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Will Osborne Cave In On Currency Union ?


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Quite a few articles in serious newspapers this morning commenting on the nervousness in the markets, simply on the back of one decent poll favouring Yes.

The pound dipped and speculators are hovering, just keeping an eye on things.

The UK government are(on the surface) spectacularly unprepared for independence, and the insistence on no currency union isn't helping a cause that's starting to look weaker by the day.

You've got to wonder what one or two polls in the next 10 days, suggesting a Yes lead, would do to the markets. Would it force Osborne's hand ? Will he be forced into stating that yes, currency union is indeed preferable ? One things for sure, he couldn't possibly allow chaos to break out.

Maybe people more versed in this subject than me could comment.

Interesting times.

Edited by Rossy
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the market nervousness is not about Scotland taking control of its own affairs. It is about the prospect of Scotland taking its assets out of Sterling and leaving the UK to its own mess... There is a possible scenario whereby the markets force the UK to not only accept the debt is theirs (which they have already done) but that they will play nice with currency...

this would almost guarantee a Yes vote but creates another risk for them - they can't go into a currency union negotiation having already agreed to one....

almost like they have taken huge political risks without thinking through all the possible consequences

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I'm not convinced the movements in the markets were anything to do with the Indy poll. There's a lot of volatility about at the moment because of Israel, Iran / Syria, Ukraine on top of the background economic situation.

that is also possible. But wouldn't it be funny if the papers talked the markets into it...

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It's very curious how Osbourne and Balls have all but disappeared in the last few months. Now, that could be a clear indication that their opinions were toxic last time but it seems ridiculous that given the prominence of the currency and the economy over the last month or so that neither have been involved in any way in the debate. I have a hunch that they are now saving their reputations for post-Yes monetary union negotiations. They can u-turn on their single, initial threat but that would be more difficult if they repeated the threat right up to polling day. IMO, that's why we are seeing nothing at all from them and the rejection of currency union is almost entirely self-contained within Scotland.

Also, the papers widely covered the impact the vote was now having on Sterling and I expect we'll see that continue right up to the vote. I think the Treasury will see it as a necessary risk and hit, but will probably believe that moving quickly after a Yes vote to secure monetary union will recover any drop in value.

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the market nervousness is not about Scotland taking control of its own affairs. It is about the prospect of Scotland taking its assets out of Sterling and leaving the UK to its own mess... There is a possible scenario whereby the markets force the UK to not only accept the debt is theirs (which they have already done) but that they will play nice with currency...

this would almost guarantee a Yes vote but creates another risk for them - they can't go into a currency union negotiation having already agreed to one....

almost like they have taken huge political risks without thinking through all the possible consequences

+1

Just as I'd be really surprised if Westminster wasn't really prepared for post-referendum negotiations, I'd be equally surprised if currency speculators didn't already have plans in place to attack Sterling. For exactly the reasons Uproar states. Without the resources of Scotland to back up Sterling, and more importantly the debt of Sterling, it's an overvalued currency (despite what the naysayers here might say).

Osborne has a dilemma. Come out and say that there WILL be a CU after all, to kill off the speculation, and he only gives confidence to Scottish voters considering voting YES;

Come out and say that there WON'T be a CU, and he doesn't hand the YES campaign this advantage. But he does bolster those eyeing Sterling.

It's a quandary right enough. Who'll blink first? My money's on Osborne doing a Lamont (Norman). He'll stick to his guns, Sterling will be attacked, and once the vaults at the BoE are empty, Osborne will announce that there will be a CU after all.

Osborne, personally, won't be skint. But rUK will be.

And all of this will happen BEFORE September 18.

[it wouldn't surprise me either if there are some NO voters on here who are considering taking their slice of the Sterling pie too]

Edited by morag
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Quite a few articles in serious newspapers this morning commenting on the nervousness in the markets, simply on the back of one decent poll favouring Yes.

The pound dipped and speculators are hovering, just keeping an eye on things.

The UK government are(on the surface) spectacularly unprepared for independence, and the insistence on no currency union isn't helping a cause that's starting to look weaker by the day.

You've got to wonder what one or two polls in the next 10 days, suggesting a Yes lead, would do to the markets. Would it force Osborne's hand ? Will he be forced into stating that yes, currency union is indeed preferable ? One things for sure, he couldn't possibly allow chaos to break out.

Maybe people more versed in this subject than me could comment.

Interesting times.

Against :unsure:?

