"As with Brexit, too, some economic arguments against leaving are exaggerated"by Frances Cairncross / April 7, 2017 / Leave a comment
Economics was pretty much invented in Scotland, and over the years, the economics profession has had more than its share of Scots. However, as the Brexit referendum shows, most people don’t vote on the basis of economics in contests involving national pride. Just as with Brexit, it is hard to make an economic case for separation: Scotland’s links with the rest of the UK are even more substantial than the UK’s links with the rest of the European Union. Ironically, even though Brexit now looks set to precipitate a fresh Scottish referendum, some of the strongest reasons for voting to remain in the EU (as a majority of Scots did) also apply in the case against Scottish independence.
But as with Brexit, too, some economic arguments against leaving are exaggerated. The share of Scotland’s trade with England might shrink, but probably not by much. Some two-thirds of Scottish exports currently go to the rest of the UK, compared with less than a fifth to the rest of the EU. Even if there were border controls at Gretna Green, England would remain the largest trade partner—just as it did for Ireland, after independence a near-century ago. How can we be so sure? Standards in Scotland for goods and services are already virtually identical to those south of the border, and standards matter as much as tariffs for trade. Moreover, Canada sells three-quarters of its exports to the United States without being the 51st state.
What about a Scottish currency? Scotland could, like Ireland in the 1920s, create its own currency and peg it to sterling. But independent Ireland had to get by without a fully functioning central bank for a couple of decades, and Scotland would not want to wait. It would just be too frustrating to accept all of London’s decisions on montetary policy. And even if Scotland joined the euro, this nation with a rocky banking history would need a lender of last resort: the collapse of the City of Glasgow Bank in the 19th century led to the creation of limited liability, and it was again Scottish banks that were at the heart of Britain’s financial crisis in 2007-08. Managing a separate currency would impose extra costs on Scottish taxpayers, but with the benefit of giving Scotland some freedom to develop its own policies. How much freedom would be determined…