Brian Monteith: Carney reluctant to fire his silver far

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Readers may recall that last year there was a seminal moment in the independence referendum when the
 Governor of the Bank of England, Mark Carney, visited Edinburgh. The clocks didn’t quite stop but some Nationalists had to feel for their pulses, for Carney’s speech about currency arrangements if Scotland voted for independence exposed a crucial weakness in Alex Salmond’s arguments for continuing to use the pound.

Yes, there could be an arrangement where an independent Scotland could use the pound sterling, said Carney, but due to the risks for the rest of the UK there would have to be arrangements in place that would to all intents and purposes mean there was no economic independence at all. None over public spending – which would be open to scrutiny and correction by the Bank of England – or, therefore, over Scottish taxes or borrowing.

Carney pointed out what the downsides were to a new currency union between Scotland and the rest of the UK – not least by explaining why the euro had failed to work effectively – but left it at that. He left it to the politicians to work out what arrangement could work.

Carney’s speech was a time bomb, and it was not long before it was detonated by Chancellor George Osborne when he too came to Edinburgh and said that the terms outlined by the governor would be too risky for the rest of the UK to sign up to, for no UK government of any colour could agree to underwriting Scotland if it chose to become independent.

The dream of some Nationalists of higher welfare benefits, lower taxes and higher public spending would create risks to UK taxpayers. The Bank of England – the UK’s central bank – bailing out failed Scottish-based banks when Scotland is in the UK was logical and to be expected, but having to bail out a failed independent Scottish economy could not be countenanced and would provoke public outrage.

From this point on Alex Salmond was never able to handle the currency question convincingly. He had no Plan B of what an independent Scotland would do without the pound – leading many businesses to state they would have to consider moving out of Scotland so they would have the protection of the Bank of England (as their final underwriter).

On Wednesday, Mark Carney delivered another speech of similar nature in Oxford, this time on the UK’s relationship with the European Union and what the Bank of England thinks about it. Just like last year it was delivered because of a forthcoming referendum and sought to provide some clarity about what the future holds.

This week, in one of my frequent sojourns to the London metropolis, I found the level of expectation high – both sides of the referendum campaign were clearly nervous about what Carney might say, knowing the impact of his intervention in the Scottish referendum last year.

It was therefore to the surprise of most that he didn’t really say anything conclusive at all. Indeed, both sides found comfort in his words.

For supporters of EU membership he suggested that the UK had benefitted from access to open markets and the freedom of movement of labour and capital, due to being in the EU. His tone was generally positive. Initially they thought Carney must be in their camp.

Then it was noticed how his speech made no distinction between the UK joining the Common Market back in the 70s and being in the European Union now and how that evolution – from the initial free-trade arrangement to today’s political project that has resulted in 65 per cent of our laws coming from Europe – has added expensive burdens and changed the nature of the beast.

Neither did he consider the access to EU markets that other countries have without needing to be EU members, nor did he consider the financial cost to the UK or provide a cost/benefit analysis. There was silence too on the impact of ever-closer political union – that’s clearly not within his remit.

More importantly for EU-sceptics, Carney flagged up the real dangers that are over the horizon, especially from the need to provide greater intervention to protect the euro and the threat to UK financial services from regulation. Thirty years on after its launch and the EU’s “single market” still does not include financial services.

On balance I thought his speech provided more ammunition for the Leave campaign than it did for the Remain campaign. He certainly did not provide a silver bullet for Osborne to shoot the Leave campaign down. The result is that while his speech makes interesting reading it is unlikely to prove conclusive in the referendum – unless he comes back to make another intervention in the future.

That would be more dangerous for Cameron and Osborne, for the chances are that the longer the referendum goes on the more likely it is that new regulations and laws that will hurt British companies will be thought up by Brussels. If that were the case, the governor would be faced with having to be critical of such proposals.

If I were Cameron or Osborne I’d be worried the way their renegotiation strategy and campaign is going off the rails.