Scotland Referendum

Taking this off twitter.  With the talk of a second referendum I wrote something on the problems inherent to it for another publication, here I have edited that down but the references are still at the bottom.  

Although I see a lot of people discussing these topics most have a political viewpoint they are pushing as well.  I don't have any particular opinion on the issue, my family emigrated from Scotland four jumps back.  But Scots deserve somebody that will look at the very real problems with setting up a new country in this day and age.  So far, both pro and con, the pundits and academics have been long on talk and short on numbers.   This video is a good place to start:

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It is attractive to reduce this argument to the simplistic idea of freedom from an overbearing, incompetent and at times quite mean spirited UK government.  The Brexit vote placed the issue front and center once again since many Remain voters were swayed by the argument that remaining in the UK and the EU was desirable.  Only 45% of Scots eventually voted to leave the UK in 2014, while 62% voted to remain with the EU, the largest margin in the UK. 

First, there is the plan to join the EU and enter the Euro based economy or keep the British pound.  This is not going to happen right away, as the EU has made it clear that Scotland would be in line for membership, something the UK is sure to try and delay[2].  Spain might as well, but lets assume that the EU makes an effort to fast track the process and get Scotland into the EU faster.  Part of the requirements for admission are to demonstrate a stable economy and economic market that can survive in the EU.  The value of the currency they choose and their control over that currency will be key issues and despite assurances from various politicians any of these factors may delay a seamless transition.  The video above notes that Scot wages are lower than Ireland and Scotland is much larger. Wages are a function of monetary policy, something Scotland will lose control of completely upon leaving the UK unless they form their own currency.  In comparing Scot wages to Irish wages he neglects to note that the Irish are on the Euro, and have some say over EU monetary policy.  Britain would have no reason to consider Scotland when deciding things that impact the value of the pound, such as how much to borrow and what form that borrowing should take[3].  While McWilliams is correct that deficits don't matter that much the caveat to that is they don't matter to nations that control their own monetary policy.  Not having such control means that Scotland could theoretically "run out" of money, something no other country has to worry about.  When Scotland has to borrow (all countries borrow, it is how you fund things like a perennial deficit) they will pay more for the debt because they lack said control.

Next he asserts the bizarre argument that using other currencies is somehow normal.  It isn't.  That is why he uses the example of mid-90s Bulgaria. When have you ever heard of a positive Bulgarian comparison?  Other countries that use foreign currencies or peg their currency artificially include:

Ecuador, East Timor, El Salvador, Zimbabwe, Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Republic of the Congo, Equatorial Guinea, Gabon, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo.

This is not a list of successful economies.

Counting on North Sea oil, even as a kickstarter, is foolish.  He notes 30-40 years of remaining oil.  That is perhaps the amount should pumping oil be free.  In fact North Sea oil is some of the most expensive to get to. The price of oil is at the lowest point it has been in some time and North Sea oil costs about $47 a barrel to produce, while oil is trading at $55 a barrel.  This is driven both by a reduced demand and a global supply glut that OPEC has so far failed to eliminate by cutting oil production.  In the U.S. shale, oil producers have developed new technologies and learned how to produce oil more cheaply than ever before[5].  This threatens the price regime of OPEC, and if that organization were to collapse we could expect oil to fall in price even more.  Right now, the plans are in motion to disassemble much of the oil extraction infrastructure in the North Sea[6].

This is quite a problem for free Scotland, since oil is the largest and most profitable sector of the economy[7].  Indeed, oil seems to pay for the imbalance in infrastructure costs and revenue, something Scotland will need to borrow to maintain upon independence.  When you include other related industries like renewable energy and infrastructure support oil has an even larger footprint. 

