Yanis Varoufakis

If Scotland, why not Greece?

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Why an independent Scotland should get out of sterling, but Greece should not volunteer to exit the Eurozone.

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Bank of Scotland Note

Scotland should state its intention to decouple from sterling, once independent, rather than petitioning for a continuation of its subservient role in an asymmetrical sterling union. Or so I argued in the Scottish Times in ‘Scotland Must Be Braver’ (28th November 2013). But if this is good advice for Scotland, why am I arguing that Greece should not sever its links with the even more odious monetary union known as the Eurozone? Unless the two cases differ, my argument lacks consistency. But they do differ. Fundamentally too.


Why should Greece not exit the Eurozone?


The main reason is that there are no Greek banknotes either in circulation or in storage. Any decision to exit from the Eurozone will be accompanied by a weeklong bank closure during which euro notes will be marked manually (e.g., with indelible ink) to differentiate them from euros and brand them as New Drachmas (NDs), until freshly minted NDs circulate many months later.

Even before the prolonged ‘bank holiday’ begins, the ATMs will have run dry and will remain so for a while (as the banks will not have the authority to dispense euros any more). In the meantime, Greeks with hoarded cash will try to take it out of the country, to prevent their stamping and devaluation. Liquidity will thus disappear. Meanwhile, strict capital controls will re-appear and the Schengen Treaty provisions will be suspended indefinitely, since every bag and every suitcase leaving an airport, a port, or a land border will have to be checked by armed police.1 And when the banks re-open, long queues of angry depositors will form outside seeking to withdraw their stamped euro notes with a view to trading them as soon as possible for unstamped ones (or for other currencies) based on a self-confirming expectation that the NDs’ exchange rate will fall and fall and fall…

In summary, a Greek exit from the Eurozone will trigger a week-long bank closure, the rapid loss of liquidity for the already fragile private sector, a subsequent bank run upon the banks’ re-opening, an instant exodus of cash savings, and Greece’s loss of one of the European Union’s few achievements: unimpeded movement within the EU. It will also mean that the Athens government will no longer be in a position to negotiate a write-down of its debt with the EU and the IMF (appr. €280 billion), as a de facto default on its euro-denominated debt will be unavoidable. The economic impact of these developments will be, undeniably, shattering.

Might the political benefits outweigh the economic cost? While it is true that, presently, Greece resembles an occupied nation, and is ruled over by a Berlin-directed troika of bailiffs, it is important to recall that this state of affairs is not cast in iron and would disappear in a puff of smoke if Italy, Spain, Greece, Portugal etc. were to form an alliance to demand different policies. In sharp contrast, Scotland will always be dominated by England within the sterling zone, courtesy of a permanently demographically lopsided two-member union.


Why should Scotland issue its own currency?


English Euro-sceptics were right to lambast the Eurozone, only they did so for the wrong reasons. Caught up in their Burkean narrative, they argue that money must be issued and controlled by a state whose authority is sourced in a single nation, exuding collective sentiments and evolved conventions reflecting a shared national history. The euro’s problem, according to this view, is that there is no nation-state to back it up (correct) and that no European institutions can/should develop to play that role (incorrect).

What England’s governing Euro-sceptics seem to miss is that, if no currency can serve the interests of a multi-national state, then either Scotland should issue its own currency forthwith or the Scots do not qualify as a bona fide nation. The SNP’s decision to ‘demand’ the continuation of the sterling union is a missed opportunity to turn the Burkean argument against Mr Cameron and his merry Englishmen. To say to him: “If you are right about the Eurozone, then we have a moral duty to make Scotland independent of London and immediately to issue a Scottish currency. Unless, of course, Mr Cameron you do not think that the Scots are a ‘legit’ nation. Which of the two is it David?”

Further to the political argument for a new Scottish currency, there are formidable economic arguments in its favour; arguments that do not obtain in Greece’s case.

First and foremost, Scotland, unlike Greece, has its own banknotes. This may well be an historical curiosity but, nonetheless, it could prove hugely beneficial for an independent Scotland. Presently, three Scottish banks issue Scottish pounds under an agreement with the Bank of England which limits the quantity of printed money.2 Upon independence, the Scottish government can commit to maintaining (say, for two years) the same rules except that the control of the three banks’ note issues is transferred to a Scottish Central Bank which commits to maintaining a currency board that allows for a seamless transition to a free-floating Scottish pound (within two years). Unlike in the case of a Greek abandonment of the euro, in Scotland there need be no bank closures (as the Scottish notes are already in circulation), no ATM disruptionno re-writing of short and medium term contracts and no fear of bank runs. Indeed, the currency in people’s wallets will be exactly the same as now.

