Speaking in Glasgow a few months ago, George Osborne said currency union would impose “significant constraints on [an independent Scotland’s] economic sovereignty”. SNP leaders were quick to dismiss this warning in public, but privately they must have known it was far from an empty threat. The Chancellor, armed with standard Tory prejudices about Scottish profligacy, will do what he can to limit public expenditure north of the border, whether Scotland is part of the UK or not.

Nationalists may hope Labour’s shadow chancellor, Ed Balls, would offer less restrictive terms during the negotiations over any prospective post-UK “sterlingzone”. They shouldn’t bank on it. Balls economic record suggests he would be at least as uncompromising as Osborne – if not more so.

As an influential Treasury adviser at the time, Balls was one of the driving forces behind Gordon Brown’s decision to grant the Bank of England operational independence in 1997. The move completed Labour’s shift away from post-war Keynesianism and towards a form of monetarism based on “sound money” and rule-based spending constraints.

Over the following years, the Treasury tailored its fiscal and labour market policies to suit the Bank of England’s strict 2 per cent (now 2.5 per cent) inflation target. It did this by adhering to Brown’s ‘golden rule’ (that borrowing should only be used to finance capital, not day-to-day, expenditure), by refusing to lift Thatcher-era anti- trade union laws (which helped hold down wages) and by relaxing employment regulations.

In this way, New Labour gave up on an active fiscal policy as a means of securing growth. Credibility with the financial markets – something Brown tried to secure by sticking to Tory spending limits for two years and reducing the national debt over five – replaced the party’s traditional support for full employment as the guiding principle of its economic strategy.

This remains the case today. Under Balls’ influence, Labour has again promised to work within Tory spending limits and cut the deficit if it wins the next UK general election in 2015.

The implications for Scottish independence are clear. In a recent piece for The Scotsman, Balls reiterated his conviction that monetary and fiscal policies were tied to one another. His claim that “Successful monetary union requires a degree of convergence that limits a nation’s economic independence” wasn’t just pre-referendum bluster; it is a sincerely held belief.

Should he become chancellor, Balls will carry this belief into post-referendum currency talks. He will insist that an independent Scotland sticks closely to Westminster’s spending plans, avoids policies that promote inflation and, above all, sets out a clear timetable for the reduction of Scotland’s deficit.

Balls could offer a Westminster version of the Maastricht convergence criteria, meaning Scotland’s public debt would have to come down to below 60 per cent of GDP. (It is likely to be upward of 70 per cent by 2017.) Or he could present more stringent conditions, such as those the Troika have imposed on struggling eurozone economies. This might involve public sector redundancies and forced privatisations. Either way, it would be very difficult for the SNP to agree to Balls’ demands.

Of course, the SNP rejects the sterlingzone / eurozone parallel – and so it should. Scotland doesn’t face Spain’s 25 per cent unemployment rate, nor is it burdened with the same levels of debt as Greece. Indeed, as the First Minister often points out, Scotland’s debt and deficit levels are lower than those of the UK as a whole.

The real problem with the SNP’s currency proposals doesn’t lie in the remote threat of a eurozone-style meltdown. It lies in the influence the Bank of England has over UK macro-economic policy – an influence which grew during the Brown and Balls era.

Take Alex Salmond’s conference pledge to ensure the minimum wage rises in line with or faster than the rate of inflation in an independent Scotland. In one respect, it is a smart piece of political manoeuvring, signalling the SNP’s desire to provide a degree of social protection for those in employment. But it doesn’t go nearly far enough. Even a minimum wage that rose slightly above the rate of inflation would be insufficient to provide a decent standard of living for workers.

Yet an independent Scottish government that took a more radical stance – by, for instance, committing to a public and private sector living wage – might find itself at odds with UK Treasury concerns about the potentially inflationary effects of Scottish workers’ growing spending power.

Recent history, stretching back beyond Brown and Balls, tells us that the Treasury and the Bank of England will jealously guard the value of the pound – with little regard for the broader social consequences. There is a reason the UK has, as Nicola Sturgeon noted recently, “one of the lowest pay economies in the OECD”.

If the SNP is serious about taking Scotland in a more “Nordic” direction (and the decision of conference delegates to endorse The Reid Foundation’s Common Weal initiative suggests it is), it will have to break with what academics call the “Anglo-liberal growth model”, which combines wage suppression with high levels of private debt and an over-sized financial services industry.

Ultimately, Salmond’s sterlingzone plan is political; an attempt to reassure voters and investors that a Yes vote will not result in any significant disruption to the Scottish economy. Like the monarchy and NATO, it forms part of the SNP’s pre-referendum triangulation strategy. Ironically, in the ‘90s, as a leading advocate of the Third Way in the Labour Party, Ed Balls helped lay the groundwork for Britain’s current economic crisis – a crisis Scotland won’t be able to escape if it remains anchored to the UK pound.