http://www.telegraph.co.uk/news/uknews/scotland/10648683/Alex-Salmonds-debt-threat-would-cost-Scottish-households-5200-a-year.html
Friday, February 21, 2014
Scottish Independence: Threat to Default on Scottish Share of UK Debt
In September 2014, the people of Scotland will vote yes or no on the question of independence. It has been a long road, with Yes Scotland (the group promoting independence) consistently embarrassing itself. Recently, the leader of the Scottish Nationalist Party, Alex Salmond, has voiced that a post independent Scotland would have a currency union with the UK. The British Chancellor of the Exchequer, George Osborne, has rejected the notion that the UK would enter a currency union with an independent Scotland. Salmond has called this rejection a bluff and furthermore said that if there was no currency union, Scotland would simply not take their share of the debt with them following independence. The news article states that doing so would increase the mortgage of Scottish homeowners by over $8,500. What the article is forgetting though is the various other problems an independent Scotland would face if they did not take their fair share of the debt. First, doing so would cause investors to be doubtful that Scotland could pay off any debt whatsoever. Essentially, the Scottish government could not be trusted to pay off any debt since it had given up the responsibility to pay off its fair share of the UK debt. This point could certainly be argued regarding the logic by saying "Scotland is a new country. That debt is UK debt, not Scottish." To investors, that would appear as just an excuse to get out of the debt. Another problem is that the UK would be less willing to help start up an independent Scotland. While present Scotland has its own parliament, it doesn't have nearly as many powers as a US state has. The UK is still very much centralized, with most power being centered in London. As such, an independent Scotland would have to get start up equipment and information from the UK. Scotland can certainly do this by itself, but the costs would be very high and a post independent Scotland would already be worse off anyway considering it would have to raise taxes to fund the predicted Scottish budget. If it had to cover the startup costs by itself, those taxes would be even higher, and or the Scottish government would have to borrow money at higher interest rates.
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3 comments:
Scotland appears to be taking a very large gamble at perhaps a very risky time. Scotland's desire for independence is easily understood, but the timing leaves something to be desired. The potential consequences of denying their share of the debt extend past just higher taxes and a lack of trust from lenders. As Scotland gains independence it would also hope to gain independent entrance to the EU. This is something that the President of the European Council has doubts about should Scotland chose to forgo its debt responsibility.
It is admirable that Scotland is finally getting the chance at independence, but it might come at too high a cost.
@Lehlohonolo Mosola
I have been paying attention to this issue for about a year now (independence movements are very interesting), and it appears that cooler heads are prevailing. From what I have read, the question of independence is going to boil down to how will Scotland benefit economically? I have read many arguments on why Scotland should or shouldn't be independent. The shouldn't be arguments revolve more around economics and international concerns. The arguments for are more political in that the Scottish people feel they feel like that they have little power in Westminster. While true, the same could be said of one of the fifty US states. One hope I keep hearing of if Scotland votes no is the option for devo max (giving more powers to the constituent countries of the UK) and a more radical idea: implementing a federal system. A federal system seems the best alternative route as this would decentralize growth away from London and allow the rest of the UK to truly grow.
The only way the British government can screw this up is if Cameron and his government speak more on the issue of independence. From all I have read, it is very evident that the majority of the Scots have no love for the Tories, and if they see the referendum as a fight against the Tories then yes might be an eventuality.
I think it would be very risky for Scotland to become independent. It seems they would have to take a lot of costly measures to do so, many of them falling on Scottish citizens. I think it would be interesting to know how many people are for independence and vote yes on the referendum because they will end up paying a lot more, but for some independence would be worth it.
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