The other two major exports are banking services and whiskey.  Banking may be more of a mirage than a reality though, as the Royal Bank of Scotland is now the sole big bank still headquartered in Scotland[8].  Their CEO made it clear ahead of the previous vote that in case of Scot independence RBS would relocate its corporate location to London[9].   This is more understandable than you might think, all the UK assets that RBS holds, all their UK reserves, and most of their liquidity is held in British Stirling.  Keeping this status quo while they become a “foreign bank” is very unlikely.

Whiskey and a handful of other items are the other major export, with most of the goods going to the rest of the UK.  This would continue barring any unforeseen epidemic of sobriety among the rest of the world, although it seems likely that the UK would impose some sort of tariff on these items. 

There will be consequences, painful ones, for a new, free Scotland but the form they take is difficult to discern.  Britain will probably not share these troubles, as some seem to think.  Their economy is ten times the size of Scotland's.  They don't rely on the Scot market for anything of note and their economy is built on a post -industrial model exporting services and high end manufacturing to global markets (aerospace, finance, insurance, etc).  Restrictions on trade with Scotland are unlikely to have a significant impact and they are well situated to endure the rapid decline of North Sea oil revenue.  

Although some have made references to the failed experiment of Zimbabwe that position seems to be without merit, Scotland is not going to be ruled by a murderous dictator.  A more likely, though no less scary, comparison might be to the Czech Republic.  Formed upon the dissolution of Czechoslovakia, the Czech Republic converted to the koruna and endured over a decade of International Monetary Fund imposed austerity before they found firm footing among global investors[10].  Although the Czech Republic now is stable and prosperous, and the IMF has moved away from its staunch insistence on austerity (especially among white/European nations) would Scots be willing to accept the twenty-year period of deprivation and struggle that the Czechs went through?

I don’t know the answer to that.  As I said, I am not Scottish, but for my cousins that are I hope that Scot voters get a chance to hear a better assessment of the risks involved than we can expect from either side in the current debate.

[1] Notably, I have had to rely largely on British references for this memo, as they are the major source for some of the more technical analysis.  Although reputable, these sources may introduce a measure of bias so I have tried to restrict their use to quantifiable facts. 


[3] For a more visual recap of some of these check out this piece and



[6] and




[10] and


Original Post

Ah, more than 140 characters, what a bliss!
It is an interesting debate, though we did see a couple of states disintegrate and split in the 90's, the UK is certainly the most prominent cases since the Soviet Union. And an outside perspective is very welcome indeed.

The currency debate £ v €

There are 3 obvious options:

  • Just keep using the English pound.
  • Mint your own Scottish pounds.
  • Join the Euro.


As Scotland doesn't have it's own currency, by far the most sensible and economically sound thing to do would be to join the Euro Zone. (There is only one major drawback I will skip over right now for complexity sake.) I see this as a rather unlikely scenario anyway, as the British press has ran an almost 20 years [Torygraph] long smear campaign against the Euro.

Psychologically this had impacts on the general population. If you've been constantly confronted with a certain association, your brain will adapt it, even if you don't spend attention to it. This is the reason why this is such a poison topic.

Which of the other two strategies they chose, might depend on their political strategy going forward. 

the EU has made it clear that Scotland would be in line for membership

This is a difficult issue, but for reasons other than the ones pictured in the press.

Firstly, if they separate while being an EU member the legal situation is really not clear. The Centre Maurits Coppieters wrote a white paper titled: Unveiling Internal Enlargement [doc] [video] coming to the conclusion that it would be. Other think tanks have voiced their doubts.

If Scotland would reapply it would certainly make things easier for the EU. Nobody besides the English press has ever mentioned a queue, and the notion in the non English press is that it would get a quick transition deal until the proper terms of membership are being negotiated. So for people and companies in Scotland, chances are nothing will change.

Why this is so important to other EU member states is because the UK had a lot of special deals and concessions. If Scotland would be a successor state, it would inherit them. Partially the states don't think a smaller Scotland should automatically get the UK-rebate for example, but the EU also sees the departure of the UK as an golden opportunity to simplify some processes.

