I don’t have a position on Scottish independence; as an American, I like my democracies big and diverse, but I also understand the frustration of the Scots, who are tied to David Cameron’s England.
Whether it’s overall a good idea or not, however, independence would have to rest on a sound monetary foundation.
And the independence movement has me worried, because what supporters have said on that that crucial subject seems deeply muddleheaded.
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According to the independence movement, there will be no problem – Scotland will simply stay on the pound. That is, however, much more problematic than they seem to realize.
It’s true that England – I mean the rump United Kingdom, or continuing Britain, or whatever – can’t prevent Scotland from using the pound, just as the United States can’t stop Ecuador from using dollars. But the lesson of the euro crisis, surely, is that sharing a common currency without having a shared federal government is very dangerous.
In fact, Scotland-on-the-pound would be in even worse shape than the countries using the euro because the Bank of England would be under no obligation to act as lender of last resort to Scottish banks – that is, it would arguably take even less responsibility for local financial stability than the pre-Mario Draghi European Central Bank. And it would fall very far short of the post-Draghi E.C.B., which has in effect taken on the role of lender of last resort to euro-zone governments, too.
Add to this the lack of fiscal integration. The question isn’t whether Scotland would on average pay more or less in taxes if independent (probably a bit less, depending on how oil revenues were handled). Instead, the question is: what would happen if something were to go wrong – if there were a slump in Scotland’s economy? As part of Britain, Scotland would receive a large amount of de facto aid, just like an American state (or Wales). If Scotland were on its own, it would be on its own, like Portugal.
Now, Scotland would presumably have high labor mobility. Assuming that it manages somehow to join the European Union (although that too would be surprisingly tricky), it would join under The Single European Act, which offers freedom of movement, and Scotland sort of shares a common language with Britain (even if you sometimes wish there were subtitles).
But that’s not necessarily a good thing: what we’re seeing in places like Portugal is the large-scale emigration of young workers, leaving a diminished population to bear the fiscal burden of caring for the elderly.
Again, I can understand Scots’ grievances. But if they really want to do this, they had better get real about money.