:59.Hume isn't saying either. With me this evening we have a trio
:06:00. > :06:02.of currency specialists. Firstly, Dr Angus Armstrong, who is a Director
:06:03. > :06:05.of Macroeconomics at the National Institute for Economic and Social
:06:06. > :06:08.Research. He is also a visiting professor at Imperial College and a
:06:09. > :06:14.House of Lords special adviser on Scottish independence. Joining us
:06:15. > :06:16.from London, is John Nugee, an economic commentator and Better
:06:17. > :06:20.Together supporter. The majority of his career has been at the Bank of
:06:21. > :06:24.England, his final post spent as Chief Manager of the Reserves. He
:06:25. > :06:27.has also worked for the Hong Kong Monetary Authority. Last, but not
:06:28. > :06:30.least, also in our Edinburgh studio, we have George Kerevan, who is also
:06:31. > :06:33.an economist, commentator and former SNP candidate. Dr Angus Armstrong,
:06:34. > :06:36.let us start with this issue about sovereignty, in his speech Mark
:06:37. > :06:39.Carney, while not wanting to directly answer the question of
:06:40. > :06:44.whether he thought currency union was a good or bad idea, said it
:06:45. > :06:49.would involve ceding nation sovereignty it depends on how you
:06:50. > :06:55.interpret what that means? Yes. And ultimately, of course, this is for
:06:56. > :07:01.the Scottish people to decide in nine months' time. Issue of
:07:02. > :07:04.sovereignty is one that goes back to Mark Carney's speech that he gave in
:07:05. > :07:08.Canada about a year ago when he pointed out that to have a
:07:09. > :07:14.successful monetary union, there has to be a mechanism that, where about,
:07:15. > :07:17.when things go bad in one part of the union, the other part of the
:07:18. > :07:22.union can actually make some sort of financial transfer to it to sort of
:07:23. > :07:27.bide it over the difficult times and vice versa. So, there is a
:07:28. > :07:30.philosophical question here of, what does that really resemble what
:07:31. > :07:34.people think is going to be independence? There is a practical
:07:35. > :07:38.question, how would you actually do that? Particularly since one part of
:07:39. > :07:43.the union is 10 times the size the other? I want to pick up on what you
:07:44. > :07:48.said. It's not really been concentrated on since Mark Carney
:07:49. > :07:51.spoke. He did make a big thing about fiscal stabilisers. In other words,
:07:52. > :07:55.the fact that, at the moment in the United Kingdom, if one part of the
:07:56. > :07:59.UK is doing badly, then money automatically flows to it through
:08:00. > :08:01.the social welfare system. That obviously wouldn't exist for
:08:02. > :08:06.Scotland if Scotland became independent. Now, what was unclear,
:08:07. > :08:14.is he suggesting, do you think, you can't have a currency union unless
:08:15. > :08:17.you have the automatic (inaudible) a united social welfare system. Or
:08:18. > :08:21.there would have to be a mechanism in place where there could be
:08:22. > :08:26.special transfers from one region of the UK to the other in the event of
:08:27. > :08:29.problems? What he was suggesting is successful monetary unions, the
:08:30. > :08:34.lessons from history, are areas such as, he brought up the example of
:08:35. > :08:38.Canada, the United States, when accidents happen, things go wrong,
:08:39. > :08:44.which of course one year they occasionally do, it's best if there
:08:45. > :08:48.is a mechanism where by you have these a cross-border transfers to
:08:49. > :08:52.smooth things out. Just saying that doesn't mean to say it can't happen,
:08:53. > :08:57.the next question really becomes, how would one approach doing that
:08:58. > :08:59.between two sovereign states? He is not saying that it can't be done. He
:09:00. > :09:03.is saying, this is something which is new and would have to be thought
:09:04. > :09:07.through about how you would do this between sovereign states. George
:09:08. > :09:12.Kerevan, what do you make of that? I make this point, this hasn't really
:09:13. > :09:19.been focussed on. It was a big part of Mark Carney's argument. If we...
:09:20. > :09:22.Obviously, the SNP it argues, one of the reasons voting "yes" is to have
:09:23. > :09:26.a different social welfare system from the UK. If you do that, these
:09:27. > :09:31.fiscal stabilisers, as he called them, simply don't work any more.
