Scotland’s lack of independence has hampered its ability to deal with the economic downturn, Michael Russell, Scottish Minister for Culture, External Affairs and the Constitution said on Monday.

As part of a Canadian speaking tour, Russell gave a speech in Toronto about tackling the economic crisis. He said Scotland is doing everything in its ability to stimulate the economy, but added that the U.K. government’s control over most of the primary stimulus tools has left Scotland without sufficient power to aid the economy.

“Our options are limited,” he said. “When you’re looking for the ability to reflate an economy, you need to have all the levers in your command.”

Added Russell: “It is frustrating for a government not to be able to do more.”

With more control, the Scottish government would have made many different decisions in its approach to stimulating the economy than the U.K., according to Russell. In particular, he said the U.K. government’s move to cut the value-added tax was “useless” as a stimulus measure, he said.

“Our strong view is that money should have been used for infrastructure expenditure,” Russell said. “That would have created far more jobs in Scotland.”

Russell also attributes some issues in Scotland’s financial sector to the government’s lack of independence. He said the recent problems involving the country’s two largest banks — the Royal Bank of Scotland and HBOS — could potentially have been avoided with regulations and oversight closer to home.

“If we had the levers — the regulator and other levers– we might have been able to do different things.”

Russell pointed out that Scotland has been historically known for having a prudent and safe banking system similar to that in Canada. Through the financial crisis, Canadian banks have offered insight to Scotland and other countries around the world on the fundamentals of a sustainable financial system, Russell said.

The sudden crisis in Scotland’s banking system came as a major psychological shock to the country’s population, he said.

“It’s been a big shock, those are big institutions.”

Such problems involving the financial crisis have heightened the need for Scotland’s independence, Russell said. The Scottish government is pushing for a public referendum later this year.

“I believe that the case for independence is stronger and even more urgent following recent economic events,” he said.

However, holding a referendum requires majority parliamentary support – something that may not be achievable under the current minority government, Russell said.

In the meantime, the Scottish government is working to rebuild public confidence and stimulate economic growth through such measures as infrastructure spending and establishing a more efficient tax system.

The Scottish economy contracted by 0.8% in the third quarter of 2008 — its largest contraction since the series of data began in 1995. Russell expects the downturn to continue in the months ahead. He said Scotland is likely to be hit particularly hard, as a small and open economy.

“Going forward, it’s quite clear we’re in for a period of suppressed economic growth,” he said.

Russell added that as the whole world copes with the downturn, it is crucial for countries to work through it together. In addition, it would be detrimental to both large and small economies to implement protectionist measures in the current climate, he said.

IE