Will the future of the EU be decided next weekend by Scotland?
Scotland is holding a referendum this coming weekend as to whether or not it should become independent from the United Kingdom by March 2016. As there is no historic context for such an event, the ultimate ramifications (budgetary, fiscal, currency, etc.) for both parties are difficult to predict. Yet, regardless of the result, the whole episode clearly points to a loss of power for England and the United Kingdom. Ultimately, it should also impress upon EU politicians how strongly many people value their independence and autonomy, which in turn, should have impacts on how the EU is organized in the future.
Below, we cover some of the important issues facing the Scottish people as they go to the polls and the possible market implications:
| Issue | Stake | Comment |
| Exchange Policy | – Highly complex process – High market implications |
– If a new monetary system is required to be setup, this would be expensive and would have little credibility to start with. – Joining the Euro? This would be a long process, and if so, what would be done between now and then? – Peg with the GBP? But as refinancing through the Bank of England (BoE) would not be possible, significant currency reserves would be required. – Monetary union (as per € model)? The BoE is against this idea because of a lack of central coordination. |
| Viability of pension funds |
– Complex process – High market implications |
– Most companies in Scotland have pension funds. In the case of independence, these funds would become exposed to cross-border rules. EU rules require companies to provide cover for the under-covered pension plans. |
| Viability of a Scottish banking system |
– Medium complexity – Few implications |
– Active Scottish banking assets / GDP ~1200%! – Who would be the last resort lender? A simple solution: move the banks to UK territory. |
| Joining large international organizations (NATO, EU, etc.) | – Complex and long – Few implications |
– There are currently no laws regarding this. – The UK and Spain would probably raise a veto, to avoid imitation by other areas of Europe. |
| Defense and security policy. |
– Relatively easy – No implications |
The UK would need to dispose of a number of military bases in Scotland. It’s possible they might decide to maintain them in exchange for defense contracts. |
| Sharing of public debt |
– Relatively easy -Few implications |
The UK treasury has given further details on this. Any debt would remain in the UK, while Scotland would be asked to cover its share. |
| Sharing of oil and gas revenues |
– Easy – No implications |
Geographical organization: about 90% of the revenues would go to Scotland. |
| Template for others |
– Complex process – Medium implications |
– Other regions, like Catalonia, would be highly encouraged by this move. – England could leave the EU-system. |