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Scotland independence: the case for Yes

by Luis de Sousa Tue Sep 9th, 2014 at 04:28:55 AM EST

Thursday the 18th Scotland is going to vote what may well be the most important political decision in several centuries for itself and the UK. The reasons that prompted this process are many: the perception of a slow derision of Scottish identity and culture, the crystallisation of the UK's democracy (where non elected individuals still retain important powers), natural resources, budget sharing, NATO, just to name a few.  

I am not Scottish, nor do I live in Scotland, thus I can not possibly fathom everything driving the vote. But one exercise I can make: assess the economic risks associated with the decision. And by doing so the complexity of this question becomes apparent, as so how uncertain is the outcome.

front-paged by afew


First off, independence would immediately force Scotland to a different monetary system. Broadly, two options exist: either create a new Scottish currency or use a foreign currency. The first option would be extremely risky, Scotland has 4 million habitants and a GDP under 200 G€, it would be easy prey for speculative hawks. The collapse of Iceland's banking system in 2008 is a vivid reminder of the fate small currencies have in a global economy. The alternative would then be a foreign currency, which could be achieved, for instance, by pegging a future Scottish Pound to a big currency.

Independence advocates often point towards the Sterling as a hypothesis, but this is again a risky strategy. Scotland would no longer have a say in the UK's monetary policy, thus facing costly counter-cycle decisions; the relatively small dimension of the UK at the global scale renders such scenario a clear possibility. Moreover, Scotland would expose itself to retaliative actions from the UK, with ill intended policy makers in London punishing Scotland for its dare.

Although less risky than the option for a Scottish currency, using a foreign currency equates to the effective abdication of monetary policy. In this light, joining the club of satellite currencies to the EMU (through the Exchange Rate Mechanism) would be far more logic, as the Euro is expected to be managed regarding the economic environment of the whole continent. In any event, neither of these options would leave Scotland at a better place that where it is today, at least in the short term.

Secondly, by voting for independence Scotland would automatically find itself outside the EU. As part of the UK, Scotland is outside the Schengen area and the EMU, thus this aspect may not seem that dramatic. However, Scotland would automatically leave the Common Market (and possibly the World Trade Organisation). Speculation has been rife on Scotland's status beyond the EU in case independence wins, but make no mistake, no legal framework exists for such case, which to happen will be a first. There are no clauses or exceptions to recur to: out of the EU it will be.

And re-entering will not be straightforward. There are member states granted to bar access of a splinter region/state to the EU, obviously Belgium and Spain, but they will not be alone. And also because Scotland will be obliged to join the EMU, which may not only be an unpopular decision, it would force Scottish leaders to an about face on the currency matter. Full access to the EU should be written off in the short term, only after lengthy years of negotiation could such reality materialise. In the meantime, the best Scotland can aspire to is a status similar to that of Switzerland, but even that is not granted (again, Belgium and Spain at least will demand a lot of convincing).

At this stage it should be clear to which decision I lean to, if a non-Scotsman can be forgiven for meddling in this debate. Indeed, in the beginning, No would have been my advice to the few (but good) Scots I call friends; but presently, I am not at all that certain of the right decision. The reason: the past two years the UK itself seems to have geared into escape velocity out of the EU.

Things started going astray with the decision to not integrate the European Stability Mechanism. An outsider to the EMU, the UK cast itself out of any economic and monetary policy structures emerging in the EU (e.g. the so called Banking Union). These days, when the moment comes for important decisions in Brussels, Strasbourg or Frankfurt, UK representatives are kindly asked to leave the room.

These past two years the negotiation stance of the UK at the Council has become ever more egocentric, often leading to bare isolation. The failed attempt to bar the nomination of Jean-Claude Juncker for Commission President is a recent example of this drive. At the same time the UK has engaged itself in Foreign Policy tactics that seem aimed at destabilising Europe; the coup d'état in Ukraine is possibly the best example. And internally the so called "euro-scepticism" seems to gain traction among all political parties; under different shades, they all seem somehow uncomfortable with the integration trek to which the EMU members are fated.

The UK will in turn hold a referendum on its EU membership in 2017; by then it could be just a mere formalism confirming a deepening trend. Thus Scotland may be facing the exact same risks described above by staying within the UK, just somewhat later.

And suddenly independence becomes a far more palatable choice. It can provide Scotland the room to develop its own policy towards the EU, safeguarding its interests in (the likely) case the UK decides to raise anchor and sail into the Atlantic. With the UK leaving, it will be far easier to convince member states such as Spain and Belgium of a special case. In essence, the Yes vote is the long thinking play, hurt in the short term to ease things later on.

