Scottish Referendum- The EU and Economic Implications of an Independent Scotland
Date: Wednesday 14th May 2014, 12.30-2.30pm
LCSS hosted the second of its roundtable discussions on the Scottish referendum and independence, looking at the economic implications of independence for Scotland, whether it will remain within the European Union as well as the negotiation procedures to take place afterwards. The roundtable discussion brought together a number of expert names within the fields of economics, politics, EU law and constitutional studies. The keynote speakers for this event were Professor John Kay; Professor Robert Hazell; Dr Monique Ebell and Professor Panos Koutrakos. The roundtable discussion was chaired by Prof Philip Booth from City University London and the Institute of Economic Affairs.
Prof Kay started off the talks by drawing on historic references to the economic benefits Scotland enjoyed from being a part of the UK, especially during the 18th and 19th centuries. He highlighted the importance of competitive advantage using the examples of small nations such as Iceland in fishing and Switzerland within the financial sector. In terms of competitive advantage for Scotland, financial services, energy-support services, tourism (despite rather disappointing current revenues from tourism), premium food and drink, and certain aspects of life sciences (especially medical research) could all be considered hypothetically. Prof Kay referred to the currency options on offer for Scotland, namely the euro, sterling or a separate Scottish currency. Prof Kay stated that it may not be feasible to keep the pound because fiscal union would be required, and since the rest of the UK (rUK) accounts for roughly 91.5% of the pound and Scotland for only 8.5%, rUK would be unlikely to offer support with a fiscal policy tailored to Scottish needs. Prof Kay expressed his preference for an independent currency pegged to sterling but also questioned the sustainability of this. According to a finding from the Scottish Social Attitudes Survey if the Scottish people were to be made £500 better off, then they would be 2:1 in favour of independence; however if they were to be £500 worse off, then they would be 2:1 against independence.
Prof Hazell talked about the prospect of dividing and sharing assets between Scotland and rUK. Scotland would want to share assets, but whether this would be in the interest of rUK was questionable. Intense negotiations were expected to take place between Scotland and rUK on a wide range of issues including finance, health, environment, agriculture and defence. Prof Hazell had publicly stated that 18 months would represent a realistic period for negotiations between rUK and Scotland, but he had not taken account of the time needed for the independence legislation. The Scotland Act 1998 on devolution had been passed in 11 months under very favourable circumstances (strong Blair government with big parliamentary majority). The earliest date for a Westminster Bill on Scottish independence would be autumn 2015, which was only 6 months before the proposed Independence Day. The general elections in 2015 may however complicate the negotiation period and according to Prof Hazell, the Scottish independence result might also affect the prospects of a possible Labour Government with a narrow majority (due to Scottish votes for Labour). A change of government would mean changing the negotiating teams, with certain ministers possibly looking to undo what had been achieved by that point. So far, Alex Salmond had said he would try to maintain the status quo whenever he had been pressed e.g., retention of Queen “and other shared services” such as the armed forces and currency. Prof Hazell concluded by describing a “nightmare” scenario for Ed Miliband in which Labour wins the forthcoming general election narrowly, with dependence on Scotland.
Dr Ebell concentrated on the economic implications of an independent Scotland in her talk, covering a number of issues including a formal monetary union, dollarization, debt and fiscal deficits. She noted that the concept of a formal union had been ruled out by politicians from the three main parties, namely George Osborne, Ed Balls and Danny Alexander. Dr Ebell stated that at present a separate currency for Scotland appeared to be the “best” option as Scotland would then have full control of monetary and fiscal policy. If Scotland were to become independent it would find itself in new circumstances as a smaller, open economy, fiscally independent, with a high level of debt and volatility. Dr Ebell presented forecasts for an independent Scotland’s debt in 2015-16 as 86% of GDP or £143 billion, which would not fulfil the obligations set by the Maastricht Treaty. She emphasized that the level of control over such debt would depend on an independent Scotland’s choice of currency.
Prof Koutrakos concentrated on the legal aspects of Scotland remaining in the EU as well as the treaties currently in place. He discussed the options of amending the existing EU Treaties and the application of Scotland for accession to the EU. According to Prof Koutrakos, Scotland’s situation is unique and incomparable with the reunification of Germany. He discussed the cost and length of time for negotiations for Scotland’s accession to the EU as well as the European Economic Area and highlighted the difficulties related to completion of the process laid down in the Treaties in the 18-month time period suggested in the White Paper. Prof Koutrakos also mentioned negative comments that had come from the EU camp, including the EU commission president stating that existing European treaties would not automatically apply to an independent Scotland and Herman Van Rompuy having expressed his pessimism towards the prospect of Scottish independence. According to this official line, Scotland would have to take certain steps to join the EU as an independent State, namely to apply for accession, negotiate a Treaty and seek approval from the EU parliament, and the European Council. He discussed the legal difficulties which characteruse the option proposed by in the White Paper, namely to amend the existing Treaties so that they continue to apply to an independent Scotland. The shape of higher-education funding in Scotland would also change as rUK students could no longer be charged fees by Scottish universities as is currently the case.Finally, Professor Koutrakos highlighted the political will which would be crucial in determining the choice of the appropriate legal method in order to determine Scotland’s EU membership.
During the Q&A and discussion, issues such as Scotland’s higher education sector as well as comparisons to other secession stories (e.g. Czechoslovakia and Belgium/Netherlands), the banking system in Scotland, and rUK’s position within the EU, were also debated.
Professor John Kay (Visiting Professor of Economics at LSE; Fellow of St John’s College, Oxford; and Financial Times),
Professor Robert Hazell (Professor of British Politics and Government & Director of the Constitution Unit, UCL)
Dr Monique Ebell (Research Fellow, National Institute of Economic & Social Research)
Professor Panos Koutrakos (Professor of European Law, City Law School)
Professor Philip Booth (Editorial and Programme Director Institute for Economic Affairs; Professor of Insurance and Risk Management at Cass Business School)
Dr Nagore Calvo (Lecturer in European and International Studies Department, King’s College London)
Dr Alan Renwick (Associate Professor of Politics and International Relations, University of Reading)
Dr Dermot Hodson (Senior Lecturer in Political Economy, Birkbeck College, UoL)
Dr Jan Fidrmuc (Senior Lecturer in Economics, Brunel University)
Ms Kate Devlin (UK Political Correspondent, Herald Scotland)
Prof Vernon Bogdanor CBE (Research Professor at the Institute for Contemporary British History, King’s College London)
Mr Chris Flatt (Deputy Director, Constitution and Communications, Scotland Office)
Dr James Ker-Lindsay (Eurobank EFG Senior Research Fellow on the Politics of South East Europe, LSE)
Belinda Goldsmith (Chief Correspndent,Britain at Thomson Reuters)
Dr Andrew Blick (Lecturer in Politics & Contemporary History, King’s College London)
Dr Jo Eric Khushal Murkens (Associate Professor in Department of Law, LSE)
Dr Tom McKenzie (Research Fellow, Cass Business School)
Dr Latif Tas (Post Doc. Fellow, Faculty of Law, SOAS)
Ms Gonenc Uysal (PhD candidate, Dep. of War Studies, KCL)
Mr Selcuk Aydin (Postgraduate student, KCL)
Dr Zeynep Engin (Director, LCSS)
Ms Kubra Uygur (Associate, LCSS)
Mr Ozdemir Ahmet (Project coordinator, LCSS)
Venue: LCSS 2nd Floor 227/228 Strand London WC2R 1BE
This roundtable discussion will be an invite only event.