Cameron and Salmond endanger Scotland’s national interests at the heart of Europe

By any standards, the David Cameron’s decision last week to remove the UK from the negotiating table on the crisis of demand, growth and jobs in the Eurozone was a dereliction of duty, a disastrous failure of diplomacy, and a slap in the face for his Liberal Democrat coalition partners. The Prime Minister should have stood up for the interests of Britain’s businesses, workers, and the growing numbers out of work at home, by remaining at the table and calling for further discussion on policies to generate growth and demand in the Eurozone, and resolution of the role of the European Central Bank in supporting severely indebted countries within the Eurozone, instead of spoiling for a fight to appease his backbenchers at Westminster. His self-proclaimed diplomatic achievement is already fraying at the edges, with no new legal guarantees or protections for the financial services sector (the claimed reason for his exercise of the veto), and Government sources now claiming a sense of inevitability about EU institutions being used for the Eurozone stability pact, at complete variance with the hostile stance of the Chancellor last Friday. The EU is our largest trading partner, and businesses in Scotland have already expressed concern about the impact the Prime Minister’s isolationism may create for future investment decisions, and our influence in shaping rules within the single market.

But for another leader, Scotland’s First Minister Alex Salmond, last week’s European Council poses some uncomfortable truths about the detail of his policy towards the EU, and that his brand of isolationism from the UK, would damage Scotland in Europe too. The root cause is that the SNP’s position on Europe has become ever more influenced by their party interests in seeking to create a separate state than what is in Scotland’s national interests. Two years ago Mr Salmond chortled on Spanish television about the decline in the value of sterling and spoke of how membership of the Euro was an important argument in his battle to secure a separate Scottish state. Now he speaks about maintaining sterling in the event of separation until a better option turns up. Never does the First Minister acknowledge the reality of what separation would mean – the vast bulk of expert opinion warns that how a separate Scotland would join the EU and the conditions for it are deeply unfavourable to the Scottish national interest. The prospect of seeking re-accession to the EU as a separate state would require agreement to use the Euro, impose severe limits on the exercise of fiscal powers, and lose the benefit of the current UK’s opt-out on membership of the Euro and, crucially, the rebate. The importance of the UK’s historically distinctive relationship with the EU cannot be underestimated, for without it, newly joining states are bound in law by Treaty to orientate economic policy with a view to becoming members of the Eurozone in due course. The First Minister seeks to dismantle one financial and economic union – the UK – and is unclear about his preferred timing to join another. Scottish workers and businesses deserve clarity not obfuscation from the SNP to avoid dangerous levels of uncertainty from overseas investors about the macroeconomic policy to be followed in the years ahead.

The Scottish Government produced a White Paper on separatism two years ago – it contained one paragraph on the future of monetary policy in Scotland, and another on the future of industrial policy in a separate state. What the document took no account of is the degree of pooling of sovereignty not just across the EU, but in the IMF and other global financial institutions too, and the level of interconnectedness between the financial sectors of the UK and the EU. We hear nothing from Mr Salmond on what vision he has for banking regulation – would he support the additional capital requirements recommended by the Independent Commission on Banking of tier one capital of at least 17%, higher than the Basel III proposals, or would he support the lower capital requirements supported by other EU banking regulators? Would the Bank of England be the regulator of the banking system in Scotland, or would he seek a system of separate banking regulation in Scotland, or simply fall in with the EU requirements? More fundamentally, would the Scottish Government be able to muster sufficient financial firepower on its own to solve any future collapses in the financial institutions based in Scotland, or have to seek willing partners in other EU states for help? In short, what happens in a separate Scotland if the two major banks collapse requiring a level of intervention which would be utterly ruinous for Scottish public spending? That is not a hypothetical question – it has already happened, two years ago, and the 300-year old Union saved Scotland’s two banks from utter meltdown.

On interest rates and inflation, there are a plethora of unanswered questions too. If Scotland formed a de facto currency union with the rest of the UK in the event of separation but without a central bank responsible for monetary policy, the Bank of England would set interest rates for the UK but without any reference to factors in a separate Scotland. One of the lessons of history and of the current Eurozone crisis is that a greater degree of fiscal co-ordination is required for currency unions between separate states to be successful, and that risk for sovereign debt problems is a major factor for the larger units in any currency union. If Mr Salmond sought to form a currency and/or monetary union by Treaty between a separate Scotland with the rest of the UK, would he be prepared to accept fiscal co-ordination dictated by the UK Government and monitored by the Bank of England? And on what rules – on an inflation target, deficits, debts, and sanctions for breach of fiscal agreements? Would he be prepared to have his fiscal plans submitted for approval to the Bank of England each year before the Scottish Parliament would have a final vote on them? A fully fledged currency and monetary union between a separate Scotland and the UK would come at a price in terms of loss of fiscal autonomy he says his separatism policy is motivated by. A half-baked de facto currency union not established by bilateral Treaty would expose a separate Scotland to the full vagaries of the financial markets. It is hard to see any benefit for Scotland in such arrangements in contrast with the security of being a full part of the UK financial and monetary system as we are at the moment.

The First Minister’s position on the Eurozone deals calls into question his other policies on Europe. In particular, his party’s long-standing commitments to scrap not reform the Common Fisheries Policy, and to cut corporation tax to 12.5%, which are not supported by most other EU member states, are like many of his other pledges – worthless. If he reduces further his negotiating toolkit, he would have to face the logical consequence of this action, and drop these policies. Such a stance poses another question – if these policies are bottom lines for the First Minister, could a Scotland he leads be a member of the EU at all – would the European Free Trade Area be an alternative destination for a separate Scotland? That is something his own external affairs minister has mooted at Holyrood. Would such a Scotland be looking less at emulating the Scandinavian model, and more the Swiss model, seeing consumers and businesses bound by rules affecting the Single Market as a member of the European Economic Area, but with no influence on shaping them, and no influence in vital decisions at the heart of Europe?

Mr Cameron’s stance at the latest EU summit ought to remind us of a valuable lesson that is central to the ongoing debate on an independent Scotland – without sufficient political gravitas, adverse decisions will be made at the EU level  on a broad range of issues over which countries with insufficient political backing have little say. Mr Salmond cannot run away from facing the people of Scotland on the matter of dramatic pooling of sovereignty which membership of the Eurozone in the near future on the new terms would involve – an inflation target and monetary policy set by the European Central Bank, and co-ordination of spending and taxation plans by the EU.

A separate Scotland would have fewer votes to wield when European leaders fail to take the coordinated action we here in Scotland and in Europe need for jobs and growth.

That is why Scottish Labour stands as the party of pragmatic pro-European interests for Scotland’s future. In favour of a package of growth and job creation measures across the EU in order to break out of the ongoing austerity deadlock, the European Central Bank acting as a lender of last resort to boost subdued market confidence, completing the single market, which the Government’s own figures suggest could add 7% to UK GDP, and taking collective action on climate change to build upon the limited agreements reached this week at Durban, in common with our sister parties on the EU centre and left. We would be at the table arguing for a better agreement, allowing the European Union to grow its way to recovery rather than piling austerity on austerity through the flawed fiscal pact.

Our aim – to win support and allies in the EU for our shared interests, and by the force of our convictions and ideals to provide a better future for the jobless millions and squeezed middle across the EU than the isolationism, austerity, and separatism of our opponents could ever do

William Bain MP is Labour MP for Glasgow North East, a member of the Labour Movement for Europe, and Shadow Scotland Office Minister