Alex Salmond has renewed his threat that Scotland could refuse to pay its share of the UK's debt as he bitterly attacked George Osborne's decision to veto any currency union after independence.
Speaking in Edinburgh yesterday, the chancellor said he had been officially advised by senior Treasury civil servants that a sterling zone between the UK and an independent Scotland would be unworkable, unstable and damaging to both countries.
Bolstered by the shadow chancellor, Ed Balls, and Danny Alexander, the Liberal Democrat chief secretary to the Treasury, Osborne said: "People need to know it's not going to happen."
After studying civil service analysis on the risks and complications involved in such a deal, Osborne said: "It is clear to me: I could not as chancellor recommend that we could share the pound with an independent Scotland."
Salmond, Scotland's first minister, retaliated by accusing the chancellor of "bluff, bluster and posturing" and insisting that a currency pact was "overwhelmingly" in the interests of both countries.
Facing the most focused and significant challenge so far to his plans for independence, Salmond described the joint attack from the UK parties as "a concerted bid by a Tory-led Westminster establishment to bully and intimidate".
Ignoring Osborne's jibe that to threaten a debt default was like threatening "to burn my own house down in protest", Salmond warned that if there was no deal on sterling, there would be no deal on Scotland paying its share of the pounds 1.6tn of national debt expected by 2016. Turning down bids for television interviews, he instead issued a statement saying that if the UK did refuse to set up a new sterling zone, it would harm UK businesses and would leave the UK government having to pick up the entirety of UK debt.
"All the debt accrued up to the point of independence belongs legally to the Treasury, as they confirmed last month - and Scotland can't default on debt that's not legally ours," the statement said. "However, we've always taken the fair and reasonable position that Scotland should meet a fair share of the costs of that debt. But assets and liabilities go hand in hand, and - contrary to the assertions today - sterling and the Bank of England are clearly shared UK assets."
The first minister resisted mounting pressure from his opponents, and the Scottish Chambers of Commerce and Institute of Directors, to declare whether he has an alternative or plan B currency policy, but Sturgeon confirmed that the Scottish government could opt to use sterling without a formal deal." Pressed on what her government's alternative plans might be on the BBC2 programme Daily Politics, Sturgeon insisted that a currency union was workable, but added: "Scotland can't be prevented from using the pound; it's a fully tradeable currency."
Echoing warnings last month from Mark Carney, the Bank of England governor, the Treasury analysis said a currency union would be unstable without a close political union, a banking union and a shared fiscal policy that would allow the UK to dominate Scotland.
Earlier Alexander, the most senior Scottish MP in the UK cabinet, rejected claims that ministers in London were bullying Scotland into rejecting independence. "A currency union would leave the rest of the UK highly exposed to fiscal and financial risks from a separate Scotland," he said.
"As a Scot and as chief secretary to the UK Treasury, on the basis of this analysis, I couldn't recommend a currency union to the people of Scotland, and my party couldn't agree to such a proposition for the rest of the UK."
Balls said: "It would be bad for Scotland, it would place an unacceptable burden on the UK taxpayer, it would repeat the mistakes of the euro area. In fact - worse - you'd be trying to negotiate a monetary union as Scotland is pulling away from the UK. It won't happen, I wouldn't recommend it. Scotland will not keep the pound if Scotland chooses independence."
The joint attack from Osborne, Alexander and Balls - the first time all three pro-union parties have endorsed the same economic policy on independence - will be used by the pro-UK Better Together group to mount a new "vote no to save the pound" campaign in coming weeks.
by a Tory-led Westminster establishment to bully