I have been into forecasting long enough to know that all forecasts are wrong, but here I leave mine for this referendum. The No vote will win by "the smallest of margins", providing a half-victory to independence advocates, a half-defeat to the UK government and a full-blown defeat to UK political parties in general. Soon after 2017 a new referendum will be held and the Yes shall win by a comfortable margin.

This is a crosspost from AtTheEdgeOfTime.

Display:
Elegantly succinct. I think I understand things better than before and find myself in agreement with your forecast. My inner evil twin is appreciative to Scotland for the drama they're providing us, no cable fees necessary, to view for another several weeks at least, and possibly well into the future.

'tis strange I should be old and neither wise nor valiant. From "The Maid's Tragedy" by Beaumont & Fletcher
by Wife of Bath (kareninaustin at g mail dot com) on Tue Sep 9th, 2014 at 01:25:48 AM EST
Uh, Iceland's problem was that it was running its banking system on GB£ rather than local currency.

How did that become a point in favor of surrendering sovereignty over your currency?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 04:53:13 AM EST
The definitive report on the Iceland banking collapse is Willem Buiter's and Anne Sibert's.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:59:41 AM EST
[ Parent ]
I would contend that the small size of the economy relative to the foreign cash inflows were capital in the inadequate monetary policy the country held fr so long.

You might find me At The Edge Of Time.
by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Tue Sep 9th, 2014 at 02:08:47 PM EST
[ Parent ]
That is trivially solved by procuring, in the open market, foreign exchange to match domestic liabilities and essential imports.

Of course, if a state insists on running insane economic policy, then it will be better off in receivership.

But a state which insist on running insane policies would generally be better off not being sovereign in the first place.

Moreover, the propensity of right-wing governments toward insane policies is only a weak argument against voting for independence, but a very strong argument against voting for right-wing governments.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 02:16:27 PM EST
[ Parent ]
I don't really see why it's such a drama. Because it's an English-speaking nation, I suspect. There is no philosophical, diplomatic, economic or monetary show-stopper. Scotland will join the group of relatively rich, independent, innovative and dynamic nordic nations.

Norway and Denmark speak closely-related languages and used to be united under one crown. They are still friends, trading partners etc. And with respect to the EU, I imagine that Norway's status would be the closest analogue to what Scotland will negotiate with the EU in the short term.

I'm not convinced that Belgium will be an irreductible opponent of Scotland's maintained EU membership, because

  1. as far as I know, they still don't have a government
  2. the Flemish parties would certainly be in favour, leaving any government divided, at best, on the issue.

I think Spain's supposed opposition will turn out to be a non-issue faced with a fait accompli of Scottish independence. There is no constitutional controversy, unlike the Catalan case; a split will be (at least technically) amicable.

As for the currency question :

Moreover, Scotland would expose itself to retaliative actions from the UK, with ill intended policy makers in London punishing Scotland for its dare.

I disagree. The Westminster government tried to blackmail the Scottish electorate by threatening to withhold "their" pound (which has suddenly become English, and not British!), but this has backfired spectacularly. There will be tough negotiations, but Salmond's tabling the nuclear option of repudiating Scotland's share of British debt was, in my view, a masterful way of pointing out that this sort of brinksmanship is absurd. Scotland will keep the pound sterling until such time as it joins the Euro (or a nordic currency coalition?)

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Sep 9th, 2014 at 05:28:52 AM EST
FT.com: Carney warns Scots over currency union (September 9, 2014)
The governor of the Bank of England has warned that a currency union between England and an independent Scotland would be "incompatible with sovereignty".

...

He said that there had to be three successful components to a successful currency union.

These were the free movement of goods and services across the different parts of the currency, a banking union underpinned by common institutions such as a central bank, and elements of shared fiscal arrangements.

"You only have to look across the continent to look at what happens if you don't have those components in place," he said. "A currency union is incompatible with sovereignty."



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 10:47:38 AM EST
[ Parent ]
You may be counting too much on each side of the board being entirely rational.

You might find me At The Edge Of Time.
by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Tue Sep 9th, 2014 at 02:10:37 PM EST
[ Parent ]
At this point England's views, and hence the process by which England arrives at them, are not of supreme importance to an independent Scotland.

