Currency union: some arguments

Bella Caledonia published a shortish piece of mine on the political economy of a currency union with Scotland, post-independence. I argued that disputes here reflected both the overwhelming strength of finance inside the UK economy, and the hidden weakness of its current account position. This provoked some debate; my reply is as below.

A Very British self-pity

Chris Mullin, MP for Sunderland South, author of A Very British Coup, writing in the London Review of Books, myopically unable to conceive any (Labour) MP had done anything much wrong in the expenses scandal:

The damage is incalculable. Not just to us, but to the entire parliamentary system. We are sinking in a great swamp of derision and loathing. No matter that the guardians of public morality at the Telegraph appear to have paid a large – and so far undisclosed – sum of money for discs that seem to have been stolen, open season has been declared on we wretched, despised servants of the people.

Self-pitying whinging aside, the sheer blinkeredness of Mullin – and close to every other MP asked to comment on the issue – reminds me of the standard Labour Party reaction to the Iraq protests.

Opposition to the war on Iraq, we were told, was just a problem of communication on this one issue; that voters were otherwise happy; that the Parliamentary system was fundamentally sound. New Labour loyalists either could not or would not grasp that the ferocity of the opposition to the invasion was the bubbling to the surface of many, other, much deeper-rooted discontents: with Labour’s steady abandonment of its core support; with the ill-concealed contempt Westminster held for opinions in the rest of the country; and with the casual, blase attitude to the truth Blair and Campbell evinced, in particular. All these separate complaints and irritations fuelled the anger. Underneath it all was a withering of political legitimacy in this country – as noted by the unjustly (if predictably) ignored Power Inquiry.

That withering has become a near-collapse, in the wake of economic crisis. Scarcely an institution exists  that has not been damaged in the last eight months: the police, the City of London, Parliament, the Treasury: either directly, or indirectly, the economic crisis has had extraordinary political effects.

(The last of the above, for many reasons, interests me especially: from secretly running the country under Brown, the Treasury  has been pushed into a  position of  what must be almost unprecedented weakness – certainly nothing like this has been seen since the war. Take Mervyn King’s continued insubordination, for example, unthinkable even a few years ago, “independent” central bank or not; whilst Darling and his mandarins have been wholly unable to prevent Mandelson creating a new super-department overseeing key economic functions.)

The rift reopens

This is, in passing, another indicator that the economic crisis is far from resolved – and continues to produce sharp political disagreements:

Appearing before MPs at the Treasury select committee this afternoon, King rejected the chancellor’s budget forecasts, laid out in April, as too unambitious, saying that if the economy recovers as rapidly as Darling expects, the Treasury should act more urgently to bring borrowing down.

“We are confronted with a situation where the scale of deficits is truly extraordinary. This reflects the scale of the global downturn, but it also reflects the fact that we came into this crisis with fiscal policy on a path that wasn’t sustainable and a correction was needed,” he said.

Now King and Darling have squabbled before: the Treasury taking a broadly “Keynesian” line  (maintain spending, print  money) and the Bank, true to form, sticking to its 1930s role as keeper of the Fiscal Orthodoxy: hammer spending, avoid printing money. Last time round, the Treasury won out: Darling pushed King and co back into their box, borrowing continued to rise, and the Bank of England was pushed into “quantitative easing”.

Given all the recent – and basically hopelessly optimistic – talk of “green shoots”, you might expect this political row would be contained. Far from it. It’s a measure of how severely screwed the British economy is, and how little anyone running the thing has a clue how to deal with it, that once more King is taking up  cudgels against the Government. (Of course, the risk with having a much-proclaimed “independent” Bank of England is that they may display some independence on occasion… but presumably Brown knew that, back in 1997.)

But the nearest available political alternative – George Osborne in No.11, a truly awesome thought – is hardly likely to inspire confidence, as S&P’s re-rating of the UK’s creditworthiness made horribly clear.

No, we’re screwed; shit creek minus paddle, with two different captains squabbling over the tiller. Time, perhaps, for a mutiny?