Saturday, May 09, 2015

Handling Nicola

In Scotland we have an anti-austerity party, the SNP, facing a central UK authority determined to clear the deficit. Remind you of anything?

Anti-austerity Syriza in Greece has a mandate to maintain and even increase public spending while its lack of revenues and overarching debts makes this impossible. The European Union is not inclined to continue paying the difference indefinitely. When will this particular can cease being kicked up the road?

Nicola Sturgeon, the SNP leader, will say that Scotland has voted decisively against austerity and that the Scots will not accept any cuts in public spending, especially on welfare. The UK Government will reply that if the Scots were an independent country, their current spending plans would generate an 8% deficit on Scotland's already large share of the public debt and are therefore unaffordable.

How to proceed?

It is tempting to let Scotland see the error of its ways. If it was responsible for raising its own taxes to cover its spending plans, surely the mismatch would be obvious? But the SNP would simply cover the gap by borrowing, as Syriza has done. The deficit would rise (i.e. the public debt would carry on increasing) but Scotland would claim it was 'borrowing to invest' or that repayments would be 'easier down the road' when the economy improved.

It is rarely difficult to find plausible arguments for maxing out the credit card.

If Scotland were an independent state, the markets would respond to repayment worries by increasing interest rates. But Scotland uses the pound sterling and, as part of the UK, its debts are guaranteed by the British state. So there is no downside for the Scottish government to carry on borrowing - it's a form of moral blackmail over the rest of the UK (primarily the English). If the UK Government tries to put a limit to how much the Scots can borrow, the SNP will claim English interference and imperialism and call for the shackles to be released and full independence.

Truly there are no half-way houses between unity and independence if the latter is what you're determined upon. If there were, the Greek situation would have been sorted out long since.

Enjoy your victory, Mr Cameron.