Unless England is prepared to suppress Scottish independence with armed force - and can field an army willing to do that - Westminster is going to find itself, at best, third or fourth on the list of external stakeholders that Scotland needs to consult on its decisions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 02:21:43 PM EST
[ Parent ]
Westminster is going to find itself, at best, third or fourth on the list of external stakeholders that Scotland needs to consult on its decisions.

number 1- 3 are? The EU and then?

by IM on Tue Sep 9th, 2014 at 02:32:46 PM EST
[ Parent ]
USA, Germany, France. Possibly Spain.

"The EU" has amply demonstrated that when push comes to shove it does not exist as a functioning geopolitical entity.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 02:46:43 PM EST
[ Parent ]
Spain is going to make an ass of itself on this. There is a nonnegligible chance that Spain would block Scottish EU accession while England doesn't oppose it.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:13:05 PM EST
[ Parent ]
It seems I missed this from 6 months ago, though: Spain will not oppose Scottish EU entry: foreign minister (El País, 3 February 2014)
Spanish Foreign Minister José Manuel García-Margallo has stated that should Scotland elect to break away from the United Kingdom, Spain will not oppose the move because it does not have any bearing on the internal affairs of the country. "If the Constitution of the United Kingdom permits - and it seems that it does - that Scotland call a referendum on their possible independence, we will say nothing on the matter," he said in an interview with the Financial Times.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 16th, 2014 at 02:03:11 AM EST
[ Parent ]
That was my instinct too. It's different from an extraconstitutional secession.

It's all huff and puff and bluff from the No-men.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Sep 16th, 2014 at 05:55:49 AM EST
[ Parent ]
This is becoming more and more of a problem for Spain because it is setting itself up for a true constitutional crisis. Basically
It is also peculiar that the `national transition process' was initiated and some institutions for an independent state were created without waiting for the results of such a referendum. Moreover, the purpose and questions of the referendum clash with the Spanish Constitution which explicitly states the `indissoluble unity of the Spanish Nation' and received 91 per cent support in Catalonia in 1978. Claims of Catalonia being a sovereign entity have been unanimously rejected by the Spanish Constitutional Court. While the British Parliament validated the organisation of the Scotland independence referendums, the Spanish Parliament rejected the Catalan one by a very large majority.
(Euro Crisis in the Press LSE blog)

The Constitution says:

Article 2

The Constitution is based on the indissoluble unity of the Spanish nation, the common and indivisible country of all Spaniards; it recognises and guarantees the right to autonomy of the nationalities and regions of which it is composed, and the solidarity amongst them all.

Also
Article 92

1. Political decisions of special importance may be submitted to all citizens in a consultative referendum.

This is being interpreted restrictively to mean you cannot have a referendum in Catalonia only.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 16th, 2014 at 06:15:35 AM EST
[ Parent ]
the Spanish Constitution...explicitly states the `indissoluble unity of the Spanish Nation'

But the definition of a nation usually includes commonality of language and culture. Catalonia is no less distinct on those terms than is Portugal or the Basque areas and Catalonia only became a part of Spain as a historical contingency, with the union of the crowns of Castile and Aragon, and Catalonia was about as different from Aragon as it was from Castile.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 16th, 2014 at 02:32:26 PM EST
[ Parent ]
Now you're being unconstitutional.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 16th, 2014 at 02:36:48 PM EST
[ Parent ]
Not only history but also laws are written by the victor. The trick is to get people to keep observing them.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 16th, 2014 at 11:38:09 PM EST
[ Parent ]
Migeru:
This is being interpreted restrictively to mean you cannot have a referendum in Catalonia only.

So is there any push for the Spanish parliament to call a national referendum on wheter Catalonia and the rest of Spain should go different ways?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Sep 16th, 2014 at 03:45:26 PM EST
[ Parent ]
Of course not, 80% of the Spanish Parliament is against Catalan independence.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 16th, 2014 at 06:36:47 PM EST
[ Parent ]
Of course, just highlighting a difference with respect to Scotland. The UK parliament also claims the power to decide referendums and are also opposed to a split. But in the end, they accepted a referendum (or rather it supported a government that gave the Scottish parliament temporary powers to arrange one), thus retaining both the claim on the powers and the impression that they care about what the Scots wants.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Sep 17th, 2014 at 03:54:12 PM EST
[ Parent ]
The Spain Report: Spain Preparing To Suspend Regional Government In Catalonia As Mas Insists Indy Vote Will Be Held (September 16th, 2014)
"There are lines that cannot be crossed", said Mr. García Margallo during a breakfast meeting with journalists: "The government will use all of the means at its disposal to prevent a secessionist referendum. The law, and only the law".

Asked if those measures included suspending regional government, the Foreign Minister replied: "It includes everything that needs to be included to prevent it".

