The Referendum Murders (paperback)

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Wednesday, 14 October 2015

A Scottish currency, March 2014 - and a future Scottish currency after indyref2?

In March 2014, the Referendum Year, a crucial issue in the campaign was the Scottish currency and the positions being taken by Scotland’s First Minister Alex Salmond, the SNP and the YES Campaign, by Westminster, the Treasury, the Chancellor George Osborne, the Bank of England Governor Mark Carney, the three main unionist parties (Tories, Labour and LibDems) and the Better Together Campaign.

I offered the Scottish Government a negotiating analysis of how I perceived the issues surrounding the currency, the posture of the main players in the pre-negotiation phase, and the dynamics of the situation economically and politically, and presented my analysis and views in two extended meetings at Holyrood. I did not offer a value judgement or make a recommendation in the analysis or in my presentation – it was a professional negotiator’s view of the structure and dynamics of the situation as they then prevailed and were unfolding by the day – a contribution to the decision makers.

The currency remained a key issue - some say a crucial issue, or even the crucial issue -  in all debates and discussions right through 2014 up to and including the final debates on STV and BBC in the final weeks of the long campaign.

My personal view was – and is - that the First Minister’s preferred currency option in 2014 (and that of the Fiscal Commission) – a currency union based on the pound sterling and the Bank of England as the lender of last resort - was the right strategy for 2014.

What the currency’s contribution to the final outcome of the Referendum was remains a matter of heated and polarised debate.

Whether a currency union based on the pound sterling will be the basis of Scotland’s currency in future negotiations after a successful outcome – a YES vote – in the next independence referendum – indyref2 - is an open question, and is equally hotly debated.

I feel justified in publishing my analysis some 21 months after it was originally formulated and presented – it is now just a little piece of the history of that fascinating time. I received no fee for my analysis – I was not retained in any capacity by the SNP or the Scottish Government, and simply offered my analysis as a contribution to the campaign strategy.

MY ANALYSIS PAPERS  - March 2014

NEGOTIATION - KEY CONCEPTS

Negotiation is a technique for defining or re-defining the terms of a relationship. It is also a conflict-resolution approach. It is only one of a number of ways of defining or re-defining a relationship.

Others include persuasion, litigation, mediation, arbitration and compulsion (force).

These approaches may be used in isolation or in combination, and are not necessarily mutually exclusive. They may be used simultaneously or sequentially, or as fallback alternatives. A broad distinction may be made in categorising or analysing negotiating agenda items or objectives between conflicts of right and conflicts of interest.

A conflict of right centres on existing rights or agreements, and involves the assertion and clarification of such rights, disputes over their observance and enforcement, and attempts to ensure - or resist - compliance.

A conflict of interest centres on an attempt to establish new rights or re-define existing rights.

Negotiation may be chosen after other techniques have failed, or may be a first choice if they are judged to be inappropriate - or are being held as fallbacks. Conversely, negotiation may be abandoned and other techniques adopted, e.g. litigation, compulsion (force) or third-party dispute resolution - mediation or arbitration.

Implicit in every negotiation - and often explicit - is the action that will be taken if negotiation fails - the freedom to act or walk-away point. Negotiations without deadlines for reaching agreement can be conducted, but the dynamics are extremely complex, and the main risk is one of perpetual negotiation without resolution. In such negotiations, the party attempting to re-define a status quo is often disadvantaged and the party defending a status quo advantaged, e.g. vested interest in delay or “long grass” strategy.

PRE-NEGOTIATION PHASE:

THE CURRENCY QUESTION:  RATIONALE FOR A NEW CHOICE

PRESENT STATUS
Pre-negotiation phase, six months to run. Scottish Government’s position based on Fiscal Commission report and White Paper, Scotland’s Future.

Fiscal Commission identified four main options -

MONETARY UNION with rUK - STERLING
MONETARY UNION with EU - EURO
NEW SCOTTISH CURRENCY - Fixed exchange rate
NEW SCOTTISH CURRENCY - Floating exchange rate

The recommendation of the Commission was
MONETARY UNION with rUK - STERLING

The Scottish Government declared this to be its choice of currency arrangement and announced its intention to negotiate the terms of monetary union with rUK after a YES vote.

The UK Government has declared this option to be totally unacceptable, in a variety of forums and statements from the PM, the Chancellor, senior advisers and Better Together leaders.

PERSPECTIVES
This UK position can be viewed by the Scottish Government from two main perspectives, and response options developed accordingly.

Perspective One
It is not an outright rejection, but a referendum campaign tactic to influence the Scottish electorate into voting No (the UK’s primary objective in the pre-negotiation phase)

If this fails as a referendum tactic and there is a YES vote, the tactic is converted to an anchoring statement designed to enhance the UK negotiating team’s response to the Scottish Government’s opener of a currency union.

Perspective Two
The UK Government really means it: they will not - under any circumstances - accept a currency/monetary union with an independent Scotland.

