Sunday, 7 September 2014

The World won't end if Scotland votes YES on September 18th

The publication overnight of a YouGov poll showing those in favour of Scottish independence leading those opposed by 51 to 49 triggered a paroxysm of panic and hyperbole on politicalbetting and other Internet blogs and forums.

The emotion and passion are understandable but among those claiming a YES vote would lead to financial meltdown, panic and armed guards at Gretna Green and Carter Bar it appeared that reason had gone off for a little holiday.

So what will happen if Scotland votes YES on September 18th - will the world, as we know it, come to an end ?

In short, no.

There may be some short-term upheaval and some people (apart from those who already have) will say some things they will come to regret in the cold light of day. The recent debate has been clouded by what I've called "the assumption of antagonism" predicated on some half-baked notion that an independent Scotland and the rest of the UK will be as close as they can be to enemies without having armed soldiers confronting each other.

Plenty of those commenting in the heat of overcooked passion argue for an immediate and complete separation - this is based as much on the expectation that the rest of the United Kingdom will elect a Conservative (or should that be non-Labour) Government in perpetuity.

The truth of course is that the vote on September 18th is simply the start of a process of negotiation between officials leading to Scotland's independence in the spring of 2016. The negotiation process will be complex and Alex Salmond won't get everything he wants. Indeed, what comes out the other side of the process may not be a million miles away from Devomax or the additional powers currently being promised by Westminster politicians.

The other side of the coin is that for all the talk of independence and separation there will remain a strong relationship between an independent Scotland and the rest of the United Kingdom. On the thorny issue of currency, for all the talk of no currency union and cutting the newly-independent Scotland adrift, that won't happen.

It suits no one to have an economically damaged partner on one's border - the rest of the UK will suffer if Scotland is in economic trouble and don't assume that England (or Westminster) has no history of economic intervention. After southern Ireland broke away and formed the Irish Free State in 1922, the new country continued to use the pound (albeit called the punt but essentially the English pound as the two currencies existed at parity for decades).

The drawback for the Irish was that in tying their currency to sterling and using the Bank of England as guarantor, they effectively ceded financial sovereignty to London. Interest rate policy for Ireland wasn't set in Dublin but London. Irish politicians realised the infirmity of their situation but were powerless until the coming of the Exchange Rate Mechanism (ERM) which began the path to the Euro and effectively meant that Irish economic policy stopped being made in London and was made in Frankfurt instead.

Despite all this, in 2010, Chancellor George Osborne wrote a cheque for £3.5 BILLION as Britain's contribution to the bailout of Ireland's banks. We didn't have to contribute as we weren't part of the Euro but the British Government recognised the social and economic consequences of an Irish economic collapse in terms of a possible influx of refugees and the risk to law and order. In addition, it's likely Britain contributed up to £10 BILLION to rescue Ulster Bank as part of the Royal Bank of Scotland.

I've no doubt that any British Government would be compelled to intervene to help a financially beleaguered Scotland because the social and economic consequences of a Scottish economic collapse would be profound for England (and especially the north of England).

Yes, Scotland might in time join the Euro but in the short term, sterling would be retained and some form of currency union would be created - of that, I've no doubt. Scotland will also join NATO sooner rather than later - the practicalities of its geopolitical situation dictate no other course.

As for an independent Scotland's domestic financial policies, it's clear that it will need to establish its own financial order and that will mean some or a lot of pain. As others have suggested, I suspect the Scottish National Party (SNP) will schism sooner rather than later and Scottish politics will settle into a fairly conventional centre-left, centre-right scenario which would be recognisable to anyone anywhere. Scotland was the birthplace of Adam Smith and Kier Hardie so there could be a sharper divide in Scottish politics in a decade or so but that might be no bad thing and the Scottish Liberal tradition might re-emerge.

All of this, of course, is predicated on a YES victory in twelve days - it's entirely conceivable that NO will prevail but a narrow victory for NO won't end the debate though the arrival of Devomax probably will in the short term. IF Labour wins in next year's General Election, I suspect Scotland will retreat to the margins but a Conservative majority (especially if there are very few Scottish Tory MPs) will allow Salmond or his successor to keep the independence fire burning and await a second chance...

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