:09:32. > :09:36.How do you get round that? The first thing to say is that this, the
:09:37. > :09:42.problems occurs if you've got what economists call if somethings
:09:43. > :09:47.happens to one part of the economies that are linked in a common currency
:09:48. > :09:51.not to the others. Which is what happened in the eurozone. I think
:09:52. > :09:58.after 300 years of reasonably strong integration between the UK and
:09:59. > :10:03.different parts of the UK I think it's unlikely in the present
:10:04. > :10:06.circumstances. Let me give you one scenario. Scotland has lots of oil
:10:07. > :10:10.money. The rest of the UK doesn't. There is a fall on oil prices. It
:10:11. > :10:13.has an affect on Scotland that it wouldn't have on the rest of the UK.
:10:14. > :10:17.That's a feesable proposition. Remember, we're talking over over
:10:18. > :10:22.the long term. It's entirely possible that could happen? Gordon.
:10:23. > :10:27.That happens at the moment. When we've had different parts of the UK
:10:28. > :10:33.having different economic problems, right, they have lacked, at a
:10:34. > :10:36.regional level, the fiscal powers to actually create the kind of
:10:37. > :10:41.incentives for their individual businesses in order to grow. Now,
:10:42. > :10:46.countries like America or Canada have actually given quite
:10:47. > :10:50.sophisticated devolved fiscal powers which Scotland does not have in
:10:51. > :10:55.order to get over some of that problem. So, the argument, the
:10:56. > :10:59.argument for dealing with it is that if you have fiscal levers you can
:11:00. > :11:03.apply directly to business incentives, that helps. Can I also
:11:04. > :11:06.say that the other thing that Carney was underlining, which is an
:11:07. > :11:11.important issue, is what happens if, in any of that trigger, any of those
:11:12. > :11:19.problems triggers a banking crisis in one part of the common currency
:11:20. > :11:22.than the other It's better, you have a banking crisis that are
:11:23. > :11:26.cross-border whether you have a monetary union or not. The banks are
:11:27. > :11:29.highly integrated if there was a crisis it would be across the the
:11:30. > :11:34.border whether or not there was a currency union. A currency union
:11:35. > :11:40.would create the institutions that allow a banking crisis to be built
:11:41. > :11:47.by both countries. It's not - Let's move on - Is trying - Let's move to
:11:48. > :11:52.banking in a moment. Let's create the institution where we can deal
:11:53. > :11:56.with these problems. John Nugee what do you make of this. Fiscal
:11:57. > :11:59.stabilisers, once you have two different welfare systems those
:12:00. > :12:03.stabilisers, as I understand it, wouldn't work any more. Is it
:12:04. > :12:07.satisfactory to argue, as George Kerevan does, that somehow fiscal
:12:08. > :12:11.powers that Scotland would have, if it was independent, would trump the
:12:12. > :12:17.effect of not having the fiscal stabilisers? I think they would any
:12:18. > :12:22.small crisis. Clearly, the provinces of Canada, to use Mark Carney's home
:12:23. > :12:25.country as am an example have considerable atomy. More than
:12:26. > :12:29.Scotland does at the moment. The question we need to look at it, is
:12:30. > :12:34.whether they would have another fire power in a big crisis. Whatever we
:12:35. > :12:41.build, as one nation or two, has to survive, not just small crises, but
:12:42. > :12:46.big crises, banking crises happen once in a generation, once in auto
:12:47. > :12:50.50 years. No regulator will tell you it will never happen again. Whatever
:12:51. > :12:54.we build is not for a short-term. Whatever we as one or two nations
:12:55. > :13:02.put together has got to survive the storm. And, I think I agree that
:13:03. > :13:06.Scotland could have more powers to handle short-term fluctuations and
:13:07. > :13:10.small fluctuation that is is behind some of the push for one of the
:13:11. > :13:14.options originally of devo max. To have another power to withstand a
:13:15. > :13:18.major storm, as an independent country, without fiscal transfers
:13:19. > :13:22.from London, asks a great deal of the other parts of the stabiliser
:13:23. > :13:26.that Mark Carney talked about in the banking union. The movement of
:13:27. > :13:31.capital and the movement of people. I think that is the challenge to
:13:32. > :13:33.build a system which survives a really big storm is much more
:13:34. > :13:52.challenging. A less grandiose issue arise from
:13:53. > :13:59.ceding sovereignty. But have to agree the stocking of debt, the
:14:00. > :14:08.public sector deficit that Scotland would be allowed to have. What does
:14:09. > :14:14.that mean for the levers that the SNP want to have? For example, could
:14:15. > :14:20.you still have a corporation tax lower than the rest of the UK?
