Scotland referendum: Warnings mount about economic harm
Risks cited include capital flight, status in EU and NATO, currency question
Economists say capital will drain out of Scotland if the country votes Yes to independence in a referendum this week. They are among scores of officials and experts warning of the economic consequences of a Yes vote.
Former chair of the U.S. Federal Reserve Alan Greenspan gave his view to the Financial Times today, saying there will be "surprisingly negative" effects on Scotland`s economy if the country votes to break from its 307-year union with Britain.
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Polls show the independence vote scheduled for Thursday is too close to call, with a poll last Friday suggesting 52 per cent support for the No side, while another suggested a narrow win for the Yes side.
The prospect of separation prompted British Prime Minister David Cameron to make an impassioned plea today for Scots to remain in the union.
A Bloomberg survey of economists found most giving separation a poor prognosis. The biggest risks cited were investors pulling money out of Scotland, finding a currency solution and how Britain's debt would be shared.
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Royal Bank of Scotland, Lloyds of London and several other banks have already signalled they plan to move their headquarters if Scotland votes for independence.
In stock markets today, investors were avoiding stocks exposed to Scotland and the U.K. as they await the referendum.
"Not much upside in the FTSE London market until after the Scottish referendum, so I would stay on the sidelines," Lex van Dam, a hedge fund manager at Hampstead Capital, told Reuters.
Greenspan warns on currency
Greenspan said he believed Scotland`s economic outlook is poor because North Sea oil will soon be spent.
He also said there was no chance of London agreeing to a currency union that would allow Scotland to use the pound after separation.
The Scottish economy performs best when we work together with a common purpose, and the priority for our politicians on Friday must be to reach out to those who are left disappointed by the outcome of the referendum and ensure that they play an active role in helping to build our future economy.—Liz Cameron, Scottish Chambers of Commerce
“There’s no conceivable, credible way the Bank of England is going to sit there as a lender of last resort to a new Scotland,” Greenspan told FT.
Bank of England governor Mark Carney has already dismissed the idea of Scotland using the pound, saying it would impede Britain`s ability to make independent currency policy.
More warnings are mounting from the European Union, where officials say Scotland would have to apply for entry, meaning a period in the economic wilderness, while Britain would certainly lobby against admitting it.
In breaking away from the rest of the United Kingdom, Scotland would automatically find itself outside both the EU and NATO, and have to reapply to join both, officials said.
The U.K.-based Centre for Policy studies adds another risk — huge public-sector pension liabilities.
Yes side leader Alex Salmond dismissed the critics, saying Scotland will be prosperous on its own.
Meanwhile, the Scottish Chambers of Commerce, a business group that so far has remained neutral on the vote, called on Scots not to allow the vote to leave a bitter divide in their country.
Plea for a united Scotland
"Whichever direction the people of Scotland choose in Thursday's referendum, one thing is clear: on Friday, we must all come together to drive Scotland forward, either as an independent nation or as part of the United Kingdom," said CEO Liz Cameron.
"Either choice will leave a substantial number of people disappointed, but on Friday 19 September, we simply cannot afford to have a country divided," she added.
She urged unity for the sake of Scotland`s economy.
"The Scottish economy performs best when we work together with a common purpose and the priority for our politicians on Friday must be to reach out to those who are left disappointed by the outcome of the referendum and ensure that they play an active role in helping to build our future economy," she said in her statement.
Meanwhile property website Zoopla estimated a Yes vote could decrease the average house price in Scotland by 17 per cent.
“Uncertainty is never good for markets,” Zoopla said. “It’s possible that after all the efforts to create a sustainable recovery, a Yes vote could reverse the recent gains.”