"Within the framework of the Constitution and the rule of law, everything is possible; but outside of the framework of the Constitution and the rule of law, nothing is possible."



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 16th, 2014 at 06:39:27 PM EST
[ Parent ]
outside of the framework of the Constitution and the rule of law, nothing is possible.

He sincerely hopes! However, the success of Franco would seem to disprove his thesis.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 16th, 2014 at 11:40:50 PM EST
[ Parent ]

In Spain we like to think we're living after 1978, though it may look increasingly to the casual observer that Europe is stuck in a mock version of the 1930s.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Sep 17th, 2014 at 04:20:35 AM EST
[ Parent ]
Wait a minute : is it constitutional to suspend a regional government?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Sep 17th, 2014 at 03:39:47 AM EST
[ Parent ]
Article 155
1. If an Autonomous Community does not fulfil the obligations imposed upon it by the Constitution or other laws, or acts in a way seriously prejudicing the general interests of Spain, the Government, after lodging a complaint with the President of the Autonomous Community and failing to receive satisfaction therefore, may, following approval granted by an absolute majority of the Senate, take the mea-sures necessary in order to compel the latter forcibly to meet said obligations, or in order to protect the above-mentioned general interests.
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Sep 17th, 2014 at 03:58:41 AM EST
[ Parent ]
The "suspension" of autonomy is actually a bypassing of the devolved government's authority:
155.2. With a view to implementing the measures provided in the foregoing clause, the Government may issue instructions to all the authorities of the Autonomous Communities.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Sep 17th, 2014 at 04:22:15 AM EST
[ Parent ]
How would those clauses on bypassing autonomy comport with laws and treaties forming the basis of the EU?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 17th, 2014 at 10:00:58 AM EST
[ Parent ]
Spanish regions' autonomy statutes are acts of the Spanish Parliament and thus subordinate to the Constitution. There would be no constitutional violation and the EU would probably have to say it's an internal matter.

The European Parliament might make nonbinding political declarations, of course.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Wed Sep 17th, 2014 at 10:24:08 AM EST
[ Parent ]
And would the authorities of the Autonomous Communities follow such orders?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Sep 17th, 2014 at 02:23:45 PM EST
[ Parent ]
I suppose if they don't they might be violating the law, too.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Wed Sep 17th, 2014 at 03:43:26 PM EST
[ Parent ]
to re-enact the battle of Bannockburn?

Guardian

The emergency move for all three of the main Westminster party leaders to go to Scotland tomorrow - throwing aside all previous plans - was agreed on Monday afternoon at a meeting between Ed Miliband and David Cameron.

The Guardian's political editor, Patrick Wintour, reports:

    For Cameron it is a dramatic change of plan because he has been insisting he will not go to Scotland until next week.

    The agreement not to attend PMQs was taken at a meeting between Cameron and Miliband. It follows intense criticism of Cameron for not planning to go to Scotland until next week. He had been advised that his presence would be a negative influence, but a mixture of his own desperation at the prospect of losing the union and the belief that something desperate was needed to revitalise the no campaign changed his thinking.

    The two men made the decision in the knowledge that one poll had suddenly put the yes campaign ahead, and another was about to be published confirming the trend showing the two campaigns were neck and neck.



It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue Sep 9th, 2014 at 08:06:50 AM EST

The Not Ready For Prime Time Trio - Winter is Coming.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 10:39:14 AM EST
[ Parent ]
Is it just me, or is wearing a tie of their party's colours ridiculous?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 10:44:33 AM EST
[ Parent ]
That and the heads above the ties.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Sep 9th, 2014 at 11:02:17 AM EST
[ Parent ]
They look like a bunch of superannuated children - out of their depth and lost.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 11:24:47 AM EST
[ Parent ]
To me it seems that many countries smaller than Scotland have had success with their own currency. They can use a peg or a floating peg to a currency that belongs to a major trading partner. An important thing is whether or not they tend towards a primary surplus in their trade balance. Another critical factor is the effectiveness with which they regulate the underwriting for credit creation. If that is strong they should have few fundamental problems if they manage their peg properly.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 10:08:01 AM EST
In principle as long as they have foreign reserves in excess of the gross foreign-currency liabilities of their domestic economy, they're okay. This, of course, requires them to gradually devalue their currency if and as they accumulate a current account deficit.