Edit: I see now - the $. Sadly, not against the Euro, which would have been good news for me.

Edited by Charlie Endell
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Got the usual daily market analysis email from the forex company i use regularly. This bit was interesting...

"Sterling sells off over Scottish Independence fears

3 September 2014

Sterling sold off heavily yesterday morning amid concerns over the Scottish referendum vote scheduled for 18 September. The latest YouGov poll has revealed that the gap between the No and the Yes vote has narrowed markedly. The poll showed the No vote still leads at 53 per cent to 47 per cent for the Yes vote, but that reveals a narrowing of 8 points from the 14-point lead just a month ago. The poll overshadowed the better than expected economic data released yesterday from the UK construction sector, which showed the strongest growth for seven months in August. Most analysts still expect Scotland to remain in the UK but the uptick in the "Yes vote" for independence has unnerved the markets due to the uncertainty that the move to independence would mean for the UK."

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I have a hotel booked in Hong Kong next month for 8 nights, pay on arrival. Could cost me a few bob. :yikes3:

#VoteNo so i can have some extra spending money. :D

First reports in the paper today about the Treasuary admiting to contingency plans.

Was it not having contingency plans about having contingency plans? :shocked:

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+1

Just as I'd be really surprised if Westminster wasn't really prepared for post-referendum negotiations, I'd be equally surprised if currency speculators didn't already have plans in place to attack Sterling. For exactly the reasons Uproar states. Without the resources of Scotland to back up Sterling, and more importantly the debt of Sterling, it's an overvalued currency (despite what the naysayers here might say).

Osborne has a dilemma. Come out and say that there WILL be a CU after all, to kill off the speculation, and he only gives confidence to Scottish voters considering voting YES;

Come out and say that there WON'T be a CU, and he doesn't hand the YES campaign this advantage. But he does bolster those eyeing Sterling.

It's a quandary right enough. Who'll blink first? My money's on Osborne doing a Lamont (Norman). He'll stick to his guns, Sterling will be attacked, and once the vaults at the BoE are empty, Osborne will announce that there will be a CU after all.

Osborne, personally, won't be skint. But rUK will be.

And all of this will happen BEFORE September 18.

[it wouldn't surprise me either if there are some NO voters on here who are considering taking their slice of the Sterling pie too]

I work for the UK civil service, albeit at a low level, and I know for a fact that a lot of time and effort has been poured into subtly persuading the public to vote against independence (none of which I have been involved in, I might add). But knowing some of the clowns at the top of the shop it would not surprise me in the slightest if they have not prepared for post-referendum negotiations.

Standard operating procedure in the civil service tends to be to carry on regardless until told otherwise, at which point on go the breaks and about turn...

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the market nervousness is not about Scotland taking control of its own affairs. It is about the prospect of Scotland taking its assets out of Sterling and leaving the UK to its own mess... There is a possible scenario whereby the markets force the UK to not only accept the debt is theirs (which they have already done) but that they will play nice with currency...

this would almost guarantee a Yes vote but creates another risk for them - they can't go into a currency union negotiation having already agreed to one....

almost like they have taken huge political risks without thinking through all the possible consequences

I asked Alistair Carmichael about that last week - if sterling fell due to the removal of the underpinning effect of oil, what has his Plan B? He didn't come up with an answer.

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Some folk were suggesting that when Gideon did his sermon on the pound back in February, it was a deliberate attempt to get the pound devalued. One of the main reasons was to try to help exports to try to boost the economy before the 2015 election. Causing uncertainty for the referendum was just an added bonus. Maybe this was his plan all along (well not his plan obviously, as it would need to somebody much smarter than him to come up with it) but it has just taken longer to happen than they expected?

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Whichever way you look at it, there are no winners from the adopted position on the currency union.

Despite the fact that there are a number of factors that are making the currency market jittery with Sterling (and I don't think the YouGov poll has realistically contributed that much to it at all) then there can only be a bad outcome for rUK, and to an extent Scotland. Outcome is that it weakens the £ through market perception/uncertainty then this is not good. If they refuse a CU then we walk away from debt and added to that the rUK takes a hit on Balance of Payments and loses approx. 9% revenue = not good. Despite the fact that we can use the £ regardless then this wouldn't be good for us to operate with a weakened currency against the euro, yen, dollar, etc. If we were to then decide to launch a Scots currency due to a weakened £ then this would be difficult as well as we'd be wanting to peg it to the pound to ensure stability of Scottish/rUK cross border trade and also have the transactions costs coming into play.

