Thinking the unthinkable

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Market turmoil, a weak currency and political haggling: Rowan Dartington Signature’s Guy Stephens thinks on what an unthinkable ‘Yes’ vote could mean to the UK

The UK is suddenly becoming focused on what a ‘Yes’ vote could actually mean following the latest TV head-to-head debate on the Scottish Independence Referendum. Alex Salmond would appear to have won this latest debate with some clever political side-stepping on the important economic issues.

This may work in the short-term as the man on the street doesn’t really have a concern on the currency as long as he has something to spend, which for most is not a lot anyway.  For many, the downside is difficult to see and the upside is all about localised control from a locally elected and accountable government benefiting from revenue from geographically local assets. The nationalist arguments are easy to make and understand.

The ‘No’ campaign focuses on the currency issue and Scotland losing the pound as well as not having the financial backing of the rest of the UK on default. There has also been a lot of statistical trading over North Sea oil revenues and then there is the Trident nuclear issue.

Mr Salmond won last night by deflecting from these obstacles and focusing on the nationalistic issues and brandishing Alastair Darling as a Tory in disguise.

There is now a lot more chatter in the markets about thinking the previously unthinkable. Perversely, Mr Salmond’s strong performance may actually work in favour of the ‘No’ campaign. Previously, the polls were showing a clear lead in favour of the ‘No’ campaign with a high level of apathy and ‘don’t knows’. If it actually looks possible that the ‘Yes’ campaign is gaining ground then it is far more likely that the voters will come out, and many of those are likely to be ‘No’ voters who would prefer no change and so were unlikely to bother voting.

The economic reality of a ‘Yes’ vote would cause money market turmoil, weakness in sterling and damage to companies based in Scotland. Our best guess would be some sort of pegged currency arrangement if that should occur and a transfer of power from Westminster, with on-going haggling over oil revenues, Trident and welfare liabilities.

If Scotland was already independent, it would most likely be looking for a solution to replace its diminishing oil revenues which involved a closer union with its neighbours – somewhat similar to Dubai who have been building a global leisure and property industry and have had to be bailed out by Abu Dhabi. Pursuit of the opposite is counter-intuitive.

Even if a ‘No’ vote is returned, it is likely that some degree of political change will come out of this which moves some powers to Edinburgh, such is the strength of feeling in Scotland. Let us hope that economic sense prevails and that market turmoil is avoided as few have considered the unthinkable up to now.

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