In practice, there may be the issue of liability dollarization. (That's part 2 of a 3-part series: part 1, part 3)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 10:40:33 AM EST
[ Parent ]
Ramanan's three part series on liability dollarization is excellent. I had suspected that there were substantial limits to the claims of MMT, but I also think that, in the current situation and for the USA, the recommendations for a job guarantee, etc. are valid.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 03:45:16 PM EST
[ Parent ]
And if the biggest danger lies in having a properly run monetary system....well, there is a lot about the monetary system of the UK they could improve in their own system - like recognizing that monetary policy is not the cure for everything. As to the BoE blackmailing Scotland, I am reminded of the adage: "If I owe the bank $100,000 and can't pay I have a problem. If I owe the bank $100 million and can't pay the bank has a problem.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 11:32:38 AM EST
[ Parent ]
Scotland is not Jersey or The Isle of Man.


"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 9th, 2014 at 11:34:50 AM EST
[ Parent ]
Spain is not Uganda.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 11:35:12 AM EST
[ Parent ]
Consider the following game. Scotland moves first.

Scotland: we want to dissolve the political union
England: okay, but then we want to dissolve the monetary union

Scotland to move.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 11:34:58 AM EST
[ Parent ]
OK, we can do that the easy way or the hard way.

The easy way involves a negotiated arrangement to replace or unwind the resulting cross-border financial obligations in an orderly, well-regulated manner.

The other option is that we refuse to enforce any debts held by residents of now foreign countries against residents of our country.

England's move.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 01:38:13 PM EST
[ Parent ]
Not an option. At least not if they want to join the EU.
by IM on Tue Sep 9th, 2014 at 01:51:44 PM EST
[ Parent ]


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 9th, 2014 at 02:03:43 PM EST
[ Parent ]
Cyprus repudiated foreign liabilities under EU pressure so obviously it remains in the EU after doing so.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:17:25 PM EST
[ Parent ]
To the hard option, England might retort that a lot of Scottish citizens and firms have entered into contracts under English law where Scots Law was available and that it's the London courts that need to enforce them, not Scottish courts.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:16:32 PM EST
[ Parent ]
And if English courts can convince Scottish officers of the law to execute those rulings, then they have a point.

Otherwise, the opinions of English courts are merely opinions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 10th, 2014 at 03:07:02 AM EST
[ Parent ]
Or if these citizens are also dual UK citizens (it's not yet clear how they'll be able to stop this) with assets in the UK. In fact, if both countries are in the EU it will be easier, as some British people who bought property in Northern Cyprus found out the hard way.
by gk (gk (gk quattro due due sette @gmail.com)) on Wed Sep 10th, 2014 at 03:24:19 AM EST
[ Parent ]
They can use a peg or a floating peg to a currency that belongs to a major trading partner.

That is precisely what I mean with option two; and that doing it with the Sterling may not be the wisest strategy.

You might find me At The Edge Of Time.

by Luis de Sousa (luis[dot]a[dot]de[dot]sousa[at]gmail[dot]com) on Tue Sep 9th, 2014 at 02:12:58 PM EST
[ Parent ]
What I think has shifted the debate in Scotland is the realization that institutions and assets which they had always been told were British, were in fact English.

Thus the Pound Sterling belongs to England (the name: Bank of England should have been a giveaway).  The military bases and manufacturing facilities in Scotland will be moved south - proving that the Army and associated industries belong to England.  And the general sense that the Scots will have to develop all institutions and skills of Governance from scratch - as if Scots have had no hand act or part of the Departments of State in Whitehall.

In other words the implied blackmail of taking all these things away has only confirmed that Scotland was being ruled not just from, but by England in the first place.  

Suddenly an establishment panic has set in - as this approach has been rumbled and has backfired. All the (archetypical English) party leaders are suddenly rushing up north with offers of enhanced devolution which Salmond had requested be on the ballot as a third option in the first place.  They therefore lack all credibility: just as all the promises made before the 1979 devolution referendum were promptly shelved afterwards.

If the much maligned (particularly by the English) Gordon Brown were still the PM, none of this might have been such a big deal today.  But the fact is the Scots now feel as if they have been taken for fools, and don't like the way the English have been putting them down -  more or less implying they are incapable of running a government or a monetary system.

I don't see Scotland being allowed to remain within the EU as being much of an issue - as a successor state - just as East Germany joining the the EU as part of Germany never became much of an issue.  With England possibly leaving, the EU will be more than anxious to ensure Scotland stays - and thus make it much more difficult for England to leave as leaving would then have much greater effects on the v. substantial cross-border trade than Scottish independence ever did. The Scots would be much less disrupted of EU business than the UK ever was, and will, I think be welcomed with open arms - Spanish and Belgian qualms notwithstanding

Of course publicly, at least, the EU has to be supportive of the UK as a member state right up to and including the referendum, but suddenly, if the referendum is passed, all that will change dramatically and previously mooted legal difficulties will become mere technicalities to be resolved sooner rather than later, with the declaration that Scotland is a unique and once off situation, and not a precedent for any other situation...

