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When he spoke in Edinburgh in January, Mark Carney was a model of diplomacy. On one hand, the Bank of England governor made the comment that "a durable, successful currency union requires some ceding of national sovereignty." That seemed to be a clear warning that, if an independent Scotland wanted to keep the pound, it would have to surrender some fiscal freedoms it thought it had just voted for.
On the other hand, Carney's use of the word "some" softened the force of his words. And then he cheered up the yes campaign by saying the Bank's job was to implement any arrangement agreed by London and Edinburgh. That left the impression that reasonable parliaments, confronted by the reality of the ballot box, might be able to thrash out a deal.
On Tuesday, Carney abandoned the soft stuff. "A currency union is incompatible with sovereignty," said the governor baldly. No get-out clauses there.
Scottish nationalists may spy panic in establishment ranks (spot on) but it's the economic facts of life that matter. Carney is right: inside a currency zone, a country can't have sovereignty in the sense of full fiscal independence.
On the governor's list of three factors that make up a successful currency union, an independent Scotland would score only one-and-a-half. The full mark is for free movement of capital, goods and services: the economies are integrated. The half mark is for banking union since, with a bit of a shove, the big Scottish banks could be re-domiciled in London and Scottish depositors protected by the same guarantee scheme as now; the trade-off, though, might be more capital to support Scottish loans, increasing their cost.
The real problem, and where zero points are scored on the sovereignty scale, is the fiscal arrangements. Equalising revenue transfers would not occur. That's what independence means. If the economy of an independent Scotland under-performed the rest of the UK's, no soothing fiscal help would be dispatched.
Credit Suisse's analysts nevertheless give a 25% probability to a formal sterling union between the UK and an independent Scotland. Yes, political compromises do happen. But the three main Westminster parties have put themselves in a corner by raising the bogeyman of the dysfunctional eurozone. With Ukip making mischief in the wings, the only formal currency union that would stand a chance of being agreed in Westminster is one that tied the Scottish parliament in fiscal knots.
As Credit Suisse put it, the UK would "extract a high price in terms of potentially severe fiscal and regulatory commitments". That doesn't like sovereignty as commonly understood.
The alternative (aside from a new Scottish currency, or joining the euro) is so-called sterlingisation, meaning continuing to use the pound informally. That's a version of sovereignty in the sense that a newly independent Scotland would have chosen what it wants. But with monetary policy still set in Threadneedle Street, it sounds both unpalatable and, sovereignty-wise, far from the full deal.
As said here in the past, it is astonishing that a referendum can take place with the currency question up in the air. You can't blame Carney for trying to inject a few facts into the debate.
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