Ed Balls says Scotland would have to join the euro as 'least bad' option

http://www.theguardian.com/politics/2014/aug/23/ed-balls-scotland-euro-least-bad-option-independence

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Scotland will have to join the euro as the "least bad" option for its economy if it votes for independence, the shadow chancellor, Ed Balls, will say on Sunday.

Ahead of the second and final televised debate between Scotland's first minister, Alex Salmond, and the leader of the Better Together campaign, Alistair Darling, on Monday evening, Balls told the Observer he feared that in the event of a yes vote on 18 September there would be no alternative to Scotland's joining a single currency he regards as deeply flawed .

"I fear that an independent Scotland would end up finding that joining the euro would be the least worst of all the bad options," he said. "It's not what I would choose for Scotland. And I am not surprised at all that Alex Salmond doesn't want to admit it now, but joining the euro would likely be his only realistic plan B."

While Salmond insists that Scotland will not join the euro and will continue to use the pound if it votes for independence, all three main political parties at Westminster have said it would not be allowed to continue to use sterling.

Turning up the heat on Salmond ahead of a debate likely to be dominated by the currency issue, Balls, who opposed UK entry into the euro when he worked for Gordon Brown, said an independent Scotland being part of a sterling currency area was "off the table", as it would be too damaging to Scotland and the rest of the UK.

Alternatively, if an independent Scotland opted to go it alone with its own new currency, whether pegged to the pound or the dollar, it would create massive risk and uncertainty, mean big rises in interest rates and mortgage costs and the loss of key financial business and trade. Entry into the euro would, Balls said, be painful too, as the single currency area was geared to the economies of its biggest members – Germany, France and Italy – rather than to smaller nations, but it was likely to be the only route.

"For Scotland to join an arrangement like that would be hugely disadvantageous compared with the status quo today," said Balls. If he became chancellor after the next election, Balls said he would oppose any currency union with an independent Scotland.

He added: "Given the size of the UK relative to Scotland, given that Scotland would be leaving the UK, the size of the Scottish financial sector and given the risk, therefore, to UK taxpayers, a sterling currency area would be off the table. Attempting to use sterling as the currency of an independent nation without any say over the actual operation of that currency and Bank of England policy would put the Scottish economy in an impossible position, and it would accelerate what would happen anyway – the movement of financial services out of Scotland.

"There is no way you could have banks or insurance companies operating in Scotland when you don't have a lender of last resort, as monetary policy maker, to back the financial sector if you got into trouble. Scotland could attempt to go it alone with its own currency. That would be very expensive, very risky, and people would pay a big price in terms of higher interest rates for mortgages and loss of trade, because it would make the business environment very unstable and difficult."

"I think even Alex Salmond knows now that he has lost this argument and that he is peddling a false prospectus. Going into the debate on Monday he has got to tell people what plan B is. He has got to put up or shut up. Alex Salmond has not got an economic plan for an independent Scotland."

A spokesman for Salmond yesterday stood by the view that Scotland would keep sterling. "An independent Scotland will keep the pound because it's our currency, too, and pensions and public services will be more sustainable after a yes vote because Scotland's economy is stronger than the UK's."

He said public opinion was going the way of the yes campaign. "The last three polls all show significant swings to yes, with support as high as 48%, and we are looking forward to the debate as an opportunity to communicate the positive message why Scotland can, should and must have the powers of an independent country."

After the leaders'first live head-to-head on 5 August, both sides claiming victory. Thesecond debate will be screened on BBC1 Scotland and across the rest of the UK on BBC2 at 8.30pm on Monday. The 90-minute event will be staged at Kelvingrove Art Gallery and Museum in Glasgow in front of an audience of 200 people selected by polling and research consultancy ComRes.