:14:21. > :14:26.Let me just point out that when this pack is negotiated and agreed, there
:14:27. > :14:31.are eight couple of issues that the negotiator will want to bear in
:14:32. > :14:36.mind. The first is that either party could actually leave the currency
:14:37. > :14:43.union. The white paper quite rightly makes clear that it is up to the
:14:44. > :14:46.Scottish people in future elections to determine whether an alternative
:14:47. > :14:50.monetary arrangement might be suitable. The Scottish Government
:14:51. > :14:58.has stated that. That would also holds true for the rest of the UK.
:14:59. > :15:03.You have to find some constraints that are going to be binding but
:15:04. > :15:08.somehow allow for the fact that it is possible that one day one side
:15:09. > :15:15.might choose to leave, which is the nature of sovereignty. The second
:15:16. > :15:20.thing they will have to do is bear in mind that one of the two parties
:15:21. > :15:26.essentially his native percent of the vote. The smaller parties have
:15:27. > :15:33.to stick to the rules and the bigger parties...
:15:34. > :15:37.Putting it bluntly would it mean something like a different
:15:38. > :15:42.corporation tax rates, the SNP making it a big policy to have a
:15:43. > :15:49.lower rate, with London have to give permission for that?
:15:50. > :15:53.The first thing to say is that I am not involved in negotiations but
:15:54. > :15:58.these are the sort of things that because Asians would presumably want
:15:59. > :16:07.to look at as well as settling the overall envelope for the budget.
:16:08. > :16:14.Clearly, joining some sort of union where you allow competitive
:16:15. > :16:18.advantage to change tax, that would come at a question, I would
:16:19. > :16:30.imagine? John Nugee, isn't there a democratic
:16:31. > :16:35.issue here? Scotland could decide to be independent but nobody has asked
:16:36. > :16:39.people of England, Wales and Northern Ireland whether they want
:16:40. > :16:46.to be in a monetary union with Scotland. Shouldn't there be a
:16:47. > :16:50.referendum for them whether or not to have a monetary union? Imagine
:16:51. > :16:59.the UK Government said we are going to join the euro but we won't have a
:17:00. > :17:10.referendum. I think you make a good point.
:17:11. > :17:14.Whatever government is formed out of the 20 15th general election will be
:17:15. > :17:18.the ongoing government of a continuing UK after independence and
:17:19. > :17:23.will have the responsibility of negotiating terms with Scotland on
:17:24. > :17:27.currency and indeed everything else. So I would expect it to play a big
:17:28. > :17:33.part in that election and it makes for an interesting dynamic, that the
:17:34. > :17:40.two parts of our country speak at different times. The referendum in
:17:41. > :17:45.Scotland comes first and then the rest of the country can opine on how
:17:46. > :17:54.to deal with that. Everybody knows that Scotland has the boat on how to
:17:55. > :18:02.decide whether they want to be -- if they want to be independent. Those
:18:03. > :18:10.of us who want to see it reductive union will hope that the government
:18:11. > :18:12.negotiates responsibly but it is in the hands of the government to
:18:13. > :18:17.conclude those for multiple stations.
:18:18. > :18:21.Whatever the result of the referendum and even if all the
:18:22. > :18:31.parties had something about this in their manifestos in the next general
:18:32. > :18:36.election, it would be a fairly minor argument that the reason for
:18:37. > :18:42.referendums is an constitutional change. So shouldn't the parties
:18:43. > :18:48.saying we will have a referendum on it rather than saying they will or
:18:49. > :18:54.will not negotiate? Agent be up to them?
:18:55. > :19:01.It is certainly peculiar that the three London parties are trying to
:19:02. > :19:07.ignore this major constitutional issue that affects the whole of the
:19:08. > :19:18.UK. I've Cameron is saying it only affects Scotland. -- David Cameron.
:19:19. > :19:22.You can't have a referendum for the rest of the UK about whether
:19:23. > :19:30.Scotland wants to leave. I meant if Scotland forts yes, there
:19:31. > :19:33.could be a referendum for the people of the rest of the UK if he wants to
:19:34. > :19:39.share currency. Shouldn't they have the right to their say in a
:19:40. > :19:44.referendum? I have no problem with that, in
:19:45. > :19:50.fact, I think one of the things that will flow from Scottish independence
:19:51. > :19:57.is that England will get their own parliament back.