The more you look at it, the more ridiculous it seems that Westminster have put themselves in this position for political posturing. I'd expect a rapid turnaround on this issue after the vote before it even gets to the negotiating table - although in reality it will probably be dressed up in a manner to save face for the Westminster Gov.

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There's no way there will be a volte face on the currency stance before the referendum because it would hand victory on a plate to YES. It could even bring down the government because I can imagine (in fact would hope) the rUK public's reaction would be extremely hostile.

If there is a YES, I agree it will be up for negotiation, at least initially, but I really don't think it is a realistic possibility that the UK would agree to a CU on terms that would be satisfactory to the Scottish Government.

Even if they did agree terms (and I genuinely don't think the UK government want a CU, and my extensive reading on this subject brings me to the same conclusion), there won't be one without one of the rUK political parties including it in their 2015 GE manifesto and receiving a mandate or without a UK-wide referendum (only fair since one was promised in the event of joining a Euro and that the situation would have arisen by virtue of a vote that was only open to those living in Scotland).

I suppose anything could happen, but the scenario I'm outlining here is far from unlikely.

However, should Scotland call Osborne's "bluff" (not necessarily the right word here as I don't think it is, but you catch my drift) and vote YES, and the rUK government stand firm on the issue it won't make a difference to the result - Scotland will still become independent. I recall someone - Khana Lagur it may have been - suggesting that one of the reasons why rUK would not get in the way of a CU is because the SG have made it clear that they desire this, and to refuse a CU would somehow breach the Edinburgh Agreement because independence would have to be aborted. Not so, a YES vote and Scotland goes.

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"As we head towards a resounding Yes vote in fourteen days, here's why there WILL be a currency union.
"Tucked away in the Financial Times’ report earlier in the week was the giveaway. “Currency investors” would apparently be “particularly concerned by the UK’s persistent current account deficit if this were no longer offset by North Sea oil revenues.”
This is something of an understatement. ""

http://www.neweconomics.org/blog/entry/scottish-independence-uk-dependency?utm_source=twitter&utm_medium=social&utm_campaign=20140904scottish-independence-uk-dependency

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There's no way there will be a volte face on the currency stance before the referendum because it would hand victory on a plate to YES. It could even bring down the government because I can imagine (in fact would hope) the rUK public's reaction would be extremely hostile.

If there is a YES, I agree it will be up for negotiation, at least initially, but I really don't think it is a realistic possibility that the UK would agree to a CU on terms that would be satisfactory to the Scottish Government.

Even if they did agree terms (and I genuinely don't think the UK government want a CU, and my extensive reading on this subject brings me to the same conclusion), there won't be one without one of the rUK political parties including it in their 2015 GE manifesto and receiving a mandate or without a UK-wide referendum (only fair since one was promised in the event of joining a Euro and that the situation would have arisen by virtue of a vote that was only open to those living in Scotland).

I suppose anything could happen, but the scenario I'm outlining here is far from unlikely.

However, should Scotland call Osborne's "bluff" (not necessarily the right word here as I don't think it is, but you catch my drift) and vote YES, and the rUK government stand firm on the issue it won't make a difference to the result - Scotland will still become independent. I recall someone - Khana Lagur it may have been - suggesting that one of the reasons why rUK would not get in the way of a CU is because the SG have made it clear that they desire this, and to refuse a CU would somehow breach the Edinburgh Agreement because independence would have to be aborted. Not so, a YES vote and Scotland goes.

You may be right but then again...

Though there is a parallel with joining the Euro, which would be expected to have a referendum, that would be about 'losing' the pound and ceding to a continental central bank. It could feel like ceding sovereignty. Now you may argue (may already have) that a CU would be ceding some sovereignty, but it's not as dramatic, as it would be 'keeping the pound' and the central bank located at Bank, London, and the pound in people's pockets would be the same. Politically surely those are much easier to get past the electorate than the Euro scenario.. And, although maybe CU could be arguably ceding sovereignty, in one sense, of allowing a foreign country having influence, it would be no more than recreating something close to the good old UK, which already included an element of that country's interests in there somewhere....

And who knows what circumstances the decision would be taken in? If it was in the context of an emergency credit crunch type situation, all sorts of things could happen - if it is suddenly in the (rUK) national interest to stabilise the ship pronto, presumably it could be done, and framed as a necessary 'technical emergency measure' rather than a referendum issue.

I'm not saying that's likely though.... just imagining the possibility...

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