Scotland the Blog: Project McFearson - A currency warning that could shock the job market

Last week George Osborne came to Edinburgh. I was in the audience and  expected a bit of the usual Westminster politicians unintentionally comic buttering up. I was looking forward to him saying something like his family had recently rediscovered a lost castle in Sutherland belonging to his Grandmother, and would be “visiting his granny’s heilan hame” soon. Or maybe he would reveal how he keeps his treasury whips fed on Irn bru and caramel wafers, or that as a Bullingdon Boy he had once ordered a peasant North to buy a deep fried Mars bar... None of it.

No the man, who even his friendly biographers acknowledge is not known for warmth, was decidedly icy and businesslike. This was not like David Cameron’s impassioned pleas to Scots not to break up the union. Against the forbidding backdrop of Edinburgh Castle, the Chancellor introduced new research by the Treasury top “Humphrey” Sir Nicholas McPherson. He pronounced the mandarin’s surname McFearson not with a soft e McPhairson most as Scots would. Was the injection of  fear deliberate. Most people thought so.

The paper aggressively rejects the possibility of a currency union between Scotland and the rest of the UK. Basically he argues that viable currency union needs to meet four tests:  Banking union, fiscal alignment, equal economic weight and a perception among the markets that it would endure. He said Scotland couldn’t meet any of these tests. The fact that his labour Shadow Ed ***, and Lib Dems Danny Alexander lined up behind him showed rare all party unity in defence of the union. George Osborne’s bottom line was Scotland could not keep the pound, as we would be a small volatile economy pitched into uncertainty. We were compared to Cyprus, Panama and Greece. I was amazed Zimbabwe wasn’t in there.

These are well trailed arguments and the detail is being disputed as I write by Alex Salmond and his key economic advisers. Many think it’s a bluff point to the pain for business and the £500 million in transaction costs However whether it’s a bluff or not the negative lab market implications are clear. The Chancellor stated that our economy was overweighed by finance which is basically 12 times our GDP and Oil and gas. Which is 10 times the size of our economy. The paper argues that for every $20 drop in oil price there would be a 0.4 percent increase in unemployment. Their modelling suggests a decline of 11,000 jobs. That's a major concern given volatility in oil prices which will come about through both supply and demand side issues. It cannot be shrugged off. He pointedly contrasted the 10 per cent of trade between Ruk and Scotland with the 40 percent EU and 20 per cent of US trade respectively.

Even the Sunday times a unionist newspaper in Scotland, suggested that Osborne’s approach would be hard for Scots to take. The usual response of barbed humour was evident in the Sunday’s. Journalists joked about Scotland going over to the bawbee as was hilariously trailed In the Daily Mash a year ago. Some said we would start using ginger bottles. Others suggested we join Euro, and of course there were learned technical refutations by people like Sir James Mirlees, whose expert advice imformed the decsion to go with the pound.

The phony war is over at least for the wonks and scribes. How the arguments will really engage the Scottish public is a different matter.

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