Only viable course for an independent Scotland is to go it alone as a small, agile economy with its own currency and economic institutions.
Source - Daily Telegraph - 29/04/21
Nicola Sturgeon cannot have her cèic and eat it. She cannot proceed with a unilateral vote on Scottish independence and then join the EU as a sovereign state.
The two are incompatible. The only circumstances in which Spain would lift its veto on EU accession is if Scotland secured independence by proper constitutional process, and even that would be uncertain under the hardline Rightist constellation of parties likely to win the next Spanish election.
Nor would Italy wink at a Rhodesian-style UDI, given the latent irredentism of the Sudtirol; nor France with her Corsican problem; nor Slovakia or Romania with their Hungarian enclaves. There was a time when the EU flirted with separatist causes - some egging on the Quebecois - but that era of jejune romanticism is over.
It should have sent a shiver down Sturgeon’s back when MEPs stripped the exiled Catalan leader of his immunity earlier this year, opening the way for Carles Puidgemont to be returned eventually to Castilian justice - joining other political prisoners in the Gulag.
These prisoners include two Catalan cultural activists facing 13 years for sedition, over behaviour that can only be described as peaceful disobedience. Amnesty International said the Spanish supreme court had “criminalised legitimate acts of protest”. At first, the EU turned a blind eye. Now its institutions are actively complicit.
For Scotland to go unilateral is to become a pariah state, shut out of the global capital markets, and forced by events into scorched-earth retrenchment. But to argue that Sturgeon’s threat lacks credibility is not to argue that her request for an IndyRef2 should be rejected, if pro-independence parties win a majority in the Scottish parliament.
She is right to claim that Brexit has changed the constitutional order. It would be toxic statecraft to try to hold the Scottish people against their will. The longer Boris Johnson stalls on a second vote, the worse it will get.
Whatever the polls suggest now, the mood is likely to change as it becomes clearer that the EU would force a European Scotland to erect a hard border against England, leading to the same onerous customs clearance procedures enforced at Dover, but with relative damage and disruption for Scotland that is an order of magnitude greater.
It would become clearer that the economic case for independence has deteriorated since that benign moment in 2014, when life was so comfortable and the stars were at least partially aligned for the nationalists. It should also be clearer after the Brexit divorce deal that Scotland cannot walk away from its share of the UK national debt and launch its endeavour “debt free”, as the SNP asserted last time.
What none cares to admit in nationalist circles is that a hard Brexit necessarily means an even harder Scoxit, unless the country gives up on its quest for EU membership. Had Theresa May succeeded in keeping in the EU customs area, the SNP would have landed in the economic sweet spot, or at least as sweet as could be achieved.
There would have been no hard border along the Tweed. Yet the UK would have left the single market. Scotland could then have joined the EU in a far stronger position, still enjoying unfettered goods trade with England, but also enjoying financial EU passporting rights and able to leverage its banking skills to become the bloc’s new money hub.
The great mystery of this saga is that Sturgeon’s troops in Westminster voted against the May bill. Did they not understand the gift that May was naively offering them?
Those of us who excoriated Brexit’s Project Fear as a misuse of state machinery for propaganda, should not fall into the same trap of cherry-picking subjective data to browbeat the Scots. Personally, I have no doubt that Scotland could make a great success of independence with the right policies.
While North Sea oil is in terminal run-off - bar a final hurrah in the early 2020s - the plummeting costs of offshore wind, energy storage, and electrolysis for green hydrogen could render renewables just as valuable within a decade. Scotland could become a green mini-power, offering near limitless zero-carbon electricity for industry and transport at the lower end of the European cost scale.
Nor do I doubt that Scotland could become an admired, prosperous, and self-governing country along the lines of New Zealand. But to get there it has to behave like New Zealand, which restored viability with the shock therapy of "Rogernomics" in the 1980s after the country’s over-regulated and over-taxed economy ran aground.
Within a decade the country had turned itself from the closed interventionist state of the Muldoon model into the poster child of free market globalism, with a floating currency to take the strain.
In short, Scotland would have to overthrow the Sturgeon model and return to the libertarian doctrines of the early SNP, or at least adopt the sort of radical shake-up proposed by entrepreneur Sir Tom Hunter and Oxford Economics in Raising Scotland’s Economic Growth Rate.
What Sturgeon is offering is more welfare spending out of a shrinking fiscal base - a base that will shrink a further 5pc of GDP the day that UK subsidies are cut off. Catalonia is at least a net contributor to the Spanish government.
Unfortunately, it is impossible to avoid Project Fear II to a degree because Scottish national finances have greatly worsened since the last referendum, and even since Andrew Wilson called for budget discipline in his candid Growth Report in 2018. The figures today are utterly dire.
The underlying structural deficit has widened towards 10pc of GDP due to lower oil revenues and rising spending. The Institute for Fiscal Studies says it might have reached 25pc last year had it not been from the broader shoulders of the UK Treasury.
The Maastricht requirement for EU accession is a deficit sustainably below 3pc. Brussels might bend the rules a bit if the money is spent on high-multiplier investment, but not if it is spent on social transfers. Furthermore, Scotland would be a net payer into the EU budget unless it had impoverished itself in the meantime.
Sturgeon has not answered any of the questions that blighted the IndyRef campaign in 2014. Confusion over the interim currency remains. The pretence that Scotland would continue to use sterling fools nobody in the markets. The eurozone debt crisis demonstrated that states are defenceless in a liquidity crisis if they do not have their own sovereign currency and central bank acting as lender-of-last resort.
Shadowing sterling would be possible only if Scotland had amassed huge foreign reserves to back-stop liabilities - which would then be denominated in a foreign currency - but for the Scots to build this war chest this would require even more austerity, and is in any case rendered prohibitive by recent fiscal slippage.
Ultimately, EU membership means joining the euro, and first the fixed exchange system (ERM-2), which would leave Scotland in currency misalignment with UK and US trade flows. This muddle was spelled out long ago in Choose Your Poison: the SNP’s Currency Headache by These Islands, the forum of Scottish pro-union economists. Nothing has changed since.
A study in February by the London School of Economics concluded that the damage from Scottish independence would be two to three times greater than the hit from Brexit, given Scotland’s extreme trade dependency on the UK. It exports four times more to the rest of the union than it does to Europe.
I do not take academic guesswork as Gospel but Sturgeon does, since she cited the same LSE model when it made grim forecasts on the costs of Brexit. She is now bereft of answers, dishing out rosy half-truths in much the same way as the Brexiteers once did.
The only viable course for an independent Scotland under the current circumstances is to forget about the EU and to go it alone as a small, agile, global economy, armed with its own currency and economic institutions, yet also in maximalist free trade with the UK and closely aligned with North America. But that is to blow apart the SNP’s entire rationale for an IndyRef2.
The larger question remains. Why is Scotland’s leadership so besotted with an EU that is hostile to regional separatism, that has inflicted an economic depression on southern Europe a decade ago, and that has shown once again in the vaccine debacle that it is administratively dysfunctional? There is another world out there, comrades.
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