The independent Scots are not using the GBP just so that English, Welsh and Northern Irish taxpayers can continue to bail them out when their banks fail again. End of story.
Either they are independent and they stand on their own two feet and stop relying on bailouts from the country they voted to leave (should that happen) or they remain in the UK. Why should the UK (England, Wales and NI) allow the independent Scots to use the BRITISH currency just so English, Welsh and NI taxpayers can bail them out when their banks fail again? What do you think this is?
How would the Canadians like it if a newly independent Quebec carried on using the Canadian dollar just so that the Canadian taxpayers can bail Quebec out when its banks fail?
Alex Salmond’s big problem
The battle for Scotland has come to turn on a dispute over currency—which unionists are winning
Feb 21st 2014 | EDINBURGH
The Economist
An uncomfortable truth for Salmond: Had Scotland been an independent nation when its banks failed its small economy would not have been able to bail them out
DEBATES about Scottish independence tend to start with national identity and end with dry economic facts. It only takes a brief chat with one of the Scots pounding the streets for a “yes” or a “no” vote in the referendum due on September 18th to establish that much.
Within minutes he or she will be on to the details of oil prices and national debt, and whether they militate for or against leaving the United Kingdom.
The air war over independence is starting to conform to the same pattern. Alex Salmond, head of the separatist Scottish National Party (SNP) and Scotland's First Minister, is most comfortable talking about self-determination and national character. He scheduled the referendum to take place close to the 700th anniversary of the Battle of Bannockburn, a famous Scottish victory over the English. David Cameron, the prime minister, used a speech on February 7th to describe the “emotional, patriotic” case for the union. But, with the referendum approaching, political leaders south of the border are now posing the vexing economic questions that look certain to decide its outcome.
The toughest question of the lot concerns currency. Scots overwhelmingly want to keep the pound. Nationalists assure them that an independent Scotland could share it with the rest of Britain. But on February 13th George Osborne, the chancellor of the exchequer, delivered a speech in Edinburgh warning them that such a sterling zone would not work and would not have his support. His view is shared by the Treasury’s top official, Sir Nicholas Macpherson, and both the Labour and Liberal Democrat parties.
A sterling zone would resemble the euro zone in some ways, with integrated monetary and banking systems but separate fiscal and political ones. This asymmetry made the euro prone to crisis, so unionists fret about the parallels. Mr Osborne fears that just as Germany had to bail out Ireland, Cyprus and Greece to save the euro, Britain might have to rescue a stricken Scotland to protect the two countries’ shared financial system.
Making matters worse, Scotland is home to two of Britain’s largest banks in Royal Bank of Scotland (RBS) and Lloyds, which is based there owing to a quirk of corporate history. If the country became independent it would have bank assets twelve times the size of its GDP. The equivalent multiple for the rest of Britain is below five; for Ireland on the eve of the financial crisis it was about seven (see chart).
In another meltdown, then, an independent Scotland would struggle to rescue its banks. Indeed, although its present fiscal position appears at least as good as that of the rest of Britain, its longer-term prospects are poor. Scotland’s dependence on oil production exposes it to external shocks, and it is ageing faster than the rest of Britain. The Institute for Fiscal Studies, a think-tank, reckons an independent Scotland will face a larger fiscal gap than Britain even if oil revenues remain strong: 1.9% of national income against 0.8% for the UK.
Mr Salmond was having none of this. In a speech on February 17th he pointed out that a ring fence separating retail from investment banking, due to be implemented by 2019, ought to reduce the chances of another banking crisis. He also said the chancellor had exaggerated the size of Scottish banking assets by including those based in London, such as RBS’s investment-banking arm—implying that an independent Scotland would take little responsibility for them. And the SNP leader predicted that the rest of Britain would surely drop its opposition to a sterling union for fear of the transaction costs—estimated at £500m ($800m)—of separate currencies. He dubbed this a “George tax”.
These reassurances are rose-tinted, to say the least. Splitting investment from retail banking will not abolish banking crises. Nor will it completely absolve sovereigns of liability. Even if the Scottish retail operations of Lloyds and RBS could be hived off during a crisis, someone would probably need to save the banks’ remaining operations. They are globally systemic and remain far too big to fail safely. Scotland would have neither the capacity nor—judging by Mr Salmond’s words—the willingness to save them. The bill would fall to London. Presumably the British authorities would only be willing to shoulder those liabilities if RBS and Lloyds moved their headquarters from Edinburgh to London in advance.
Mr Salmond also threatens that Scotland will not take on a population share of the national debt if London refuses to let it use the pound and the Bank of England. Yet such a move would make it harder to negotiate a good independence settlement with the rest of Britain, wreck Scotland’s credibility in capital markets and send its borrowing costs skyward. On February 19th Danny Alexander, the chief secretary to the Treasury, pointed out that Scottish mortgages would become more costly.
Walking away from Britain’s national debt might also weaken an independent Scotland’s bid to stay in the EU. In recent days both José Manuel Barroso, the president of the European Commission, and Herman Van Rompuy, the president of the European Council, have suggested that such a bid would stumble. It would certainly face large difficulties if the new state were embroiled in an acrimonious spat with London.
The financial crisis, and fears that Britain could be the “next Greece”, helped the Conservatives to oust Labour at the 2010 general election. The Tory-led coalition government that emerged was a boon to pro-independence campaigners like Mr Salmond (the Tories being toxic in Scotland). It contributed to the SNP’s victory in Scottish Parliament elections the following year. Now the spectre of bank runs and bail-outs is again haunting the British Isles. But this time it is crimping, not boosting, the nationalists’ appeal. As one so fond of historical coincidences, Mr Salmond will doubtless appreciate the irony.
Scottish independence: Alex Salmond’s big problem | The Economist
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