There is an additional complication that the EU as such, is not supposed to interfere with internal affairs of a member state. And the UK currently is. So while a lot of people have said one thing or another, no official statement has been made. Which is a shame, as it allows the English press to make up whatever they like without being corrected.


North Sea oil

As somebody with a partner who at times was working with the government on their energy policies, I can reassure you nobody in Scotland is counting on oil going into the future. (The current Westminster government might do though, by the looks of their policies at least. We don't know, there is no scientific adviser to talk to [Nature])

But while it would be foolish to count on long term investments, it would also be foolish to disregard North Sea oil altogether. Our entire infrastructure is oil based, and as much as we wish, this is not going to change over night. Tapping into new resources is always more expensive then letting the tab run on existing wells.

So for a few years to come it will generates revenue. This is an stable, currency independent, revenue stream. And while I agree with you that prices are put under pressure, all major producing blocs are seen to agree on increase them again in the name of profit [CNBC].

Historically most of the profit went into well lined pockets outside Scotland, if they can get control over it, they would be in a great position to guarantee themselves access to cheap money on the financial markets - which as pointed out by you - is what they really matters.

As mentioned, Scotland has been dubbed the Saudi Arabia of renewables [Oserver] for years now. Its government is well aware of that and its policies are forward thinking, which is amazing given that England must have the most backward energy policies in the entire European Union.


Scotland has a lot of R&D going on and a lively Services industry. (Also yet another reason why access to the EU, and The Hague, is more important then the UK - IMO) From Rockstar games to gene technology, there is a lot more going on here than meets the eye. Keep in mind that Germaniens wealth is not coming from big exports companies, but what they call the Mittelstand. It is also what makes Austria such a nice place to be [Time] and a recipe that could work well for Scotland.

I think there is also a misconception about the importance of export surplus.

A lot of economists will argue that internal market and GDP are to be favoured over Exports. Exports are a bit like inflation, you rather want to have a bit, but too much is not a good thing. EU as a whole wants to move towards circular economy

I would like to stress that if Scotland is in bad shape because of it's Exports, the current UK should be doomed?



As most of the UK's resources are actually in Scotland, the UK economy will suffer. But the real killer is that everything that is true for Scotland <-> UK, also counts on a much larger scale for UK <-> EU.

Before the Brexit referendum, nobody was talking about leaving the single market [UPO], their own LeaveHQ has considered this as am utterly mad thing to do [pdf]

For Scotland, the rest of the world basically is the EU. Nobody knows how crazy England is going to become, one would hope that in their own interest they would keep close relations with the EU, in which case there won't be much impact on a Scotland in the EU trade with UK.

But if they are delusional enough to follow their dream, to discovered a new continent on which to build Empire 2.0, the question Scotland should ask itself is what is more important, exports to UK or to the rest of the world. And to Scotland the EU is pretty much the rest of the world. [map]

IMF and the Czech example

I believe that it is very likely that the UK might find itself under IMF control in 20 years time. Other disagree, time will tell.

Czechoslovakia is good example in many ways, but of course not entirely comparable. I've been to Czechoslovakia a lot after the fall of the iron curtain, lots of Austrians discovered it to be a cheap place to go shopping. And this is the most crucial difference, Czechoslovakia was in a horrible condition at the time.

Scotland on the other hand does not start from a desolate place, it is a fairly modern European country. Infrastructure is wildly in place, poverty is reasonably low. I recon market confidence will soon be established. It took less than 5 years for Iceland after they let the banks go bust and the markets told them nobody is going to invest there for decades. If people see an opportunity for investment, all moral intentions are forgotten.

As somebody who has seen first hand how both, Czech Republic and Slovakia progressed in the last 20 years, it is if anything else truly encouraging. Every year the people living their were noticeably better off, with or despite IMF doesn't really matter.

"I hope that Scot voters get a chance to hear a better assessment of the risks involved than we can expect from either side in the current debate."

