Reply to post: Re: Geneva Convention

Re: Geneva Convention

We haven't actually ever had a truely floating currency. It was always either tied to Sterling or to a basket of EU currencies before being replaced with the Euro.

I honestly think a lot of the complications for Scotland are being completely over played.

Slx,

The world has changed since then. Most of the time that the currencies were linked was during a global exchange rate system (Bretton Woods). Although there was admittedly a huge global war in there too... But also foreign exchange markets weren't quite the red-blooded beasts that they are today.

Finally Ireland didn't have a large oil industry and a staggeringly huge financial services sector, which Scotland does. The oil introduces a lot of volatility into a currency. It's bounced the Pound around quite a lot since the late 70s, and that's an economy ten times the size of Scotlands for roughly the same amount of oil. Oil prices fluctuate so damned much. This year they've been as high as $140 a barrel (iirc), and there are predictions that they may drop as low as $80/b (at least temporarily). That kind of shift, over a couple of months could easily punt the Scottish currency 10-20% either way.

Remember that Scotland should be taking on some share of the UK debt. I suspect a deal where Scotland takes on less than the full 9-10% and gives up some of its claim on the shared assets in return. But this is difficult. It's unlikely they can raise this on the markets in one go, so they're going to be paying off government debt in a foreign currency. This is courting disaster if the currencies diverge sufficiently, and however well the Scottish manage their economy the one thing they cannot control is oil prices.

Sharing the pound is massively unpopular in the rest of the UK. See the Eurozone ongoing disaster for reasons. Also some hurt nationalist pride too I'm sure. Plus us Southern voters don't fancy underwriting Scotland's financial system (we're not very happy doing that for our own!) - and as the Euro has also shown, a single currency without a banking backstop is a huge fucking disaster area. That won't happen.

For the same reasons of both sentiment and practical economics, Scotland is unlikely to join the Euro in the immediate future.

Now we come to the other fly in the ointment. Financial services. The large debt in a foreign country is solvable. I'm sure the rUK can do a deal where if the Scottish currency plummets we forgive some of the debt. It'd be unpopular, but it's the only sane solution. Scottish financial services though, are 12x the size of their economy. In Cyprus it was only 7x, and the Eurozone decided to punish them for it. In the UK it's 5x. We nearly went bankrupt bailing that lot out. If the Euro collapses there's another financial storm coming. Scotland can only manage that properly with a central bank, and therefore a currency. And even then can't backstop a finance sector that large. Chances are that large chunks of it will move to London. That's a big hit to the Scottish economy, or a huge risk to the Scottish economy. Neither are nice choices. And that is going to be one of the biggest costs of nationhood.

If Scots believe in it that's great. Politically if they feel so different to the rest of the UK then they should leave. Even if it's just England. England dominates the Union by being over 80% of it. I'm not sure that's a soluable problem.

But there are costs. Huge ones. It won't be the paradise set out by the SNP. Scotland will almost certainly get a lot poorer, for at least a few years. Oil production is declining by 10% a year at the moment, and the financial services sector is currently huge in comparison the economy and will shrink quite rapidly. If it remains large it will distort Scottish politics (in a way it doesn't in a devolved assembly) and be a huge risk to the economy - but also give some nice benefits. But bits of it will probably always be asking for special favours or threatening to run off to London. Exports to rUK will be a large sector of the economy, and will probably fluctuate somewhat with exchange rates. And the relationship with the EU will probably be complicated and uncertain for 5-10 years. Plus I believe there'll be a massive Eurozone crisis in 2-3 years (Italian debt), which may lead to partial break-up.