- - Friday, September 12, 2014

ANALYSIS/OPINION:

This is a weekend of high anxiety for our British cousins. Scotland the brave, the ancestral home of millions of the sturdiest and most independent of Americans, will vote Thursday whether to secede to become once more an independent nation. The United Kingdom would be united no more.

Scotland joined England to become Great Britain in 1707, but polls suggest there’s a realistic chance of passage of “the Yes vote.” The man at 10 Downing Street is suffering high stress and maybe an ulcer at the thought that he might be soon leading a not-so-great kingdom. Yet it’s the Scots who might suffer most from going it alone.

Throwing off English rule has inspired Scotsmen since the days of Robert the Bruce and the bloody wars of independence. The battle cry “freedom,” made famous to moviegoers in “Braveheart,” has, alas, long since been replaced by cries for more free stuff. Scotland has succumbed to the lure of the welfare state, accumulating enormous public debt. It may not be the ideal moment for Scotland to throw off the English yoke, because the southerners in England and Wales pay the bills.

Scotland receives more from the British treasury in various social-welfare programs than it sends in taxes to London. On independence, Scotland would likely assume a proportional share of what is now Great Britain’s public debt. That would be $161 billion, or about $34,000 per Scotsman.

It’s not at all clear that Scotland could continue to use the pound sterling as its currency, or the euro, although there’s precedent for one country to use another’s currency. Panama uses the U.S. dollar, and Montenegro, which doesn’t belong to the European Union, uses the euro. But using another’s currency would put Scotland at the mercy of monetary policy and interest rates set by another government. The point of independence, after all, is independence.

Years would elapse before an independent Scotland could become a full member of the EU. Spain, worried about the possibility of Catalonia breaking away, might block Scotland’s application to teach the Catalonians a lesson. Scotland could set a pound Scots, just as Ireland established its own currency after independence. This would preserve independence at the cost of higher interest rates for years until the untested currency achieves a level of trust and stability.

The combination of high public debt, high interest rates and the need to bankroll a sprawling welfare state would inevitably increase pressure for Edinburgh to further raise burdensome taxes. Some big Scottish banks, testing the wind, have fled to London already. Others are threatening to go.

A “Yes” on the referendum would mean that the House of Commons would lose 41 left-wing members, certainly an appealing prospect to the Tories. But the Conservatives would feel less need to cooperate with the United Kingdom Independence Party (or UKIP), which wants nothing to do with the socialists who rule the European Union. The political prospects are murky indeed.

Scotland could, in theory, repudiate all public debt, leaving England even more indebted than ever. Then there would be more pressure for London to raise taxes, which would further push out business. Uncertainty over the referendum has already increased interest rates. Further turmoil would increase perception of risk, and might push banking and financial firms to seek safe haven elsewhere. The sterling is the fourth-most-traded currency in the world, and London is the world’s oldest great financial market.

The business of England is business, Englishmen have said for centuries, and London can’t afford to lose business. There’s a price everyone pays for independence, and for now uncertainty is the currency.

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