Saturday, 27 September 2014

Towards an Independent Welsh Currency

  Leanne Wood is fond of saying nowadays that “Independence won’t happen tomorrow”. And probably with good reason. For those of us who support Welsh Independence, the harsh reality is that if by some act of constitutional magic, Wales did become Independent tomorrow, we’d have a hell of a budget deficit. The Holtham Report, commissioned under the “One Wales” agreement, identified a difference of £6 billion between tax raised in Wales, and total public spending. Many senior figures in Plaid are well probably well aware of this figure, which is why the Independence genie, having popped out of the bottle, refuses to grant us the wish closest to our hearts. Independence has become a distant oasis in the economic desert.
  Except that it’s not quite that simple. For the surprising and somewhat perverse reality is that although our public finances would be in a pretty dire state, an Independent Wales would also start life with quite a tidy trade surplus, something on the order of £5billion if the most recent figures are anything to go by. Why? Because after decades of globalisation and de-industrialisation, Wales still has something that many Western countries at the start of the 21st century now lack – a good manufacturing base, in our case accounting for something like 16% of Welsh GDP.
  So even though the UK as a whole runs a trade deficit, taking Wales out of the UK equation means that, as Neil Kinnock once put it so eloquently, we’re alright.
  In fact, taking Welsh manufacturing out of the strait-jacket of the Union takes us on an interesting journey, but it also raises questions about what kind of meaningful industrial policy Plaid Cymru in particular can formulate while it’s still sucking on the comfort blanket of Devolution. For power devolved, as Enoch Powell once put it, is power retained, and Devolved economics is still economics that works in a Unionist framework. 
  From a manufacturing perspective, few companies illustrate the nature of the strait-jacket posed by the Union as well as the operations of TATA Steel in Wales. If we wanted a clearer illustration of how the UK economy is designed to benefit the banksters running the City of London, while militating against what could well evolve into the engine of Welsh Independence, look no further.
  Let’s look at a few facts.
  TATA is Wales’ largest manufacturer. The Jewel in its crown is the massive works at Port Talbot - hosting the UK’s largest integrated steel plant, and accounting for anything up to half of all UK production of Steel. TATA in Wales employs around 8000 staff directly and is estimated to contribute around £2.5 billion to the Welsh economy.
  Yet like all manufacturers, its export focus makes it vulnerable to fluctuations in the UK Pound. Given that manufacturing accounts for a bigger proportion of the Welsh economy than other parts of the UK, it’s reasonable to conclude that a strong Pound is going to hurt the Welsh economy disproportionately, or as one despairing Welsh steel worker put it a long time ago “Why does it always happen to us?”
  Which all begs the question – if the strong Pound is such a problem for Welsh manufacturers – why bother with it?
  Of course, the virtues of retaining the Pound as a currency has been more of a preoccupation for our Scottish cousins north of the Border. But given the fact that Wales’ manufacturing sector is still such a meaningful element of our economy, maybe we should start thinking outside of the box and start asking whether we too would be well served by a currency of our own.
  In Scotland, the SNP’s strategy to reassure “swithering” undecided voters was to propose a currency union with England. There are those who argue, however, that this strategy does no favours to Scottish manufacturers as it continues to shackle them to the strong Pound. This has a two-fold impact on Scottish and by extension Welsh industries – firstly, it helps destroy our manufacturing bases by rendering them uncompetitive internationally. And secondly, and more insidiously, it feeds dependency on the one market that can conveniently still afford to buy Scottish and Welsh goods because they are denominated in the same currency – England.
  Funny how it works out like that, eh?
   We’re all well aware of the SNP’s riposte to the Treasury’s bluster and threats not to “share” the pound. “If you’re not prepared to share the assets, we won’t share in the liabilities”. An Independent Scotland would simply walk away from its share of the UK debt. From a Welsh point of view, walking away from the pound and walking away from the massive debt burden that the UK’s out-of-control financial system has lumbered us with doesn’t look like a bad call.
  Similar threats by the UK Treasury to Wales can then be met by the simple reply: fine by us!