As I See It
Scotland may have to ditch pound to save itself
A £15 billion gaping hole in the country’s finances has spelled out the true cost of the oil slump and will give her number-crunchers a stiff test in how to convince unionist leaning voters that Scotland can manage its own affairs.
Scotland’s deficit is bigger than that which brought crisis-hit Greece to its knees. Were Scotland now an independent country in the EU it would be facing Brussels-enforced austerity measures, and tax rises, that would make George Osborne blush.
The SNP’s answer to austerity has been investment to stimulate growth. Except it does not have the money to make a noticeable impact and in reality its slavish adherence to spending more on public services will continue to undermine its economic plans.
If this huge deficit show us anything it is that the country can no longer afford subsidised policies such as free prescriptions.
With oil revenues collapsing, the situation was only saved from being more severe by higher production output onshore. However, economic growth has always lagged the UK average and no government at Holyrood has found a way to break that trend.
Could the answer lie in an independent currency as proposed by the US economist Joseph Stiglitz? He is a veteran of global economic battles, a Nobel Prize winner no less, and sits on Ms Sturgeon’s panel of economic advisers.
He been speaking publicly about the benefits a Scottish currency could bring to the economy, and he has said that the SNP’s decision to stick with a pound was a ‘mistake’. He says a Scots currency would be allowed to float and give the government a chance to cut the deficit.
“Small countries can have their currency. Iceland had one of the deepest downturns in 2008 but had one of the strongest recoveries, because it had its own currency,” he said.
Ms Sturgeon is said to be looking closely at this option. It would certainly give Scotland a meaningful means of managing its economy.
Monetary policy is currently tied in to the Treasury and Bank of England. Without any room to change interest rates or the currency the Scottish government is left with only limited powers.
To that extent it can be excused its inability to take the sort of action some believe is necessary.
According to Mr Stiglitz the FM would receive a warmer welcome in Brussels if it were to have its own currency. It would also be in Scotland’s interests not to adopt the euro, he says, as this would merely transfer power from London to Frankfurt.
All this is a long way off. With a deficit of 9.5% Scotland would not be allowed membership of the EU which requires it to be below 3%, whichever currency the country adopts.