Saturday, 23 July 2011

A further threat to 'independence in Europe'?

My recent guest posts at Better Nation tried to rationalise the SNP's paradoxical attitude to sovereignty within the UK as compared to sovereignty in Europe. The Nationalists have historically disliked the notion of 'sterlingzone' membership and thus monetary policy and interest rates decided by the Bank of England, which they say is primarily for the benefit of the economies of London and the south east of England.

However, during most of recent history they've been committed to membership of the eurozone, with monetary policy and interest rates decided by the European Central Bank in Frankfurt and primarily for the benefit of Europe's northern nations, in particular the relatively large and successful economies of France and Germany.

My argument was that this contradiction could be explained by virtue of an ostensibly more attractive ideology and idealism associated with the European project, as compared to the tired old post-imperialist UK dominated by right-of-centre English politics, or in cruder terms perhaps just good old Anglophobia and a concomitant Europhilia.

And of course the loss of sovereignty necessitated by the SNP's aim of EU membership has always lent its 'independence in Europe' slogan an element of the ridiculous, albeit that Scotland already cedes such sovereignty via UK membership.

But the more recent eurozone crisis - and that ECB interest rates decided for the powerful German economy have kicked the likes of Ireland when it's been economically down - has concentrated SNP minds, and while current policy seems to indicate an independent Scotland retaining sterling, the long-term aim still appears to be eurozone membership.

However, last week's rescue package for the basket case Greek economy has raised the possibility of the EU deciding fiscal policies for eurozone member states. This is predicated on the basis that the public spending profligacy and accompanying borrowing by some nations - not to mentions the lack of economic convergence generally - is the reason for the whole single currency project nearly falling apart.

Indeed, even as a eurozone bystander - but with a lot at stake from a Europe-wide contagion emanating from the crisis in Greece - UK chancellor George Osborne hit the headlines last week by claiming that there was a "remorseless logic" to greater eurozone fiscal union.

In this morning's Scotsman Alf Young (eh?) looks at the implications from the perspective of the SNP Government, and points to its claim that: "With independence the Scottish Parliament would be fully responsible for fiscal policy in Scotland...Ensuring the sustainability of public expenditure would be Scotland's own responsibility, as would managing the national budget over the short and long-term."

But of course discretion in this area would necessarily be limited if an independent Scotland joined a eurozone prescribing greater fiscal convergence. Alf Young looks at the particular example of the SNP's commitment to a lower rate of corporation tax, and a nod in last week's eurozone agreement towards less national latitude in that regard: "But paragraph ten of Thursday's summit agreement notes Ireland's willingness to "participate constructively" in discussions on a draft EU directive about a common consolidated corporate tax base."

Hence if preferring the euro and interest rates set in Frankfurt to the pound and interest rates set in London seemed economically dubious, the prospect of an 'independent' Scotland's fiscal policy being decided in Europe merely adds fuel to the fire in this regard.

And as regards independence per se, if dumping the UK and sterling for the EU and the euro looked like a case of going from the sovereignty frying pan into the fire, this would surely be exacerbated if Brussels rather than London was deciding Scotland's fiscal policies as well.

Indeed, if the SNP thinks the UK economy hasn't converged sufficiently in 300 years to justify the continuation of economic union, then what chance the eurozone with its more disparate economies and its short but hugely turbulent history?

13 comments:

Braveheart said...

"Independent" Ireland has, in effect, given up the power to set its own tax levels.

BTW, your last sentence is spot on and probably worth a post on its own...

Angus McLellan said...

There are reasonable points in there - and not so reasonable ones.

Yes, joining the euro would be foolish given our present state of knowledge. As Keynes said "When the facts change, I change my mind. What do you do, sir?" For the foreseeable future an independent Scotland would have only two choices where currency is concerned, sterling or a new currency, and there would be no need to make any decision on a new currency so long as sterling represented a good-enough alternative. But this is all hypothetical for wanting to join the EU in principle isn't the same as joining the EU in practice.

"Braveheart" is wrong on Ireland, of course, but you may be misunderstanding what is meant by "a common consolidated corporate tax base". Note the wording used is corporate tax base, not corporate tax rates. Today's Irish Times has a a Q&A piece on this. What the CCCTB aims to address, just as the "factor allocation" system for corporate taxes between US & Canadian states & provinces does, is "profit shifting". That is, lawful accounting measures which result in earnings & profits generated in a high corporate tax jurisdiction being taxed in a low tax jurisdiction. This is a rare example of a good idea from the EU Commission. They could still mess it up by poor implementation though.