Amen! But with the current state of British media, the only way they can realistically hope for that is to get their news from outside.


I didn't have the time to google up as many references as you did, sorry for that.

About your references, first of they are much appreciated!!! But for people abroad I would like to add that a lot of the British papers are bias as fuck. The UK has very lax laws regarding freedom of press - no real conduct of behaviour and no consequences for breaking them. This has created a landscape of papers that are not so much in the business of reporting the news, but rather selling opinions and agendas.

I would like to flag a few of the papers if I may:

Express & Sun: Just avoid when possible. Sometimes they copy (rewrite in their style) stories from other news papers that happen to have some footing in reality. Often they don't even do that and just make things up from scratch. They report more conspiracy theories than actual news. Compare them with Breitbart if you want.

The Telegraph: aka The Torygraph, is the more serious conservative news paper. Think Fox News. They will only report stories that fit into the conservative agenda, and put a spin on every story that doesn't. In recent months they started to make up lies. Most famously mistranslated Merkel to make it sound like she said the opposite of what she actually did. They did the same with the Austrian chancellor earlier this year ... as most Brits don't speak a second language, they get away doing things like this. They also asked for the Head of the Scottish first minister given that a pro EU MP was actually murdered in the Brexit campaign, they later edited this (slightly)

... and at the other side we have ...

The Guardian: certainly bias towards the left, but only in that it is selective about what it reports. Also a lot of opinion pieces that have to be understood as such.

The Independent: after it's transition from print to online their standards slippt badly. A lot of claims they make or report on don't have any references or creditable source, and often turn out to be less then reliable. It does produce clicks and gets shared a lot on twitter, but I personally treat them with caution and consider them the flip side of the same coin the Telegraph is on.


Yeah, I think I used BBC and Telegraph but the data is all from either industry or government sources for the most part. 

The currency discussion isn't about money you spend its about the debt you can issue.  Countries that issue debt denominated in the currency they control have a far lower rate to pay for it.  Look at the UK, or most developed economies:

Meanwhile, Ecuador issues their debt in dollars, because they use a currency they don't control.  The are paying 10.75% for their debt, which translates to literally billions of dollars.  You'll note that in the chart above most economies are able to issue debt at rates just above inflation, essentially offering them free funding.

In the interview with McMasters at the top of the first post he repeatedly mentioned that governments that run deficits aren't doing anything wrong.  He is correct, but running those deficits requires the ability to issue debt cheaply and easily.  Piketty notes that public debt over time is "drowned" by inflation, but to accomplish this you have to be able to issue your debt at rates inflation can get it hands around.

Oil is not going to give you much of a break either, North Sea oil costs more to extract and new, cheaper options are coming online.  OPEC cut production in January and it has failed to have any impact. There is one line of thought that this is just taking time and we will see $60/brl this year but other analysts point at US and Canadian shale opening more wells at production price points in the low $20s and some OPEC members apparently not living up to their commitments to cut production. 

The Scottish government produces the following report you want to take some time with.

To somebody like me there are warning signs all over this report. 

Your public revenues are driven primarily by income tax and VAT, which is totally normal.  However your public revenue from the North Sea oil activity is actually negative at the current time as the oil industry was given massive tax support to oil companies to allows them to keep pumping oil longer.  This is a tough choice, don't cut the tax and lose the wells and the jobs that go with them or cut the tax and get the income tax revenue but lose a sizable chunk of the budget.

Two other pretty large parts of your budget are tobacco and liquor taxation.  This part is fucking insane.  While England's population dwarfs that of Scotland they earned just 10.7b while Scotland reported 9.9b off of the alcohol tax.  Scotland earns nearly 1.2b compared with the 9.1b of England on tobacco, a far higher ratio than their population sizes would suggest.  While this probably means Scots are a lot more fun than the English, it would also indicate a massive public health disparity as well, given the Scot population is less than 10% that of England.  This matters because 52% of expenditures are comprised of public health and benefits, and a population crippled by health related problems will put massive strain on this.