:19:58. > :20:03.We are running out of time. John Nugee, because of your background, I
:20:04. > :20:07.want to elevate you to the Treasury for a short answer. If you were in
:20:08. > :20:11.the Treasury and looking at an independent Scotland from the point
:20:12. > :20:16.of the view of the rest of the UK and you were asked whether the UK
:20:17. > :20:22.should form a monetary union, what would you say?
:20:23. > :20:27.I would have to look very carefully at why I was putting my taxpayers at
:20:28. > :20:41.risk for a foreign currency. I would be looking at a country which
:20:42. > :20:51.doesn't share monetary policy very easily. For example the Eurozone.
:20:52. > :21:00.Scotland is different because it is closer. But does the English urged
:21:01. > :21:03.to maintain control trump that? Scotland may gain some sovereignty
:21:04. > :21:09.out of this referendum but England, if it means entering into a currency
:21:10. > :21:14.union with a foreign state, would lose some sovereignty and beaches
:21:15. > :21:21.not to do so. We are joined by our political
:21:22. > :21:30.editor at Holyrood. What do you make of the politics of this.
:21:31. > :21:42.Today's event in some entrenches the politics. The SNP's perspective is
:21:43. > :21:47.saying it is doable if difficult. The Wellcome the prospect of
:21:48. > :21:57.discussions with the Bank of England. On the other hand, you have
:21:58. > :22:01.the Conservatives saying that the proposals from the SNP are in
:22:02. > :22:08.tatters, Labour saying they are falling down. In some sense all
:22:09. > :22:17.sides were saying these things in advance. What the governor does in a
:22:18. > :22:20.neutral fashion is draw together the challenges which would confront an
:22:21. > :22:29.independent Scotland and of course the remainder of the UK. When it
:22:30. > :22:32.comes to formulating the mechanics of that union.
:22:33. > :22:38.It does produce some surreal situations. Watching the press
:22:39. > :22:44.conference, he was trying so hard to say absolutely nothing whatsoever.
:22:45. > :22:48.There was an answer, I can't remember what the subject was, where
:22:49. > :22:55.he clearly drifted into saying something he shouldn't say and you
:22:56. > :23:05.could see him looking down at the desk with panic in his eyes.
:23:06. > :23:14.And you could see him saying how do it was a shame that every journalist
:23:15. > :23:19.only had one question. Bear in mind this is the Governor of the Bank of
:23:20. > :23:23.England and what he did say is market sensitive and he is used to
:23:24. > :23:28.being cautious. You could see his relief on the way
:23:29. > :23:35.out. Absolutely. He faced some searching
:23:36. > :23:40.questions as he would always do from the media. But he was being very
:23:41. > :23:45.cautious in his replies. Where does this go from here. Does
:23:46. > :23:58.everybody just keep reducing and lists lists of numbers -- endless
:23:59. > :24:03.lists? The Conservatives will see the
:24:04. > :24:09.currency union was always unlikely. Alex Salmond has said on a number of
:24:10. > :24:15.occasions that Scotland could choose the internationally tradable
:24:16. > :24:22.currency called the pounds but just not in the sterling zone. His
:24:23. > :24:28.opponents could pile on that and say wicked Alex Salmond is suggesting
:24:29. > :24:32.something bad. He could say he is not suggesting this is a good idea,
:24:33. > :24:35.just that you could do this if he wanted.
:24:36. > :24:43.Just a quick look at the front page of the Scotsman. And the Daily
:24:44. > :24:46.Telegraph. That is all for tonight. I will be
:24:47. > :25:04.back tomorrow. Good night. It will be another cold day
:25:05. > :25:16.tomorrow. There will be further showery outbreaks of rain. In terms
:25:17. > :25:26.of sunshine, that will be best in Scotland, especially the West of
:25:27. > :25:37.Scotland. We have got more wintry showers in the East. It may brighten
:25:38. > :25:41.up a touch in the south-east but some rather sharp showers in the
:25:42. > :25:50.afternoon. Temperature is not quite as low as they were today. Somewhat
:25:51. > :25:55.drier for the south-west of England and a bit brighter in Wales. Its
:25:56. > :25:56.Friday that