Scottish Independence. I think there will be no change but in the event that it is a yes here is what could well happen. 1. Scotland goes bust. Over time, the new country spends more than it can raise in taxes and oil money and the need for increased public spending — because of ageing and poor health — raises the deficit. Because Scotland is a new state, its borrowing costs are also high and the danger of the markets losing confidence in it are higher than for the UK. If it did go bust there would be only the EU (presuming it could join) and London to bail it out. 2. Scotland’s banks are too big compared to its economy. The presence of RBS and Lloyds/HBOS mean bank debts are 12 times GDP (see below) . If a bank went bust the country would go bust with it, even if the rest of its finances were healthy. 3. Scotland can’t use sterling without neutering the benefits of independence. So if it wants a currency union, says the Bank of England, it has to (a) surrender all its tax and spend powers to London and (b) raise a currency reserve of between 25 per cent and 100 per cent of GDP. To raise that reserve you would have to cut spending. So you would end up with no tax autonomy and lower public spending than the rest of the UK. 4. The transition will be painful. Banks will move south hitting Scotland’s reputation as a banking centre; mortgages may become harder to get for a time; the Clyde shipbuilding work for the British MoD will go to yards in England. And it will all be chaotic until the currency question is resolved. 5. Scotland will end up outside the EU and outside NATO and have to re-apply. All the EU laws would have to be re-legislated locally to take effect, and without commitment to join the euro, Scotland might not be admitted at all. Outside the EU, trade would be hit, and general confidence. 6. Scottish people (and English politicians) miscalibrate the risks, because the political emotions make them unable to properly understand them 7. The wider risk, that is obsessing macro-economists, is ignored: that world growth stagnates, with near-zero interest rates and the need for trillions of dollars’ worth of money printing becoming permanent, and that as a result globalisation begins to fragment.
Posted on: Mon, 15 Sep 2014 22:06:58 +0000
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