Chancellor says Alex Salmond's plans for monetary union between independent Scotland and UK would be unworkable
George Osborne has warned that the eurozone crisis has exposed a fatal weakness in Alex Salmond's plans to keep sterling and the Bank of England after Scottish independence.
In a speech to the CBI in Glasgow, the chancellor said the first minister's proposals to create a new monetary union between Scotland and the rest of the UK after independence were unworkable since their economic interests would inevitably clash.
Speaking after the European Central Bank announced a new bailout plan for Greece, Spain and Portugal, Osborne said: "The members of the eurozone are now faced with what I've described as the 'remorseless logic' – the very lesson of the eurozone crisis – that you can't have monetary union without greater fiscal and political integration."
He said eurozone leaders were planning further controls of the fiscal policies of individual member states to ensure greater consistency across all its members. That again reduced their economic freedom, and meant greater convergence in overall fiscal and monetary policies.
That left Salmond facing very serious questions about how independent Scotland could hope to be, if it retained sterling and the Bank of England as its central bank, Osborne said.
"In a world in which a separate, independent Scotland wished to pursue divergent economic policies, what mechanism could there be for the Bank of England to set monetary policy, as it does now, to suit conditions in both Scotland and the rest of the UK?
"As chancellor of the exchequer, I have seen no such credible mechanisms proposed by those advocating independence. I am not clear they exist."
Salmond argues that the whole UK economy would benefit from close monetary ties after independence: Scotland's exports and North Sea oil and gas receipts would benefit the UK's balance of trade. He also believes the rest of the UK should continue to subsidise Scottish renewable energy to help cut carbon emissions.
However, Salmond is also promising to cut corporation tax to below UK levels, lower other taxes such as air passenger duties and compete for foreign investment with London – measures his critics insist prove that a monetary union would be unworkable.
John Swinney, the Scottish finance secretary, said that on the day the OECD predicted the UK would shrink further, by 0.7% this year, it was very rich for Osborne to lecture Scotland given that the chancellor's "disastrous economic policies are threatening jobs and investment across this country".
Swinney added: "The cast-iron position is that an independent Scotland will keep the pound – a position that the Scottish secretary Michael Moore has agreed with. And Scotland urgently needs the powers of an independent country to boost economic recovery and create jobs, and many of the leading job-creators in Scotland agree with us on that."
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