PRE-NEGOTIATION PHASE: THE CURRENCY QUESTION - THE RATIONALE FOR A NEW CHOICE

RESPONSE OPTIONS
On both Perspectives One and Two, the same three responses are available -

HOLD CURRENCY UNION POSITION TILL REFERENDUM
or
ADOPT A SCOTTISH CURRENCY/STERLINGISATION PLAN and WITHDRAW PLAN TO NEGOTIATE A CURRENCY UNION
or
ADOPT A SCOTTISH CURRENCY/STERLINGISATION PLAN but REITERATE CONTINUING WILLINGNESS TO NEGOTIATE A CURRENCY UNION

OUTLINE OF SOME RESPONSE OPTION DYNAMICS

HOLD CURRENCY UNION POSITION TILL REFERENDUM

If YES vote - negotiations commence
 
Scottish Government presents option

UK - now anchored on a negative - either negotiates or rejects outright

If Scottish Government opening position is rejected,  two main options exist -

OPTION ONE
Abandon the negotiations completely because a dealbreaker has been rejected outright 
COMMENT: High risk option because of magnitude of walkaway implications for both parties. Implications can  only be discussed in strictest confidence.***

OPTION TWO
Abandon the currency agreement objective, continue negotiations on rest of agenda. Set in motion plans  for alternative currency option

Negative impact on negotiating atmosphere, post-referendum electorate perceptions, media, markets, business confidence. Major negative impact on EU perceptions and EU negotiations when commenced. Six months lost lead time, in which plans for alternative currency could have been developed, plus major workload on new currency paralleling negotiations.

ADOPT A SCOTTISH CURRENCY/STERLINGISATION PLAN -WITHDRAW PLAN TO NEGOTIATE A CURRENCY UNION

POSITIVES
Immediate media brief, maximum publicity, most supporters happy, many non-SNP YES spokespersons happier, electorate in general potentially relieved and supportive.

Scottish currency perceived as greater independence, more Scottish control.Control shifts to SNP Government (no longer dependent on negotiation - anticipates control after YES vote and independence)

Opposition on back foot, reactive. Immediate plans activated to prepare for Scottish currency, civil service briefed, etc.
 
NEGATIVES
Presented as a retreat by UK, ‘fallback to Plan B’, cave in under pressure, etc.
New attack on alleged negatives of Scottish currency option - expert negative arguments (e.g. Carney) mined for critical analysis

Share of national debt occupies centre stage, claims of ‘reneging’, ‘defaulting’

Spotlight on the new institutions and regulatory framework - potential weakness. Pegging to sterling categorised as powerlessness, dependency.

ADOPT A SCOTTISH CURRENCY/STERLINGISATION PLAN but REITERATE CONTINUING WILLINGNESS TO NEGOTIATE A CURRENCY UNION

POSITIVES
As under previous option, but with advantage of being seen still open to preferred option, flexible, displaying concern for rUK interests and relationship. Even if UK enters tentatively into currency union negotiations, powerful Scottish fallback already in place.

NEGATIVES
Potential losses relating to previous six months cost/effort of setting up Scottish currency, potential of frustrating expectancies of YES supporters and non-SNP parties already on board for Scottish currency. Danger of pressures building to force Scottish Government to abandon negotiation on currency union. Uncertainty for those contracted to new Scottish currency institutions.

PRE-NEGOTIATION PHASE: NEGOTIATING DYNAMICS - DEADLOCK and BREAKDOWN ASPECTS

Negotiations can broadly classified as those from which the parties can walk away from in the absence of agreement, and those where the parties are bound together by circumstances which render the walk-away option impossible or extremely difficult, with high penalties and risks to walk-away for a party or parties to the negotiation.

The first may be loosely described as an open relationship negotiation, the second as a locked relationship negotiation.

Independence negotiations are an attempt by one country, with a mandate, to end a locked relationship with another by agreement. Implicit or explicit in such negotiations must be the actions that will be taken if negotiations break down on a fundamental negotiating objective - a deal-breaker - or in the event of a general breakdown.

Such a breakdown can occur in the pre-negotiation phase from a variety of causes, typically a failure to agree on the agenda in advance of negotiation, or more seriously, a challenge by one party to the mandate and/or authority of the other party to negotiate.

Deadlock is not breakdown, but unresolved deadlock may lead to breakdown.

Within a negotiating agenda, there may be failure to reach agreement on individual objectives which are important but not crucial. Deadlock or breakdown does not necessarily result from such failures unless the number of failures reaches critical mass. Failure to reach agreement on crucial objectives (deal-breakers) will result in deadlock and ultimately breakdown.

If discussions or public statements in the pre-negotiating phase involve a conflict over agenda  items, a negotiation may be launched without a pre-agreed agenda. Deadlock over commencing negotiations may result from anchoring statements made by one or both parties on what constitutes acceptable agenda items, dependent on the behaviour and positions taken by one or both parties. Deadlock may lead to breakdown if delay is advantageous to one party only. (Deadlock delays may offer an advantage to both parties in certain circumstances.)