The price may be, at some point in the future, that Scotland has to join the Euro.  The EU would certainly not be happy to see another new currency joining the Union.  That would be very unpopular if mooted now, but might become the next best option if England were tempted to play silly buggers with the Pound, just as they have played silly buggers with the concept of "Britishness" and all the institutions of state that were supposed to belong to Scotland as well, but which have now been claimed by England.

As for N. Ireland, the Unionists are all in a dither with Orangement marching against independence in the Streets of Scotland: Just what the YES campaign needed to prove that "the Union" is a partisan and sectarian arrangement - Anglicanism being the State religion of England whereas the Church of Scotland is not established and mainly Presbyterian. Many N. Ireland Unionists would, ideally, like their own independent state, but know that just about no one else will agree to that. Geographically, Emotionally and historically they are much closer to Scotland than to England, and yet following Scottish independence, it us to England that they will continue to be tied.

The worry that England will have a permanent Conservative majority is overdone.  Scotland, with 10% of the total population was always little more than a makeweight in Westminster politics. Besides, UKIP may well split the Conservative vote which s fatal in a primitive first past the post system. The Conservatives, having "lost" Scotland, may well become unelectable for many years to come, especially as they are split on the perennial EU question.

UKIP is the classic little Englander, petit bourgeois, Thatcherite English Nationalist party and could displace the Tories as the lead right wing party as it has a clear (and  relatively popular) position in opposition to the EU. Labour also are clearly pro- EU policy and could benefit from the split on the right, if they had the courage to actually offer a left alternative. My view is that Scottish independence would actually lead to a Labour led Government (possibly in coalition with the Lib Dems) keeping the rump UK in the EU more likely, not less.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Sep 9th, 2014 at 12:30:33 PM EST
I agree on almost all points.

Regarding the Euro, Scotland would have to agree to one day enter the euro, when they fulfill the conditions. While this was almost bidning (except Sweden's intentional blatant failing to meet the conditions) during the euros success years,since the crisis started I haven't seen harsh reactions to attitudes like this:

Eurozone must `put house in order' before CEE states will join | Emerging Markets

The eurozone must enact sweeping fiscal and governance reforms before EU states in central and eastern Europe will consider adopting the single currency, the region's leading central bankers have warned.

So a Scotland "will join euro, eventually, when it meets the criteria and the eurozone has found a working structure" would probably be enough of real commitment. And that day may never come as the euro appears more likely to split.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Sep 9th, 2014 at 03:16:51 PM EST
[ Parent ]
The price may be, at some point in the future, that Scotland has to join the Euro.

That's not much of a choice - continue to lose sovereignty with the Pound, or give up future sovereignty to the Euro.

If I were Salmond I'd be considering other options.

Of course the real fools are the English. The Scottish Question not only demonstrates that Scotland is ruled by England, but that England is ruled by the City and its Etonomic Machinery of Sleaze, which is suddenly saying 'Nice currency you have there - be a shame if anything happened to it' now that a Yes vote is no longer impossible.

Mr Punch David Cameron has the City's hand up his arse, as does England as a whole - including UKIP.  The blather about the evil EU is a useful diversion from this rather fundamental (sic) fact.

The campaign seems to have given the Scots a reason to be smarter about this than the English. Rather too many of the English population actually believe that the EU is the problem, closely followed by ISIS, and that leaving the EU and being horrible to foreigners will herald a bright new dawn for the English Empire etc, etc.

Still - now that Mark Carney has gone in front of the TUC and promised jam tomorrow ('Your brave economic sacrifice has been noted, comrades!') we can assume that England's future is bright whichever way the vote goes.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Sep 9th, 2014 at 10:20:14 PM EST
[ Parent ]
The question is not whether the Scottish government will be able to twist England's arm (perhaps by threatening to walk away from the UK's public debt) so as to be allowed to stay in the Sterling zone. This is the wrong debate to have. The real question, that is already surfacing, is whether Scotland should want to share the Bank of England, as the recent White Paper sets out to do. The question for the people of Scotland is: If political union must precede a successful monetary union, as the Eurozone crisis has demonstrated so vividly, does it make sense to want to preserve a monetary union prior to dismantling a political union? The answer is unequivocally negative, turning the White Paper into unionism's unwitting ally.

