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The vote up north

The impact of the Scottish referendum

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Business Standard Editorial Comment New Delhi
Last Updated : Sep 14 2014 | 10:13 PM IST
This week, a shared history dating back more than three centuries may be forever changed. Scotland - since 1707's Act of Union a part of the United Kingdom with England, Wales and (now, Northern) Ireland - may once again become an independent country. The English are not known in this part of the world for leaving countries because of a referendum, but it looks like that on September 18 they might have to. On that day, five million Scots will vote on whether they still want to be part of the United Kingdom with 58 million other Britons. In recent weeks, what appeared to be an easy victory for the unionist camp has turned tight. The independence campaign has demonstrated greater energy and imagination - Scotland's First Minister Alex Salmond trounced his unionist opponent in the debate - and the polls have become much closer.

For Scotland, for Britain, for Europe and for the rest of the world including India, Scottish independence will be a moment of profound uncertainty. Already, the pound sterling has fallen six per cent in the last two months and may fall further. In August alone, investors are estimated to have pulled out $28 billion from the British economy - the highest outflow since the financial crisis during the collapse of Lehman Brothers in September 2008. Going forward, the poll outcome will have an impact far beyond what could have otherwise been expected from a relatively small country peacefully seceding from another. For the Scots themselves, there will be the uncertainty that surrounds their chosen currency: the governor of the Bank of England has specified that there will be no currency union after independence. Mr Salmond and his nationalists have promised so much spending once freed from Westminster that the pound would not have been able to bear it anyway. For Britain, there are other questions - what, for example, of the country's nuclear submarines, which are based in Scotland?

But the deepest questions perhaps follow on from the fact that Scotland is considerably more liberal than many parts of England. Its departure would bias English politics away from Labour towards the Conservatives. But, more important, Scotland is more positive about membership of the European Union than are Conservative voters in England. If the Scots leave, and the remainder of the United Kingdom votes soon on whether to stay in Europe, then the answer emerging from that larger referendum, too, may be a "no". A British departure from Europe - which, in a wry reflection of the term coined for a Greek departure, is being called "Brexit" by financial markets - would not just stall the European project, it would terrify and confuse financial markets. If London is not the first city of finance - perhaps New York still is - it definitely is the most global. It serves as a clearing house for money from all over the world; and crucial to its appeal is that it is the gateway to Europe's financial systems. Were a bereft England to leave Europe, its capital's USP, too, would vanish.

The financial system does not do well with uncertainty. When the places that it pools are threatened - as would happen if London lost its appeal - then investors will seek security and safety. Fewer would be willing to lend, through the London markets, to Indian companies, for example. For an India dependent on the mercurial moods of global capital, the costs of Scottish independence might be surprisingly high.

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First Published: Sep 14 2014 | 9:38 PM IST

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