Scotland, sterling and the debt

Does your separatist movement have an infographic?

Scotland will hold a referendum on independence from the United Kingdom in September 2014, and the Scottish Government has just released a 670 page white paper on Scottish independence (conveniently available in both Kindle and ePub formats for nice bedtime reading). The white paper presents the government’s case that Scotland can and should be in a currency union with the rest of the UK.

There are probably some sound arguments for that: it could take years to join the euro, and much of Scotland’s trade is with rest-of-UK, and vice versa.

On the other hand, events of recent years have kind of cooled the enthusiasm for currency unions in Europe. It’s not at all clear that it would be a good idea for Scotland to adopt sterling. The UK Government’s position is, sensibly enough, that a currency union would be unworkable without a fiscal and political union, which is kind of absurd when the goal is Scottish independence.

But let’s read between the lines. The argument of the Scottish National Party-led government is that the British pound and the Bank of England (name notwithstanding) are “assets” of the United Kingdom. Assets and liabilities of the United Kingdom should be split up among the constituent countries, and if rest-of-UK refuses to divide the sterling “asset”, then Scotland would refuse to assume its share of the liabilities—the UK national debt.

(By the way, did you notice the reference to “the most optimistic scenario … by the Institute for Fiscal Studies, would be to cut public spending by £3bn more than the UK government plans by 2021”? Emphasis added, of course.)

This is a brilliant strategy and a win-win for the pro-independence campaign, given Scots’ apparent sentimental attachment to a currency issued by a bank that is named for their erstwhile enemy. They either get to keep sterling, or they get a huge chunk of debt relief. Given the quality of economic decision-making in London, it’s seems likely that rest-of-UK will go for the latter.

I think this is the endgame, assuming the referendum passes (which doesn’t seem so likely right now): an independent Scotland with its own currency, a geographic share of hydrocarbon reserves and no debt. Great way to start a country.