Suppose for a moment that London bows to Scottish demands that the two countries share the Bank of England, appointing a governing body of Scottish and English central bankers in proportion either to population sizes or to national income shares; and even renaming it the Bank of England and Scotland (BoE&S). Presently, following the Credit Crunch, the Bank of England pursues energetically a policy of quantitative easing, supporting Westminster with copious purchases of Treasury-issued gilts. Once Scotland begins to issue its own bonds, as an independent country must do, the question is: How will the BoE&S decide on the mix of gilts and Scottish government bonds that it will purchase? Is this matter to be left to the discretion of the English-majority governing board, thus rendering Scotland's independent fiscal policy a sham? Or will some fixed ratio be devised, again limiting Edinburgh's fiscal leeway?

Moreover, when the current `unconventional' monetary policy comes to an end, with interest rates rising to `normal' levels, how will this `tapering' decision be reached? The English governors will always vote in favour of higher interest rates in tune with the London-based economy and its tendency to create real estate and financial bubbles. Unlike in the European Central Bank's governing board, where no country can ever have an absolute majority, in the BoE&S Scottish governors will be consistently out-voted, the result being Scottish interest rates that are permanently too high for Scotland. With Scottish growth thus artificially restrained, Edinburgh's fiscal policy will have to remain contractionary so as to meet the European Union's deficit and debt limits, if the White Paper's commitment to remain part of Europe is to be fulfilled. Without its own central bank to back its bonds, the Scottish government will be constantly threatened with rising bond yields; a scenario that bodes ill for a nation thirsty for national sovereignty.

Further to the political argument for a new Scottish currency, there are formidable economic arguments in its favour; arguments that do not obtain in Greece's case.

First and foremost, Scotland, unlike Greece, has its own banknotes. This may well be an historical curiosity but, nonetheless, it could prove hugely beneficial for an independent Scotland. Presently, three Scottish banks issue Scottish pounds under an agreement with the Bank of England which limits the quantity of printed money.[2] Upon independence, the Scottish government can commit to maintaining (say, for two years) the same rules except that the control of the three banks' note issues is transferred to a Scottish Central Bank which commits to maintaining a currency board that allows for a seamless transition to a free-floating Scottish pound (within two years). Unlike in the case of a Greek abandonment of the euro, in Scotland there need be no bank closures (as the Scottish notes are already in circulation), no ATM disruption, no re-writing of short and medium term contracts and no fear of bank runs. Indeed, the currency in people's wallets will be exactly the same as now.

Turning to the issue of public debt, another difference with Greece (which will default de facto the moment it leaves the Eurozone) is that Scotland does not have a public debt. Or, to be precise, it will have whatever debt it inherits from the United Kingdom as a result of a post-referendum negotiated settlement between London and Edinburgh. The SNP's misguided commitment to staying within the sterling union is forcing Mr Alex Salmond to sacrifice the debt issue, using it as a bargaining chip for securing the continuation of a lopsided currency union (rather than issuing a new currency in order to minimise the amount of UK debt shouldered by an independent Scotland).



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 12:39:11 PM EST
Interestingly argued article, Luis. I think you are correct in your assumptions, but there are so many variables that it is difficult to be precise. One factor which you are a little light on is the emotional factor. A recent study showed that voters are more likely to be swayed by their emotions than the hard practical facts. As a Scot, I have heard a lot of debates on the 'I' subject and supporters of both sides have occasionally shown themselves to be somewhat emotionally unhinged in their condemnation of the other side or personality.
Nevertheless, the one overarching fact is that the only people not disenchanted in the UK with the current political status quo are the politicians themselves and I believe that whatever the result, Britain has reached a watershed and we will see a completely new political landscape in the next five years or so.
Perhaps this is a peculiarly British condition, but it is an early warning that the politicians of the EU in particular and the other member states should ignore at their peril.
by Iain0203 on Tue Sep 9th, 2014 at 03:52:41 PM EST
Welcome to ET, Iain.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:10:34 PM EST
[ Parent ]
Most astute and comprehensive comment on the Scottish Question yet, welcome indeed, Iain!

Total agreement with The UK having a watershed moment coming up. With such leadership as Osbourne, Clegg, Miliband and Cameron the status quo reveals its insipid essence, with corresponding levels of revulsion from the electorate, ever more reluctant to use their vote as mere exercise in futility.

