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Mark Carney addresses Scottish independence, use of pound

01/29/2014 08:31 EST | Updated 03/31/2014 05:59 EDT
Bank of England governor Mark Carney is stepping today into the thorny issue of Scottish independence, addressing the possibility of Scotland keeping the British pound during a speech before business leaders in Edinburgh.  

Carney, the former Bank of Canada governor, said an independent Scotland that keeps the pound would have to give up some national sovereignty to avoid the kind of risks exposed by the euro zone crisis. 

He stressed that any talks between a breakaway Scotland and London would have to find a range of agreements to avoid "clear risks" that could threaten a currency union. These would include "tight fiscal rules" and a banking union.

"Those risks have been demonstrated clearly in the euro area over recent years, with sovereign debt crises, financial fragmentation and large divergences in economic performance," Carney said.

He said the euro zone was starting to fix its institutional shortcomings but "further, very significant steps" still had to be taken to pool resources and share risks.

"In short, a durable, successful currency union requires some ceding of national sovereignty," Carney said.

He listed the benefits and potential pitfalls for countries that share the same currency, including the "potentially large costs" of giving up an independent monetary policy and a flexible exchange rate.

He noted the deep economic integration between Scotland and the rest of the United Kingdom, which buys 70 per cent of Scottish exports.

"A word of caution applies here," he said. "The high degree of integration between Scotland and the rest of the U.K. may in part depend on their being part of the same sovereign nation."

Earlier, Carney met with Scotland's first minister and leader of the independence campaign, Alex Salmond. 

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