Turning to the issue of public debt, another difference with Greece (which will default de facto the moment it leaves the Eurozone) is that Scotland does not have a public debt. Or, to be precise, it will have whatever debt it inherits from the United Kingdom as a result of a post-referendum negotiated settlement between London and Edinburgh. The SNP’s misguided commitment to staying within the sterling union is forcing Mr Alex Salmond to sacrifice the debt issue, using it as a bargaining chip for securing the continuation of a lopsided currency union (rather than issuing a new currency in order to minimise the amount of UK debt shouldered by an independent Scotland).

In ‘Scotland must be braver’ I outlined the broader argument (which I shall not repeat here) that a shared Bank of England3 will always favour monetary policies:

  • attuned to the needs of southern England and the City of London
  • operating as a perpetual drag on Scottish growth
  • posing a permanent threat to the solvency of the Scottish government.

Undoubtedly, these asymmetries afflict not only Scotland (under a sterling union) but also Greece and other European nations (within the Eurozone). But here is the crucial difference: the Eurozone asymmetries are not built indelibly into the union’s demographics (as they are in Scotland’s position within the United Kingdom) and can be reversed if the Periphery gets its act together.




Scotland is not Greece. It is contending neither with a humanitarian crisis nor with an upsurge of Nazism. The case of ending its monetary union with its more powerful partner is, in this sense, less pressing that Greece’s need to re-negotiate its far more toxic monetary marriage with Berlin and Frankfurt. So, why am I arguing that Scotland should exit its monetary union but Greece should not?

The reason is twofold. By exiting the sterling zone, Scotland stands to gain nationhood without suffering any of the catastrophic economic costs that Greece would sustain following a unilateral exit from the Eurozone. Greece can reclaim its sovereignty within the Eurozone by finding the courage to challenge the faulty logic of its loan agreement with Brussels, Berlin and Frankfurt. Scotland, in contrast, can never secure sovereignty within the sterling zone because a shared central bank will always force Edinburgh to dance to the tunes of the City and of England’s South East. As Mrs Thatcher famously said in her final appearance as Prime Minster in the House of Commons: “It’s all politics. Who controls interest rates is political!” In the sterling zone, unlike in the Eurozone, the controller of interest rates is pre-determined and unchangeable: London!

Listening to unionists speak of an independent Scotland confirms their patronising view that Scotland is, axiomatically, (a) better off within the United Kingdom, and (b) a permanent beneficiary of (and a fiscal drag on) a benevolent, richer England. Underlying this prejudice lies the unstated belief that the Scots are no longer a viable nation; that they have been assimilated by England; and, thus, that a common UK currency is ‘natural’ (unlike the euro) because it is used by a more-or-less homogenous English-dominated population, with some regional folkloric variations on its Celtic ‘fringes.’

This colonial view is what the people of Scotland have a golden opportunity to reject in the forthcoming referendum. Unfortunately, the SNP has undermined the referendum’s capacity to denounce the denigration of the Scottish nation’s integrity by clinging onto a sterling union that, according to Mrs Thatcher’s logic, surrenders Scottish sovereignty back to London even before it has been won.

  • Instead of organising Scottish public opinion against the idea of perpetual monetary dependence on an England that turned away long ago from the social contract tradition that most Scots hold dear, Mr Salmond is tying his colours on the mast of an unreformable Bank of England.
  • Instead of making a virtue out of the prospect that an independent Scotland will notrely on a large, destabilising financial sector, the SNP is arguing that the sterling union must be preserved so that Edinburgh competes with the City as a… financial centre.

I can think of no better ‘strategy’ than the SNP’s commitment to sterling if its aim is to lose the referendum and to alienate those Scots who want to vote with pride for an independent Scotland that seeks a path radically different to the one England embarked upon in 1979.

Returning briefly to the comparison central to this article, Greece’s radical move for re-establishing its sovereignty (a move equivalent to Scotland’s withdrawal from sterling) is not to exit the Eurozone but to veto the terms and conditions of its ‘bailout’ agreement and to demand new policies from the existing institutions. The risk of such a bold strategy is that the European Central Bank may receive the green light from Berlin to cut Greek banks off central bank liquidity. This would precipitate not only a Greek exit but most likely a wholesale disintegration of the Eurozone as well. “Let them do their worst”, I say in this case, even though I am convinced they will not dare.

A sensible Greek demand for re-thinking the euro’s awful architecture is more likely to act as the catalyst Europe needs to hold the rational debate that it has steadfastly refused to have. In this debate, an independent Scotland, with its own currency guaranteeing its autonomy from Euro-sceptic England, can help an emerging alliance of peripheral European countries establish a new Eurozone architecture; perhaps even one that Edinburgh may want to join…


1 Something similar happened in Cyprus when capital controls were introduced there. The difference is that Greece has a land border which makes the controls next to impossible to impose.

2 The Bank of England presently issues £1 million notes (Giants) and £100 million notes (Titans) which are held somewhere on its Threadneedle Street premises permanently. The three Scottish pound issuers are, simultaneously, authorised to print Scottish pounds of the same face value.

3 Even, that is, if London were to accept the SNP’s demand to share the Bank of England with an independent Scotland.

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