Anonymous said...

Keeping things simple, the Euro and the EU is the elephant in the room for any political party, let alone the SNP.

It seems that now people are aware just how well the EU and Euro has screwed up other countries how can the SNP possibly sell this?

The SNP is quiet about the Euro and EU these days. But the Euro is for the benefit of France and Germany, Scotland hasn't a look in. And the EU is what buggers up the fishing industry.

The Euro is going full tilt to the buffers, and it won't be a pretty site when it hits.

Stuart Winton said...

Angus, but perhaps Keynes' dictum is a euphemism for "we wiz wrang"?

Indeed, there were plenty warning of the the downsides of a single European currency before its inception and since. It's not as if every strand of opinion has changed its mind because of changing facts, it's more a case of QED.

And thanks for the link, but if the corporate tax rates aren't to be set by the EU then in any case the proposals would surely represent a loss of fiscal sovereignty?

Indeed, the piece says: "In May, Taoiseach Enda Kenny said he believed plans to establish such a tax base could introduce tax rate harmonisation by the “back door”."

Thus perhaps a kind of de facto tax rate harmonisation?

Anon

Indeed, and of course there's a view that the current crisis could see the EU itself falling apart eventually, although clearly that's a tad apocalyptic at this stage.

Angus McLellan said...

Stuart, your translation skills are to be commended. Still, it is better to find out you got things wrong before making a decision than ending up like poor old Norman Lamont did with the ERM.

Today's dead tree 'Sunday Herald' has a story asking "Could there be a place for Trident in an independent Scotland?". It doesn't seem to be on the web site.

The connection between David Leask's question and the euro isn't immediately obvious, but it's there all the same. Leask quotes Mark Lynch of the Royal United Services Institute: "The UK may need to consider playing hard during the negotiation period, for example trading Faslane for not blocking Scotland's entry into the European Union. Scotland's interest in removing the nuclear threat is far outweighed by its need for European Union membership and is thus likely to accept these conditions. Such a trade would be an exceptionally useful tool to maintain the UK's security interests."

Oh, that's a tough one. Agree to keep the nukes at Faslane or get blocked from joining the EU. What to decide? I'm of the view that a compromise on Trident would be necessary and that a reasonable timetable for removal would be part of that, but one way or another Trident would have to go eventually. I've always thought that an independent Scotland would never be lucky enough to end up in EFTA, and the the UK government would have an interest in Scotland joining the EU speedily, but it could be that I was wrong about that too!

There's no doubt that the CCCTB stuff does represent a reduction in national sovereignty for eurozone members. But to suggest that it is an inevitable next step that rates would be harmonised seems mistaken to me. (But as we've already seen, my prediction skills could be improved.) As for this principle being extended beyond corporate taxes to personal incomes for example, that seems quite impossible given the vast differences in the way taxes work across the EU. So, yes, there's room for some creeping expansion of EU powers here, but not as much as might be hoped or feared.

From a Scottish point of view, CCCTB is more interesting as an example of how corp. tax could be devolved inside the UK. It makes Michael Moore's dire predictions the other week look positively silly.

From an Irish view, the problem is that your Dells and Microsofts and other multinational corporations that use "profit switching" to pay taxes on parts of EU-wide earnings in Ireland at 12.5% wouldn't be able to do this to anything like the same degree. Right now Ireland's government finances could easily do without this, or any other, loss in revenue.

From a business point of view, large multinationals may lose out by this. However the majority of companies doing business in more than one country may see benefits from simpler administration. Swings and roundabouts as usual.

Anonymous said...

I don't think the EU will completely collapse. What I think is more likely is that France and Germany will split away and form their own "Super EU", where membership is based on ability to pay. Think of it as a private members club.

What is obvious is that Greece, Spain, Italy, Ireland and Portugal will default on their debts.

The SNP need to come up with some answers.

Independence for Scotland said...

www.independenceforscotland.com

Stuart Winton said...

This is a further post from Angus. Not sure where it disappeared to, but it came through on the email notification:

Stuart, your translation skills are to be commended. Still, it is better to find out you got things wrong before making a decision than ending up like poor old Norman Lamont did with the ERM.

