The British people seem to have fallen in love with a type of geo-political economic suicide pact that would give a lemming second thoughts. Not content with contemplating the perennial question of whether the British should have a referendum about continuing to belong to the European Union, our latest piece of national masochism is an “in/out” referendum in Scotland which asks if the Scots wish to secede from the union of 1706 which established what has become the United Kingdom (its roots being established in 1603 with a royal marriage between the Scottish and English monarchies). Unsurprisingly, the debate is being driven by the Scottish Nationalist Party (SNP) and the first minister of Scotland, Alex Salmond. A date for the vote has been set as September 18, 2014.
Whilst polls indicate that a majority of Scots want to remain British, plans must be put in place lest they decide to split. The SNP expects to remain in the EU (a highly dubious proposition) and although new members would be required to adopt the Euro, would retain Sterling and have the Bank of England act as lender of last resort, a position that the “rump” UK would be unlikely to support – why promise to bail out a foreign power that has just decided to have nothing to do with you and hog British oil for itself?
Many difficult questions would need to be answered if the Scots do split from the rest of the UK (and the rest of us have no say in this, of course), but the UK government’s position is largely that they will cross this bridge when they come to it. However, as the vote nears, markets may well become jittery about UK debt (bond issues) since an independent Scotland would inherit a share of Britain’s debt mountain. In order to pre-empt these fears, the Treasury (erm of the whole UK; for the time being at least) has made it clear that the UK will honour all debts entered into before any Scottish split. It remains to be seen if this will have the desired calming effect on the markets and the UK’s borrowing costs as the vote nears.