EDINBURGH Jan 29 An independent Scotland that
keeps the pound would have to give up some national sovereignty
to avoid the kind of risks exposed by the euro zone crisis, Bank
of England Governor Mark Carney said on Wednesday.
Carney, speaking in detail for the first time on issues
related to September's independence referendum, said he would
not be drawn on whether Scots would be better off if they voted
to break away from the rest of the United Kingdom.
In a speech to Scottish business leaders, he stressed that
any talks between a breakaway Scotland and London would have to
find a range of agreements to avoid "clear risks" that could
threaten a currency union. These would include "tight fiscal
rules" and a banking union.
"Those risks have been demonstrated clearly in the euro area
over recent years, with sovereign debt crises, financial
fragmentation and large divergences in economic performance,"
He said the euro zone was starting to fix its institutional
shortcomings but "further, very significant steps" still had to
be taken to pool resources and share risks.
"In short, a durable, successful currency union requires
some ceding of national sovereignty," Carney said.
He listed the benefits and potential pitfalls for countries
which share the same currency, including the "potentially large
costs" of giving up an independent monetary policy and a
flexible exchange rate.
The Canadian noted the deep economic integration between
Scotland and the rest of the United Kingdom, which buys 70
percent of Scottish exports.
"A word of caution applies here," he said. "The high degree
of integration between Scotland and the rest of the UK may in
part depend on their being part of the same sovereign nation."
Carney, making his first visit to Scotland since taking over
as BoE governor last year, had earlier met Scotland's First
Minister Alex Salmond, a champion of Scottish independence.
Salmond's Scottish National Party, which runs Scotland's
devolved government, and defenders of the three-centuries-old
union with England are locked in an increasingly bitter debate
over the rewards and risks of independence.
On Tuesday, Salmond said that Carney's predecessor, Mervyn
King, had advised him privately that Britain's finance ministry
would soften its negotiating stance if he won an independence
vote. The BoE declined to comment on Salmond's remarks.
Central to the SNP's vision of an independent Scotland, if
it wins the Sept. 18 referendum, is the creation of a currency
union with the rest of the United Kingdom.
The SNP proposes that as part of that plan, the Bank of
England should act as lender of last resort for Scottish banks
and an independent Scotland should have a voice within the BoE.
British finance minister George Osborne has said the rest of
Britain might be unwilling to let an independent Scotland keep
the pound. The SNP has responded by suggesting that Scotland
might in return refuse to take on its share of Britain's 1.2
trillion pounds ($2.0 trillion) of government debt.
In his speech on Wednesday, Carney said Britain's existing
banking system had proved "durable and efficient" and allowed
Scotland to have banks that were much bigger than its economy.
"The euro area has shown the dangers of not having such
arrangements, as well as the difficulties of the necessary
pooling of sovereignty to build them," he said.
"An independent Scotland would need to consider carefully
how to develop arrangements with the continuing United Kingdom
that are both consistent with its sovereignty and sufficient to
maintain financial stability."
With the independence campaign lagging in opinion polls,
financial markets have so far shown little concern about the
chance of Scotland leaving the UK, and taking a chunk of North
Sea oil and gas with it.
But a poll published on Sunday showed the pro-independence
campaign starting to gain ground, with 37 percent in favour of
independence, 44 percent against and 19 percent unsure,
according to a survey by polling company ICM.
Last month the British Treasury said it would honour all
existing government debt regardless of whether Scots vote for
independence, a move aimed at preventing volatility in borrowing
costs before the referendum.