Today's dead tree 'Sunday Herald' has a story asking "Could there be a place for Trident in an independent Scotland?". It doesn't seem to be on the web site.

The connection between David Leask's question and the euro isn't immediately obvious, but it's there all the same. Leask quotes Mark Lynch of the Royal United Services Institute: "The UK may need to consider playing hard during the negotiation period, for example trading Faslane for not blocking Scotland's entry into the European Union. Scotland's interest in removing the nuclear threat is far outweighed by its need for European Union membership and is thus likely to accept these conditions. Such a trade would be an exceptionally useful tool to maintain the UK's security interests."

Oh, that's a tough one. Agree to keep the nukes at Faslane or get blocked from joining the EU. What to decide? I'm of the view that a compromise on Trident would be necessary and that a reasonable timetable for removal would be part of that, but one way or another Trident would have to go eventually. I've always thought that an independent Scotland would never be lucky enough to end up in EFTA, and the the UK government would have an interest in Scotland joining the EU speedily, but it could be that I was wrong about that too!

There's no doubt that the CCCTB stuff does represent a reduction in national sovereignty for eurozone members. But to suggest that it is an inevitable next step that rates would be harmonised seems mistaken to me. (But as we've already seen, my prediction skills could be improved.) As for this principle being extended beyond corporate taxes to personal incomes for example, that seems quite impossible given the vast differences in the way taxes work across the EU. So, yes, there's room for some creeping expansion of EU powers here, but not as much as might be hoped or feared.

From a Scottish point of view, CCCTB is more interesting as an example of how corp. tax could be devolved inside the UK. It makes Michael Moore's dire predictions the other week look positively silly.

From an Irish view, the problem is that your Dells and Microsofts and other multinational corporations that use "profit switching" to pay taxes on parts of EU-wide earnings in Ireland at 12.5% wouldn't be able to do this to anything like the same degree. Right now Ireland's government finances could easily do without this, or any other, loss in revenue.

From a business point of view, large multinationals may lose out by this. However the majority of companies doing business in more than one country may see benefits from simpler administration. Swings and roundabouts as usual.

Angus McLellan said...

Many thanks for saving my post from nasty gremlins! Not sure what happened there.

Although the Herald piece still doesn't seem to be up, the article by Lynch that was quoted in it is available here.

Stuart Winton said...

Thanks for the insight into the Herald article Angus. The quote comes from this more specialist article here, which looks like a good read if you're into defence issues and the UK/SNP dimension.

And on the wider issue of the EU and sovereignty there's an interesting piece in today's Telegraph claiming that the implications of last week's bailout was that some kind of socialist superstate was being created and to the extent that national sovereignty is being compromised then the citizens of individual nations won't be happy, to say the least. Of course, the author Janet Daley is ever so slightly right-of-centre, but it's an interesting perspective nonetheless.

All of which perhaps underlines the paradox between the SNP's approach to sovereignty in the UK as compared to the EU.

If the UK is a creaking edifice in danger of coming apart then similar tensions are effectively being replicated in the EU.

As Anon says, that poses interesting questions for the SNP.

Stuart Winton said...

Ha, you just beat me to it Angus!!

barbarian said...

Reading through the posts. Think what is clear is that the EU is a major problem for any party, let alone the SNP.

Could it be that since the SNP are so hellbent on fighting Westminster, Europe is being ignored. Yet come the referendum that is one of the major questions that will arise.

As you point out Stuart, how does Salmond answer the question about wanting independence from the UK but closer ties with Europe, where Scotland will have practically no influence all?

Stuart Winton said...

Indeed, Barbarian: if the SNP has managed to neutralise the euro issue then if the tensions in the EU project more generally come to the fore in the next couple of years then that'll pose an even more awkward set of questions re the EU than there were already.

And of course if the EU is in difficulty then that might strengthen the 'safe haven' argument for the UK that was consolidated by the peak of the financial crisis a handful of years ago.

Thus an interesting few years ahead!

By the way, hope you enjoyed Maiden at the SECC.

I tried to get a last-minute ticket for Aberdeen off fleabay and gumtree, but didn't quite manage it.

Mind you, most of the Final Frontier stuff is sleep inducing anyway ;0)