Meanwhile, Scot population is practically stagnant, while the UK added 2 million people since 2011.  Scot expenditures have climbed as a whole while revenues have declined.  Scot wages are lower than the UK but so are asset values.  A free Scotland will need to raise taxes on personal property and capital gains just to keep their current level of deficit spending stable.  If they can't issue their debt affordably enough to buy pounds from the global market they will have a hard time paying for things like public health insurance, pensions, and housing supports.  

Scotland should be talking with the IMF now about floating affordable loans to support them for the next decade following independence.  

They should have a plan to diversify their economy beyond oil and affiliated industries.  The rest of the things Scotland produces are insignificant in scale at the current time.   

Oil companies should be part of the plan to extend production as long as possible and continue to support Scotland with taxation and jobs, instead they are getting a massive tax subsidy and are still dismantling everything.

Scotland needs more people, becoming the world's first "sanctuary nation" would not only generate massive international support but also help boost tax revenues and draw more investment.



Just to reconfirm, there is no problem using BBC, Telegraph or even Express as reference (though wikipedia I think doesn't allow the later), just as long as context is clear or data is verified.

Will have a closer look at when I find the time.

The currency discussion isn't about money you spend its about the debt you can issue.  Countries that issue debt denominated in the currency they control have a far lower rate to pay for it.

I am totally with you on that one. In the current system it is all about being able to get 'cheap' money. Debt and money to spend is basically the same thing.

But I am not sure what cause and effect is here. One of the key arguments in the press when Greece joined the Euro Zone was that it could get access to cheaper loans because of that and pay back their old dept with 20% interest, giving them a chance to catch up. 

When a government issues bonds, the interest is for once determined set by the risk of not getting your money back. But for foreign investors the value of what they get back is of similar interest. If a country just turns on the printing press whenever they feel like it, that will have to be factored in. Using a foreign currency might actually help in this regard.

What I am saying here is that I am not sure about cause and effect. Countries who use foreign currencies tend to be the ones with low market confidence. They do that because nobody trusted the currency they issued, so they either try to take out dept in foreign currency or start using the foreign currency altogether. 


This part is fucking insane.  While England's population dwarfs that of Scotland they earned just 10.7b while Scotland reported 9.9b off of the alcohol tax.  Scotland earns nearly 1.2b compared with the 9.1b of England on tobacco, a far higher ratio than their population sizes would suggest.  While this probably means Scots are a lot more fun than the English, it would also indicate a massive public health disparity as well

I need to look into the taxation issue. I believe that Scotland paying higher taxes on alcohol is not directly associated with consumption. That said, life expectancy in Scotland is pretty poor, but that tends to be more food and environmental related than alcohol.


Oil is not going to give you much of a break either, North Sea oil costs more to extract and new, cheaper options are coming online.

Some interesting points. I knew about the subsidies, but wasn't aware they are quite as substantial - I was under the impression that running wells were running at profits before tax. So leaving them running in the hope the prices go up again seemed very sensible. (i.e. we make less tax revenue, or none. But of course not enough to offset upfront cost of creating new ones.) I'll ask somebody at uni to give me some info on this. (Since I happen to have some good contacts there ) Btw, England is currently subsides coal like hell, to generate energy for twice the cost of renewable, just to keep the people employed. Unlike Germany they have never created any alternatives for them, and still don't.

Scotland is building alternatives for the workforce, but talking to a friend of mine, he gets offered twice as much working on an oil platform as they pay him on an offshore wind farm. Effectively doing the same work. So most of the wind farms are built by workers from elsewhere right now, but it is good to know that there is alternative work 


Scotland needs more people, becoming the world's first "sanctuary nation" would not only generate massive international support but also help boost tax revenues and draw more investment.

Not sure if a "sanctuary nation" is a good idea, but it is well understood that Scotland needs immigration. Keep in mind that their population is younger then rest UK because of that. And they are going to suffering more than any other region from the current English Nationalism because of that.

