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Scottish Independence is an Economic Nonsense
"London's games are Great Britain's games". So said the iconic BBC commentator Barry Davies, at the start of the opening ceremony of the 2012 Summer Olympics. A 4-hour extravaganza, it was a show that stunned and delighted the world.
The start of the 30th Olympiad showcased the UK's creative and organizational genius. It was a stylish reminder of the huge impact of our small North Atlantic nation has had on broader humanity. And what did this high-octane celebration of Britain's shared history and culture kick-off with? Successive choruses sang with reverence and respect by sweet-voiced schools kids from the UK's four corners.
We had Jerusalem, Danny Boy and the Welsh tearjerker Bread of Heaven. And, at the heart of the mix, from a place integral to our on-going island story, we heard the Flower of Scotland.
While the UK is four distinct countries, each with its own identity, we're one coherent nation. Cobbled together, in a form that somehow works, our joint history of achievement and success is as rich as any on earth. That's how we presented ourselves during that masterful Olympic Opening Ceremony in July 2012 – and the world roared back its approval.
Last week, mainstream politicians finally tackled the fiendishly difficult economic and technical issues raised by Scottish independence. In just seven months, Scotland votes on whether to leave the UK. The outcome will swing partly on nationalist fervor, the battle within millions of hearts between British and Scottish identity. But votes cast on 18th September will also revolve around money and financial security – issues that have just moved centre-stage.
I'm against Scottish independence because I'm horrified at the prospect of our country being dismantled. I'd also argue that an independent Scotland is an economic nonsense. I'm not saying a country of 5m people, with a wealth of know-how, couldn't survive. The problem is that the cultural, historic and commercial ties that bind us are too tight to safely be cut.
They can be symbolically severed, yes, with the creation of yet another expensive layer of Scottish government, with all the special advisors, civil servants and juicy public sector per diems that would bring to Edinburgh's already cossetted political elite. But as far as the rest of the world is concerned, we're one entity – a reality that's prevailed for centuries, long before the 2012 Olympics.
Crucially, Scotland's still extremely precarious financial services industry is viewed as UK-backed – and that means the Bank of England. The Scottish commercial banks, with their vast liabilities, and still unresolved off-balance-sheet losses, will always physically reside in Britain. As such, global investors will keep assuming that, in the event of a crisis, the UK government will be in charge. That will apply however many drivers SNP Leader Alex Salmond has at his disposal and under whatever flag any "independent" Scottish government sits.
Last Tuesday we saw a rare outbreak of agreement between the Conservatives, Labour and the Liberal Democrats. The UK's three main parties are now united in their determination to refuse an independent Scotland a currency union with the rest of the UK. "People need to know that's not going to happen," said Chancellor George Osborne last week in Edinburgh, during a rare north-of-the-border foray for a senior Tory.
"We can't be prevented from using the pound," replied Scottish National Party Deputy Leader Nicola Sturgeon. "It's a fully tradable currency and Osborne is bluffing". In some senses, she's right. Will Westminster really pass and enforce draconian legislation fining British firms who use sterling when trading with Scots? I think not.
The more menacing, and largely unspoken threat is to deny an independent Scotland banking union with the rest of Britain. This is Westminster's big stick. The combined balance sheets of the UK's banks amount to a massive 5 times annual GDP. We have the most bloated banking sector of any major economy, making our public finances extremely vulnerable in the event of another ruinously expensive bank bailout.
An independent Scotland, though, would be even more financially top-heavy, to a quite astonishing degree – with bank balance sheets totaling over 12-times its national income. When Iceland's banks crippled the entire country the equivalent figure was 7-times.
Would London really stand idly by if Scotland's banks imploded, given the complex web of cultural and financial links between the two countries, combined with international perception that we are, to all intents and purposes, one nation? Of course not. The risk to the rest of the UK's financial markets and credit-rating would be simply too great.
The SNP's "Yes" campaign is still behind in the opinion polls. But Salmond has a track record of surging late to snatch victory – as he did in the Scottish Parliamentary elections of 2007 and 2011. The No campaign, meanwhile, is languishing and complacent. The Conservatives can't run it, because they're largely hated in Scotland. And while the Tories say they want the SNP to lose, the party knows Scottish independence would give it a far better chance, for years to come, of commanding majorities across the rest of the UK.
Over the coming months, the SNP will use all kinds of economic snake oil to swing the vote its way. Salmond is promising Scottish voters a callous £600 "indy bonus" – without saying where the money will come from. The biggest con, though, is that while Westminster can threaten to stop both currency and banking union, in practice it won't work – as the SNP well knows. An independent Scotland will keep using sterling and its banks will continue to rely on a London-launched bailout – so setting up the mother of all moral hazards. That's the main reason why September's vote shouldn't only be limited to Scots. The entire UK should have a vote because the entire UK will have to rescue Scotland if its vast banking sector goes bust.
Britain's gilts market is propped up by printed money. Our national debt, for all the "austerity talk", has doubled since 2007 and is set to rise another 50pc by 2016. The SNP, as a political gambit, is now threatening to walk away from "Scotland's share" of the UK's national debt. Could there possibly be a worse moment to mess with our international creditors?
Then there's the jaw-dropping political and diplomatic incoherence of the SNP's stance. An independent Scotland would have to leave the European Union – an outcome many Scottish firms fear. It could only re-enter if all EU members agree – which Salmond says they will. Would Spain? If a newly-independent Scotland waltzed back into the EU and the single market, that would fan the flames of Basque and Catalan separatism. I don't think Madrid would allow it.
Think also, of the impact of Scottish independence on Northern Ireland. The Good Friday agreement, secured after years of heartache and bloodshed was, at best, an agreement to disagree, while pursuing differing aims by political and not military means. This is yet another reason why this upcoming referendum should extend beyond Scotland, because a Scottish Yes would re-open the constitutional question in Northern Ireland at an extremely delicate time.
Flower of Scotland refers to the victory of Robert the Bruce over England's Edward II at the Battle of Bannockburn in 1314. Some 600 years later, English and Scottish regiments (together with Welsh and Irish) were fighting alongside one another in the First World War. Which anniversary is more recent? Which has more relevance to our contemporary life? My cultural heart is deeply opposed to a UK split, my financial and political head even more so.
UK banking union
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