PRE-NEGOTIATION PHASE - BEHAVIOURS

During pre-negotiation phase, behaviours may be classified under two broad headings: behaviour of the parties to the impending negotiating interface(s) (the negotiating parties) and behaviour of the individuals and groups with an interest in the outcomes (the external parties)  but not responsible for core negotiating objectives and strategy and not part of core negotiating teams.

The key negotiating parties are the Scottish Government and, in two negotiating interfaces, the UK Government and the European Union.

The key external parties are the Scottish electorate, the rUK electorate, the media, YES Scotland, Better Together, the STUC, the TUC, individual trades unions, private sector companies and organisations, churches and religious groups, the public sector, the armed forces, the voluntary sector (charities, etc.).

Political parties and party organisations may be categorised as both negotiating parties and external parties, dependent on their relationship to the Scottish Government and the UK government, and to the two major campaign groups, YES Scotland and Better Together.  Defining behaviours of political parties and responses to behaviours is therefore complex and not subject to easy classification. It is nonetheless a vital strategic and tactical area.

The key external party classifications within UK clearly apply to Europe and globally, but with less immediate impact on referendum pre-negotiating phase . Clearly, some have potentially major, perhaps crucial significance for the negotiating phase and beyond.

The key purposes of negotiating party behaviour during the pre-negotiation phase are to -

influence the voting choice of the Scottish electorate - YES or No, including influence media analysis and presentation of choices and arguments, and key relevant group positions vis-a-vis electorate members - e.g. STUC

influence the perceptions of the opposite negotiating team to the negotiating agenda, opening positions, deal breakers, potential tradables, linkages and scope for movement - a process sometimes called preliminary anchoring.

PRE-NEGOTIATION PHASE - NEGOTIATING MANDATE

Scottish Government

A key objective must be to ensure clarity in the minds of voters on the Scottish Government’s role in the independence campaign (its place within YES campaign) and its role in the negotiations following a YES vote. (My subjective experience, and anecdotal evidence from frontline campaigners suggest that clarity is often absent, even among activists. This lack of clarity is compounded by statements from significant YES figure outside of the SNP.)

The SNP formed the Scottish Government on a decisive mandate from the Scottish electorate in 2011. Estimates suggest that at least 80% of SNP-voting electorate - perhaps over 84% - voted from a YES position and therefore were -  and are - mandating the SNP Government not only to govern under devolution, but to campaign for independence and to negotiate its terms after a YES vote in accordance with their values and policy objectives, as clarified and published in the White Paper, Scotland’s Future.

The authority of a negotiating team rests squarely on its mandate, and its mandate is derived from its principal or principals.

The Scottish Government - and the team/teams it selects and structures - has the sole authority to exercise that mandate, received in general but, of necessity, not specific terms from the Scottish electorate.

Any challenge to, or attempt to question or dilute the power of that mandate from any source must be confronted and nullified.

It must also be emphasised that it is a representative general mandate, not a restrictive delegated one,  and the negotiating team must be free to vary terms - without sacrifice of core principles - to reach a deal, and the Scottish Government will finalise such a deal without seeking a further mandate.

(There are clearly democratic pressures within the YES campaign that must be accommodated if this vital principle is to be maintained: this may be addressed by consultative procedures and sub-groups/teams, and this complex dynamic must be developed fully elsewhere.)

PRE-NEGOTIATION SCENARIOS

The pre-negotiation phase is defined as the  point from which the parties know they are going to negotiate, or are likely to negotiate - i.e. a trigger event that makes a negotiation either certain or likely - up to the start of formal face-to-face negotiation.

In reality, as soon an event - or events - trigger that phase, every subsequent action or statement is germane to the negotiation and influences it. In this sense, the negotiation has already started, and the distinction is artificial, but since behaviours in this phase are crucially different in key aspects from the actual negotiation, the label and the distinction are both valuable.

There are many types of pre-negotiating scenarios covering an almost infinite variety of situations. I offer the following as my core definition of the relevant scenario under consideration.

RELEVANT SCENARIO

Key public trigger event: The Edinburgh Agreement

(The 2011 election was a de facto trigger event, arguably even the 2007 election, but they lacked the legal force and public impact of the Edinburgh Agreement.)

Structure: A minimum of two major negotiating interfaces (SG/UK and SG/EU) triggered as possibilities, contingent on the outcome of a single event on a specific day -18th September 2014. Both sets of negotiations likely to start almost immediately after a declaration of a YES vote on 19th September, either sequentially or simultaneously, with a virtual certainty of overlap at some point. Complex de facto linkages between both interfaces, and possibly conscious structured linking by agreement of parties on linked conditionalities.

Key dynamic: The public debate and its influence on the behaviour of the parties to the negotiations, the media, the business and financial community, business confidence, European and world opinion and the eligible electorate.