As the U.K. and Scotland head into a constitutional tug of war over Scottish independence, wrangling over the legality, wording, and timing of a referendum are not the only thorny issues.
There are still many questions concerning the economic ramifications of either full or partial Scottish independence. There are also vast grey areas around an independent Scotland’s status within the EU, and whether it would be compelled to have the besieged euro as its currency.
When considerable powers were devolved from the U.K. Parliament to the newly formed Scottish Parliament in 1999, the Scottish National Party (SNP) saw this as a first step toward full independence. But real political power was not fully realized for the SNP until last May with its landslide victory in Scottish government elections. Since then, leader Alex Salmond—recognized by friend and foe alike as a shrewd political operator—has proclaimed that its core objective of independence is inevitable.
Claiming a democratic mandate to hold a referendum on independence, but refusing to set a date, Salmond has regularly attracted the ire of Westminster politicians. But Salmond insists a referendum will be held in the second half of the SNP’s five-year term of office, most likely in 2014.
The SNP appears to want more time to make its case before the public, and is also hoping that spending cuts being made by the coalition government, unpopular in the south, will serve to strengthen its case.
Status Within EU
There are unanswered questions about whether an independent Scotland would need to reapply to join the EU, and the currency it would use. There has also been speculation that it might have to ante up a £8 billion (€9.6 billion, $12.25 billion) contribution toward the eurozone bailout fund.
On the question of postindependence EU status, the SNP has reportedly taken legal advice but refused to say what it is or even that it exists, fueling speculation that the advice must be out of sync with its aspirations.
Salmond however says the issue is crystal clear, “Scotland is already a member and will be in [the] same position as rest of U.K. as a successor state.”
But Nicola McEwen, co-director of the Institute of Governance, University of Edinburgh says it not so clear-cut. “There’s never been a situation like this where part of a member state wants to secede and remain a member. It’s unprecedented and there’s no rulebook to guide us.
“But even if it does need to reapply as a seceding state I don’t see that as problematic as the EU is an expansionist project. I can’t foresee a situation where it would seek to exclude Scotland,” she said.
Some uncertainty, says McEwen, comes from the fact Scotland doesn’t have its own currency. New recruits to the EU are now expected to join the eurozone, but will do so switching from their own currency. Scotland won’t be able to do that, entering unknown waters.
But an independent Scotland staying with the British pound—perhaps ahead of a switch to the euro—has its issues too.
David Lonsdale, assistant director of CBI Scotland said: “The eurozone crisis also raises questions about the willingness of the rest of the U.K. to tolerate an independent Scotland retaining the pound sterling before then possibly seeking to join the euro, given the uncertainty that could cause for [the] sterling. Will the rest of the U.K. permit an independent Scotland to use its currency, and if it did what stringent conditions might be attached?”
According to Lonsdale, many unknown factors make it very hard to predict the economic impact of independence, such as costs of establishing an independent central bank, treasury, financial, and other regulatory bodies, and revenue authorities, let alone establishing an armed services and overseas embassies.
The SNP say that much of an independent Scotland’s economic prosperity would flow from North Sea oil.
Lonsdale is cautious about this, however. “Making the public finances significantly dependent on volatile oil and gas revenues may have its attractions during periods of high prices, but consequently when prices fall it would have acute downsides, particularly if it led to cuts in funding for infrastructure, skills training, or social protection programs,” he said.
Political Legitimacy
But whether or not the uncertainties that overshadow a future independent Scotland translate to a drop in public support is another matter.
