Scottish independence could mean the end of Spain: Martin Wolf
On September 18th
Scotland will vote on whether or not to leave the United Kingdom and
break a union that has lasted over 300 years. While it long seemed as
though an independent Scotland was only a pipedream, recent polls have
shown that a ‘yes’ vote is actually somewhat likely—the ‘no’ to Scottish
independence vote is now winning by only 4% (it was up by as much as 11% on August 25th).
Update: A YouGov poll
released overnight Friday showed the independence movement losing a bit
of momentum with 52% of respondents saying they'll vote "no" for
independence and 48% saying they'll vote "yes." Still, the vote is too
close to call and a lot closer than many expected just a few weeks ago.
So what’s the significance of this tiny country (Scotland has only 5.3 million citizens and could fit inside the state of Georgia twice over) potentially leaving the UK?
Martin Wolf, chief economics commentator at the Financial Times and author of “The Shifts and the Shocks,” tells Yahoo Finance that the implications could be disastrous for Scotland, England and the Eurozone at large.
Scotland
In the short-to-medium term, says
Wolf, Scotland will find itself in a terrible mess with a seriously
damaged economy. Uncertainty will play the key role in this damage and
will continue for years. “We don’t know what the final arrangements will
be,” says Wolf.
While the Scottish National Party
(SNP) has said that Scotland would continue to use the Pound Sterling
as its currency and work with the UK in a currency union, UK Prime
Minister David Cameron, his deputy Nick Clegg and Labour Party leader Ed
Milliband have all nixed the idea of union,
dealing Scotland a hard blow. There is of course the euro but it would
take at least 18 months for the newly-independent country to join the
union and probably much longer to gain approval from all 28
member-countries.
Aside from the question of Scotland's currency, there’s also the prospect of defaulting on its part of the United Kingdom’s 1.3 trillion pound debt. And in yet another blow, both Lloyd’s and The Royal Bank of Scotland have released statements saying they would move down south (to England) if Scotland were to vote ‘yes’.
Scotland's aging population (the number of people aged 65 and over is expected to increase 59% by 2037) poses a challenge to economic growth in the coming years, and makes increased government spending likely.
Scotland’s oil business is also somewhat erratic. The oil industry made Scotland 11.5 billion pounds between 2008 and 2009, while the country only made 5.5 billion pounds from black gold between 2012 and 2013.
The United Kingdom
It’s not just Scotland that would
be hurt by a Scotish secession, says Wolf. “It will certainly make the
UK completely inward looking,” he explains, meaning the country could
become isolationist and lose its status as a major international power.
The UK would lose over a third of its physical territory and plenty of
natural resources (including all of that oil). There have been calls for
Prime Minister David Cameron to step down if the independence vote
wins.
Independence could also change “in unpredictable ways” the UK’s relationship with the EU, says Wolf.
“Suddenly one of the oldest and
most stable democracies in the planet is put into chaos; it’s very
surprising and none of us expected this… it’s a new, surprising and very
depressing situation,” he explains.
The Eurozone
The implications could go beyond Scotland and the UK and have drastic effects on the eurozone as a whole, particularly Spain.
“The most obvious parallel is
with Catalonia,” says Wolf, referring to the autonomous region in Spain
that has often protested for recognition as an independent state. Around
55% of Catalans support independence from Spain and the Scotland
referendum has fueled new protests throughout Barcelona.
On Thursday, an estimated 1.8
million protesters marched through the streets of Barcelona waving
independence flags and wearing yellow-and-red shirts with the phrase
"Now is the time" and shouting "Independencia!," USA Today reports.
The small region of Catalonia brings in around one-fifth of Spain’s $1.4 trillion economy.
“The Spanish, even more than the
English, think that Catalan independence is an existential matter for
Spain," Wolf says. "It might begin the unraveling of the whole Spanish
state.”
Freedom?
Still, these things aren’t always
dependent on economics. Scotland has fought for its freedom for nearly
308 years, and with a national identity that reveres heroes like William
Wallace, Robert the Bruce and Bonnie Prince Charlie, a thirst for
freedom might outweigh any potential economic burdens.
http://finance.yahoo.com
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