More questions than answers
The article I read is about the economic considerations behind a Scottish exit from the U.K. and how it will affect the economies of Britain, Scotland and the European Union. The article opens with discussing how the value of the pound has reached a 10 month low compared to the U.S. dollar and a 3 month low with the Euro and how shares in Scottish companies were falling which leads to even more questions on Scotland's capabilities to deal with the impending fiscal situation if the referendum were to pass.
A major issue brought by Scotland's possible independence is what type of currency they would use; sterling, euro or the pound. The issue with using the pound is that currency unions should not be made in the European Union without total political and fiscal union, according to U.S. economist Paul Krugman. This leads into the major obstacle that is the resulting U.K. debt situation with a separate Scotland and U.K. The possibility that Scotland forgoes all liabilities from leaving is very slim, which then prompts the conversation as to how much debt they assume and how they will pay it off. The banking sector of Scotland is relatively large compared to other countries going through similar situations, but the projected financial situation for Scotland by Blackrock (world's largest fund manager) is “likely high debt, fiscal deficit, weak economic growth, lack of institutional frameworks and low foreign exchange reserves”. This suggests Scotland would pay a higher interest rate than the British government; brokers estimate an extra 1-1.5 percentage points a year. This all comes back to the currency issue, Scotland's liabilities and assets would be in different currencies if it were to utilize sterling and Britain used pounds. The increasing interest rates would make investors more likely to remove British assets thus making Britain's financial situation more confusing. One long term situation proposed is that a Scottish exit would make a British exit from the European Union likely, thus furthering the ripple effect. However I feel this to be a bit of a stretch. One question that I came across while reading this article is how informed the average Scottish voter on these issues/conversations.
John Wainwright
Posting this comment after seeing the results of the Scottish Referendum, I think the Scots were aware, for the most part, of the dangers of separating and keeping the GBP. I'm not sure the reason to become independent was pressing enough to risk this financially. If Scotland were to gain membership in the EU prior to its becoming independent, maybe the fiscal problem would be a little easier to solve with the outright adoption of the Euro. With that being said, the problem of the EU's decentralized budget would still be present. In the end, I think the result of the referendum was the right one for Scotland at this time but I hope the Scottish people do get independence sometime in the future if that is what the majority of the population wants.
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