Scotland loses most from independence
Scotland’s proposed referendum is not a vote on that country’s independence, but on independence for England, Wales and Northern Ireland. Losing 5.2m people is a small loss for the rest of the UK, but losing 65m is a big blow for Scotland.
Small countries lack clout and Edinburgh would be the capital of a very small nation. It would be down there with Eritrea and Turkmenistan – half the size of recent breakaway states such as the Czech Republic or Kazakhstan. Smaller than Burundi or Togo.
The UK’s current population puts it on a par with Italy and France, two other key members of the G7 and EU, so annexing Scotland would push London down the power league, but not seriously. It would be Edinburgh that felt the difference.
Scotland would have to look for new partners. The nationalists’ past proposal to form a Celtic alliance with Ireland and Iceland now looks a nightmare rather than a dream. The country would remain an EU member but would be as peripheral and small as Malta, Cyprus, Slovakia or Slovenia.
Joining the euro might thus seem more important for gaining allies than for severing the link with sterling, but if Edinburgh thinks it has suffered from being in a currency union based on London, the union run from Frankfurt looks worse. Scotland would be putting itself in the same position that Greece is trying to get out of.
So in practical terms, Scotland would continue to print pounds for at least the medium term: interest rates might officially be set in London but in reality, they are set by the market and Edinburgh could expect to pay a small risk premium that varied with its fortunes.
Independence would mean much bigger economic problems than that. Like can Scotland claim the assets of the oil without assuming the liabilities of its banks? How would the current UK national debt be split? Could the UK claim ownership of projects and infrastructure it has financed? Division would be painful.
Separating off Scotland would increase the per capital GDP of the rest of the UK. But as Scotland is financed by taxpayers south of the border, losing this northern country would improve the rest of the UK economy. England and Wales might not be invited to vote on Scotland’s independence but you can see why they could support it.
And beware the Tories. Yes, they would like to keep the union intact. But annexing a country that is overwhelming predominantly Labour would increase the Conservatives’ majority at Westminster by 40 seats. The government may be quite happy to let Scotland go. Coalition would be unnecessary. Scotland’s vote would mean not only independence for England but for the Tories too.
January 18th, 2012 at 5:02 pm
Since according to the FT last week, Scotland is the third most prosperous area outside London and South East, then 77% (7 of 9) of English regions are financed by taxpayers north of the border. Why else would the PM fight tooth and nail to keep Scotland exactly? Edinburgh would also be down there with Oslo and Copenhagen in size; capitals of small countries way above UK in GDP per capita and quality of life.
January 19th, 2012 at 12:00 pm
Bob, that is crazy. The FT was referring to recent performance. While Scotland may be doing better than a number of regions in the UK the bottom line is that in terms of absolute value Scotland is tiny. There is no way Scotland can be financing a single English region when Scotland relies on the UK to cover the shortfall between Scottish revenues and Scottish state expenditure. As Richard rightly points out, the Tories would be major winners should Scotland become independent, so I wouldn’t say Cameron is fighting ‘tooth and nail’ as you suggest.
January 21st, 2012 at 9:38 pm
Scotland can continue to print Scottish promissory notes as it does now. They will have the value that can be attached to the Scottish banks concerned. They can’t print sterling backed by the BoE that’s called counterfeiting!