 | 'The imbalance between Scottish tax revenue and expenditure implies that it is a net beneficiary of the Union, financially at any rate, but that does not take into account factors such as hidden subsidies to south-east England, Scotland's fair share of oil and gas revenues, etc, and what would be the spending priorities of an independent Scottish parliament.' Ian McKee in the Scotsman, 3 rd December 1997. |  |
ANDREW Hughes Hallett is the last kind of person you would expect to be at the centre of a political row. Soft spoken, even diffident, the professor of economics at Strathclyde University had no sooner published his views on the highly technical subject of Scotland's economy and the European single currency than flustered Labour officials were on the telephone to him.
He had no political axe to grind, which made Labour's predicament worse after Ministers had predicted that Scotland would have an annual deficit of £3500m, putting it outside the criteria for countries wanting to adopt the euro.
In the space of a few hundred words this objective academic had just apparently blown away Labour's oft-repeated claim - crucial to its Scottish Parliamentary election campaign - that an independent Scotland would be unable to adopt the euro.
For the SNP it was a heaven-sent propaganda gift but for Professor Hallett, 51, who has worked at Strathclyde for a decade and who has no known political prejudices - and who belongs to no party - it was simply a statement of the obvious.
This is the economist who was authoritative enough to be hired by Brussels to provide advice on economic policy, particularly in assessing the exchange rates at which the eleven currencies qualifying for the euro so far should be admitted to monetary union. He was also called in by the European Commission to advise on the rate at which the Italian lira should be readmitted to EU's exchange rate mechanism (ERM).
In Glasgow yesterday, he seemed ever so slightly bemused by the fuss he has provoked but he was unrepentant. "I see no reason to say Scotland is unfit for the single currency."
One by one he went through the five main Maastricht criteria for adoption of the euro:
1 - Inflation. "Scotland's inflation is not significantly more than England's inflation and the requirement is to have it no more than 2% different from the average of the best three. If England's inflation is OK, then Scotland's is OK."
2 - Long term interest rates. "They must not be more than 1.5% different from the average of the best three and the UK is well inside that at the moment, so barring radical change we will remain inside it. It is not a problem."
3 - Fluctuation limits in the ERM. "There must be no realignment of the currency for two years after entry. The bands are now at 15% anyway so that is not a big deal." (The Chancellor has said he no longer believes this clause in Maastricht is an obstacle to UK adoption of the euro.)
4 - Deficit. "Our deficit must be within 3% of GDP. The numbers that I know about suggest Scotland is just inside and improving fast. When the time comes to make decisions I would think Scotland would be well inside."
5 - Debt. "It must be within 60% of GDP. If you have no accounts with your partner country it is difficult to know the figures exactly. On population share Scotland would be about the 50% mark - comfortably inside the limit."
He believes the rules for adopting the euro are not Scotland's principal difficulty because Scotland is as well off as most other small EU member states - and better off than some - who have joined the single currency already. He has checked his own statistics with those of Eurostat, the EU's own statistical division, whose figures are used for deciding membership of the euro. "They check broadly," he reported, "but numbers are not the main part of the argument."
Professor Hallett believes the more difficult challenge to Scotland will come when the Scottish Parliament - with no currency powers - tries to make the economy work inside the eurozone. Strains could have powerful constitutional implications. "The combination of the euro plus devolution will put considerable pressure on that parliament. I have no axe to grind on that but it is something the Parliament will have to think about. It will not be simply a case of business as usual."
Labour continued to protest last night that Professor Hallett's deficit projections were wrong and that other academics supported the party's views. "We stand by our figures," a spokeswoman said. "They have been confirmed by the Economist and other independent financial experts."
SNP deputy Treasury spokesman Andrew Wilson countered: "We calculate the deficit was £2700m in 1996-97 when Scotland was no better or worse off than England and the UK then was on course to be comfortably inside the Maastricht criteria." - March 9
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