Tuesday, September 9, 2014

5 reasons to worry about Scottish independence

         For 307 years, Scotland and England have been unified. Their economies, banks, currencies, and industries are tied and, if Scotland should become independent, the consequences will span all of those aspects.
         This past week, the value of the pound against the dollar has fallen to a 10-month low. This is largely because of the uncertainty of its future. Supporters of Scottish independence are fighting to keep the use of the pound in an economic union with the U.K. However, the Bank of England would likely impose strict budget rules if that were to happen. Scotland's only other option would be to create a totally new currency, which would bring about a whole new slew of problems. Adopting the euro is not a viable option.
         The U.K. currently possesses a large amount of debt. If the spilt occurs, the U.K. has said it will honor all of the debt, including that incurred by Scotland. Under these circumstances, the newly independent Scotland would owe the U.K. around 130 billion euros, roughly 10% of the public debt. Supporters of independence have said that they're ready to manage that debt and confident in Scotland's ability to do so. However, analysts at Standard&Poor's believe that the new Scottish economy would be  less capable of handling the debt because of its dependence on earnings from the gas and oil industries, which are prone to shocks.
           The U.K. produces about 90% of the EU's oil, most of which comes from land that would most likely be claimed by the newly independent Scotland. England will most likely want a share of the production and reserves and analysts believe that an agreement could be made. Supporters of independence estimate that oil remaining in Scotland is worth about 1.5 trillion euros. However, the U.K. government argues that it's less than 1/10th of that number.
           Large financial institutions based in Scotland such as Royal Bank of Scotland and Loyds have aired concerns that independence would damage their businesses by lowering credit ratings and increasing costs. The banking sector in Scotland would be 12 times the size of the newly independent economy, which raises concerns about Scotland's ability to deal with future financial crises. Large banks are worried that they may need to move their headquarters to England to avoid future financial strain.
            Supporters of Scottish independence want Scotland to remain part of the EU. However, as a new state, it would need to apply for membership. All 28 states would have to approve their entry, which some states would be reluctant to do for fear of fostering their own separatist movements.
           Prime Minister David Cameron has assured a vote for Britain's membership in the EU, assuming he wins the election next year.
          Overall, it seems like Scotland's separation from the U.K. would be beneficial for neither Scotland nor Britain. Economically, Scotland is unstable and would struggle intensely on its own. The U.K. would lose tons of revenue that it gains annually from Scotland. Scotland would also struggle to find its place and prove itself in the EU as well as the world economy.

Link: http://money.cnn.com/2014/09/09/news/scotland-independence-referendum/index.html?iid=SF_E_River
         

4 comments:

  1. From what I have read, much of the independence talk coming from Scotland is completely nationalistic. The promoters of their independence do not mind much of the benefits as long as they gain back the independent nation of Scotland. The US and other countries need to be cautious of the impact this would have on the already fragile Eurosystem and the domino effect it could have.

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  2. It seems like a very emotionally charged situation, decisions made with the kind of purpose/attitude that Scotland has typically have good intentions but are prone to faltering as you pointed out with the banking and oil situations.

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  3. It seems as though the costs of Scottish independence are much greater than the benefits. If it would cause them so much of a struggle economically, I do not see that it is worth it for them to separate from the UK. I understand Scotland's reasons for wanting to gain independence, but I think it would be risky to take on such a large amount of debt in addition to the other costs that would come with separating from the UK.

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  4. It looks like Scotland's want to be independent from the UK is mainly based on national pride and their leaders have not looked at the opportunity costs if they were to leave. Not only would they start out in a good amount of debt as a new country but they would also start a domino effect on a lot of other countries.

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