Will Scotland Drop Sterling for Euro?
Staff Writer, CNBC.com
Scotland’s centuries-old struggle with the "Auld Enemy"– England–is reaching a new chapter with renewed push for full Scottish independence.
On Wednesday, the day of the UK budget, new legislation giving Scotland more power over its tax affairs was backed by the Scottish National Party (SNP), the country’s most popular party by far.
It is hoped by some in the UK that the concessions--billed as the biggest transfer of powers since the creation of the Union between England and Scotland in 1707--will halt demands for full independence.
The SNP has risen to power in Scotland from a platform of lobbying for independence, as opposed to the current "devolved parliament"--a separate assembly that has limited power compared with the UK's House of Commons, and a referendum on the issue has been promised in autumn of 2014.
Joseph Stiglitz, the Nobel-winning economist who was once chief economist at the World Bank, has backed calls for an oil fund that would put aside a tenth of the tax revenues from North Sea crude, and joined a key Scottish economics advisory panel. And press baron Rupert Murdoch has also backed Scotland’s ambitions, tweeting: “Let Scotland go and compete. Everyone would win.”
There are several key issues here: Scotland’s place within the European Union, whether it would be liable for the bailout of Edinburgh-based Royal Bank of Scotland , and what would happen to the UK’s revenue from North Sea oil.
A newly independent Scotland may not be welcomed with open arms by the European Union. After all, the UK is not the only large European country with a recalcitrant region that wants greater independence.
“Every major European country has separatist movements of its own,” Jo Murkens, senior lecturer in law at the London School of Economics and an expert on the legal ramifications of Scottish independence, told CNBC.com. “They’ll think, if they don’t reject Scotland’s application to join the EU, will all of their separatist movements use it as an impetus to leave?”
Joining the single currency or not is not an option, according to Murkens. He argues that Scotland will have to join the euro . While Sweden has managed to stay in the European Union and out of the euro, it has still committed to eventually joining, and any new states accessing to the EU must join the currency too.
The UK and Denmark secured their opt-out two decades ago.
The SNP argues that Scotland would count as a “successor state” to the UK and therefore be entitled to hold on to sterling.
“Sterling is our currency union as well,” Stewart Hosie, Treasury spokesman for the SNP, told CNBC.com. “It’s right and proper that we should hold on to it as it gives us stability.”
What might destabilize the nation of around 5 million people is bailing out its financial services sector.
RBS is now 84 percent owned by the British taxpayer, and 41 percent of Lloyds – which includes the old Bank of Scotland – is also government-owned.
Hosie suggests that the bailout of those banks should take place jointly between an independent Scotland and the rest of the UK – much as Fortis was rescued jointly by the Netherlands, Belgium and Luxembourg.
“We can’t be liable for the full recapitalization of an international bank like RBS,” he said.
One of an independent Scotland’s first acts would be to cut corporation tax down to 20 percent, according to Hosie. This could tempt some of the companies currently being lured to Ireland by its low corporation tax and well-educated, English-speaking, relatively cheap labor force.
“We think there’s a really compelling case for Scotland to become independent,” he added.
Whether the rest of Europe agrees with him remains to be seen.