Scotland in Europe

The Herald c 1989

AS A SLOGAN, Scotland in Europe is like a piece of glass. If it catches the sun it sparkles like a jewel, dazzling and beguiling. In other lights you can see right through it.

It is seductive because it appears to reconcile Scotland’s persistent discontent with the political reality that the world is moving towards bigger groupings and that, in the view of many commentators, the dismantling of the UK State into sovereign components would be a nightmare.

There are two ways of looking at Scotland in Europe. You can talk about full-blown independence in a Europe of nation-states. Or you can argue that the European Community, if it becomes a genuinely liberalised market, must inevitably grow into a closer political association. The first step would be economic integration — a common currency, a central bank and so on.

A report by an expert group on this question is now being circulated among member States, and the European President, M. Jacques Delors, the former French Prime Minister, is making a major speech about it today. He is a leader of the movement towards European federalism. (In devolution, power is handed down by the centre. In federalism, power is shared).

Mrs Thatcher is fiercely resisting this process. She knows what the Scots have known for a long time, having learned it from their relationship with the English. As far as she is concerned, the Council of Ministers will remain the sovereign European body for the foreseeable future.

It is an open secret at Westminster that the Chancellor, Mr Lawson, the Foreign Secretary, Sir Geoffrey Howe, and other Ministers believe that Britain’s participation in the EMS exchange-rate system is inevitable. Indeed, in his speech last week Mr Peter Walker, the Welsh Secretary, referred to ”the European currency” as if it already existed.

Under the EMS system member countries maintain stable rates by keeping them within agreed bands. There are periodic adjustments.

A common rate, or convergence, implies standard economic policies. Mrs Thatcher is particularly resistant to the idea of a European currency because, as Scotland knows, if you lose control over your exchange rate you are losing a great deal of direct power over your own affairs.

If a country can’t alter its exchange rate, it can have no monetary policy of its own; and if it has no monetary policy, then it can have no effective fiscal policy either. (Monetary policy refers to the management of money and credit in the economy, fiscal policy to Government expenditure and taxation).

Mrs Thatcher, by force of personality and conviction, is retarding a historically inevitable process by which Britain and other member States will have to cede economic sovereignty to new European institutions.

Thus we have Mrs Thatcher, in the role of British nationalist, fighting to protect the freedoms which she would use every argument to deny Mr Sillars and the SNP. Her fear of the fragmentation of Europe, eloquently expressed this year at a Newspaper Press Fund lunch in Glasgow, works downwards, but not upwards.

The objections that are made to ”disaggregating” Scotland from the UK economy are various. The old argument was that we would be worse off. This was the view taken by Dr Gavin McCrone in 1969 in his standard work on the Scottish economy, Scotland’s Future (Oxford 1969). Dr McCrone is now immured in New St Andrews House as head of the Scottish Development Department. By one of these strange British conventions to which the Government is so devoted, the greatest living authority on the Scottish economy is now not permitted to write or speak in public about it.

Before Dr McCrone went into purdah, however, he pointed out that public expenditure in Scotland, on things like hospitals, education, agriculture, and roads, runs at between 25% and 30% higher than the UK average, but income tax marginally lower. This is still true. Thus any Scottish Budget would show a worse result than the UK Budget: if the UK figures were in surplus, then the Scottish surplus would be smaller and, if in deficit, the Scottish deficit would be greater.

As far as I know, the last official attempt to make an estimate of this was in 1969, when the Treasury issued a Scottish Budget. Its main findings were that whereas the UK central Government had a revenue surplus in 1967-68, the Scottish Budget showed a deficit which was put at #130m; and whereas the Scottish share of the UK borrowing requirement in 1967-68 would on a population basis have been #125m it was estimated that the actual Scottish borrowing requirement was #466m.

Since then, of course, the picture has been changed by North Sea oil revenues, which would transform the Scottish accounts. The SNP is working on a Scottish Budget which shows a surplus of #7m. Yet it is facile to assume that, in any separation of Scotland from England, we would be undisputed inheritors of the black, black gold. The English would want to keep what they could.

They might dispute the line of demarcation which exists today for policing purposes (on the parallel at Berwick). They might propose it be drawn as an extension of the Border, which would slant it northwards and be more favourable to them.