The yes vote could be a Guy Fawkes event, couldn't happen to a more deserving crew...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Sep 9th, 2014 at 05:20:10 PM EST
[ Parent ]
The US has just realised that it might be a good idea to pay some attention to Scotland. Here is the NY Times' attempt.

Even by NYT standards, it's pretty amazing. They manage to spend a paragraph on Hobbes, give the response to Katrina (!!) as an example of the advantages of being part of a large country, while never mentioning Thatcher, the Tories, or Salmond. They suggest that the main issue is that Scots want to be ruled by people who look like themselves (why are most minorities so strongly for independence? Never mind. They didn't mention them). As for problems, they think that they will have less power to negotiate with the EU for passport-free travel to Italy (as opposed to being part of a country that doesn't want to negotiate this. No, they didn't mention that either).

by gk (gk (gk quattro due due sette @gmail.com)) on Tue Sep 9th, 2014 at 03:57:05 PM EST


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Tue Sep 9th, 2014 at 04:48:25 PM EST
Oh no! Not jobs and the economy at risk!

Well - I never saw that one coming.

So voting no will guarantee Scotland's future prosperity, will it? Because that's worked so well for Scotland over the least few decades, what with job losses, and poverty, and all the work and money heading south with the destruction of manufacturing, and the shameful waste of North Sea oil money - and so on.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Sep 9th, 2014 at 10:27:38 PM EST
[ Parent ]
Blood & Treasure

If Novoscotiya is really going to secede from Ukania what the better together campaign needs to be doing right now is organising the post referendum resistance, the 'reunify' movement. Whoever wins, the vote is going to be close, there are millions of people in Scotland who don't subscribe to the McKipperist hallucinations, and voting, by its nature, is provisional, this being an especial feature of referenda. An independence vote decides many things. It settles nothing so long as people may be willing to change their minds.

 This might seem a tall order for demoralised Unionists (and the much larger community of not-separatists) and the way in which London has collapsed souffle-like from smugness into a kind of hysterical despair doesn't bode well. But the separation process will be long and difficult and will end in a state of affairs that messes up both countries, so there are plenty of both practical and moral reasons to try and rectify the situation: and, surely, it will be impossible not to say 'I told you so'. So it follows that this should be said in an organised way and be shaped to point towards a particular outcome.



'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Tue Sep 9th, 2014 at 08:12:33 PM EST
The Independent
Their concern was underlined by a lengthy statement from Deutsche Bank, signed by Deutsche Bank board director David Folkerts-Landau, which said: "A Yes vote would go down in history as a political and economic mistake as large as Winston Churchill's decision in 1925 to return the pound to the Gold Standard or the failure of the Federal Reserve to provide sufficient liquidity to the US banking system, which we now know brought on the Great Depression in the US.
Germany, of course, has never done anything comparable.
by gk (gk (gk quattro due due sette @gmail.com)) on Sat Sep 13th, 2014 at 11:05:14 AM EST
If they had picked an german example you would have complained too.
by IM on Tue Sep 16th, 2014 at 01:49:37 PM EST
[ Parent ]
I wouldn't. Though if he had picked Brüning other people probably would have. He should have either included Merkel  (but then the Germans would have complained), or simply shut up. There's no real need for a German bank to get involved in Scottish politics anyway.
by gk (gk (gk quattro due due sette @gmail.com)) on Tue Sep 16th, 2014 at 02:18:21 PM EST
[ Parent ]
Shut up, you are a foreigner seems to be first and last argument of scottish nationalism.

Or any other nationalism.

by IM on Tue Sep 16th, 2014 at 02:50:50 PM EST
[ Parent ]
Shut up, you are a foreigner banker

Fixed it for you.

Those nasty nationalists, speaking out for the separation of church bank and state like that.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 16th, 2014 at 03:12:24 PM EST
[ Parent ]
You assume. Salmond is happy enough with businesses interfering as long as they interfere on his side. You have a tendency to see any nationalistic movement through rose-tinted (red-tinted?) glasses.
by IM on Tue Sep 16th, 2014 at 03:19:30 PM EST
[ Parent ]
Did Salmond start posting under the handle 'gk' while I wasn't looking?

Me, I don't really care about Scotland or Salmond, I'd just be happy to see the UK disintegrate. Because Britain is a toxic presence in the European community, almost on par with the crazy Russophobes in the new entrants. And with far less historical baggage to excuse its psychotic behavior.

If Number 10 Downing Street can get cut down a notch, then good riddance to bad rubbish.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Sep 16th, 2014 at 03:32:15 PM EST
[ Parent ]


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