There are other ploys. They could give Shetland a deal it couldn’t refuse and persuade it to adhere to the UK while Scotland seceded. Shetland’s reservations over devolution during the seventies suggest that such an approach might very well succeed.

As the Fraser of Allander Institute pointed out in the study for the Herald and BBC Scotland published last week, this would seriously deplete the revenues available to an independent Scotland. The EC itself might demand a share of the revenues as a price for Scotland’s entry.

The economic argument, however, could go on forever. It is circular. Without oil, Scotland is too poor to break off from England unless other, European mechanisms were to transfer resources to it. With oil, things are not much better. Even with a separate Scottish pound, Scotland’s Government, with an open economy, could have no control over exchange rates (the alternative, a closed economy, invites stagnation in perpetual twilight or a plunge into backwardness). And as we have seen, without control over its exchange rate, a country cannot steer its own economy.

Dr Alexander Kemp of Aberdeen University (no relation, but an occasional companion in Ma Cameron’s in days of old) pointed out in 1967 in an essay in Scotland 1980 (Edinburgh) that the oil surplus would present an independent Scottish Government with considerable problems.

The Fraser of Allander study endorses this point. Because of oil there would be pressing demands for more Government expenditure and tax cuts. These would be inflationary. Since effective monetary and fiscal policies would not be available, the Scottish Government would have great difficulty in controlling these pressures, which in normal circumstances it would seek to do, as Norway did, by lending abroad heavily, thus removing demand from the domestic economy and creating external income for the days when the oil ran out.

Politicians and economists have been telling the Scots throughout my adult life that they can’t afford to be independent. Now we’re being told we’re too rich. Yet a substantial minority of Scots persists in aspiring to independence. Most, as the System Three survey suggested last week, believe that their interests in Europe would be better served by direct representation there.

Dr McCrone, in the conclusion to The Future of Europe, put with some impatience the question of why Scottish people, in their political attitudes, took so little account of economic realities. The balkanisation of Britain would be disastrous and nationalism ran counter to the very spirit of the EC.

Yet he conceded that present institutional arrangements were not perfect, and offered the thought that the time to try devolution had ”perhaps” arrived.

That was in 1969. Ten years later Scotland voted with insufficient conviction to endorse the Scotland Act. In the 10 years of Thatcherism that have followed, it is clear that nationalist sentiment, provoked by Thatcherism itself, is on the rise again. It co-exists with unprecedented prosperity for most Scots. It has produced Govan and put Mr Sillars back into Parliament to peddle dreams of Scotland somehow part of Europe but once more in possession of its national voice.

Joseph Chamberlain advocated a federal Constitution for the British Isles. The British gave the West Germans one after the war, and it has worked splendidly. It is an idea whose time has not yet come here: but it surely will.

Martin Jacques, the editor of Marxism Today, writing in the current issue, identified three major forces in the modern world. The first is the growing trend towards internationalisation and global markets. The second is the break-up of the old bipolar world, transformed by Gorbachev. The pressure for change does not come only from him: the US can no longer afford to be world policeman.

The third pressure is Europeanisation. This implies the decay of the nation-state. If Mrs Thatcher is swimming against the tide, if, as Jacques argues, her attitude to this change is regressive, then so too is that of Mr Sillars and his colleagues in the SNP.

What they are expressing is another, contrary pressure. ”As power moves upwards from the nation-state towards larger international units . . . so there is also a countervailing pressure, whose roots are various, for it to move downwards.

”Regions and cities have acquired their own economic leverage with international firms, with the decline in the power of the nation-state and the rise of more intense global competition for inward investment.

”There is a new search for identity and difference in the face of impersonal global forces, which is leading to the emergence of new national and ethnic demands. The most striking example of this trend within Britain is the slow erosion of the ‘British’ identity as it is besieged by the rise of Scottish, and to a lesser extent, Welsh nationalism, though in this instance it is also a revolt against the antiquated British State with its extraordinary degree of centralisation.”

In Europe, whether in Mr Walker’s Wales plc, or in France round Lyons and Grenoble, or in the successful German states (Lander), there is a gathering of regional energies. Scotland, with its history, its culture and its diversity, is surely well placed to make a powerful impact.

Whether it can do so through the intercession of the British Government, or whether it needs its own direct representation, is the real question raised by Scotland in Europe, not the disaggregation of the UK state.