A stagnating population is truly not unique in Europe. To keep our current standard of living, and hope to grow GDP, we need migration. Scotland is no exception to this, rather the norm. 



Sovereign debt is issued for investors that need to protect their capital from inflation with a safe asset.  It trades at a discount from the face value, referred to as the yield.  The trade value fluctuates based on the market need for the bonds, but the debt is considered to be risk free specifically because it is denominated in currency the issuer themselves control.  In the euro-zone each country can issue debt in euros but they cannot issue currency on their own, a tool intended to enforce 'discipline' on individual economies.  There is a great essay on it I found here:

But discipline is a bit much to expect in cases like Greece, where that would mean massive cuts in services and pensions.  Were it going to the Euro, Scotland could issue debt on its own and the ECB would offer some sort of backstop.  But that would wreck havoc on Scots that have stores of British pounds.  Meanwhile, if you keep using the pound you also lose the credibility of having any backstop at all.  You will only have the pounds you collect via tax revenue, so in case of downturn you risk not being able to pay your debts.

That keynote is a very good read, thanks!

Yeah the currency issue is really one of the big questions. Having stacks of British £ is not a problem either way. You will be able to exchange them for ever, and if you look at the Republic of Ireland, most stores happily except £ as well as €.

Given the (irrational) emotional attachment to the £, a Scottish £ seems most likely. Keep in mind that they already issue their own bills

But circling back to the actual topic of this discussion, I think we are discussing the wrong thing here. We shouldn't be discussing if Scotland can survive to be independent (yes it can), or if it will be easy (no it won't). We should be discussing if it would be better off doing so?

The current UK government is displaying an unprecedented degree of incompetence for any European Government in my lifetime. This is the person in charge of the UK's departure from the EU:

And he has done no assessment at all:

This is a government that has repeatedly criticised experts and does not want to seek scientific advice.

I know, must sound familiar, but unlike in the US, the opposition (Labour) in the UK is in an even worse state. So who knows how long it will take to form a structured government again, and how long they will need to repair the damage done by these clowns chasing a dream.

Compared to this, the Scottish government looks like a haven of reason right now. They talk with universities, seek expert advice, and adjust policies accordingly. Yes, at the end of the day, they are still politicians who have to sell their vision to the voting public. Their opposition will lie at any step ... so if they oversell their position, I can see why.

Which brings us back to here I guess, an educated debate of facts. Something we grave so much, seems currently impossible.

I was lucky enough to be invited to the French consulate last night to celebrate 60 years of EU, and the Consul said something really interesting: (A free recount of what he said.)

Unlike a person, who is born into existent and requires no acknowledgement to be a sovereign being. A state only reaches sovereignty by formal recognitions of others. So a state that seeks to separate itself from too many treaties, effectively loses what made it sovereign in the first place.


Scotland seeks independence to become a member of the international community.

Fair enough. But as an Austrian observing both systems with a bit of an outside view, I somewhat have more faith in the US system than the UK one. Here is why:

I come from a country with a democratic system that was hardened after the reign of fascism in order to prevent, or at least slow down, this from happening again.

A lot of the things we have implemented to achieve this, are ideas that were successfully implemented in the US before. A written constitution, a super majority to do changes on a constitutional level, a separation of legislation - executive and judicature with built in checks and balance, independent judges that have long terms outlasting single governments. (We have also some additional perks, like a press condex that prevents them from making up things. But lets leave that aside for now.)

Looking to the US right now, one can see these measures work overtime trying to limit the damage otherwise caused.

Besides the independent courts, the UK, has none of that. Parliament rules supreme, and with the recent bill, the prime minister has given her government all power to reign without further parliamentarian scrutiny. The only power stopping her now being the courts and theoretically the queen (which won't). So a few idiots have basically full control to rewrite British constitution as they see fit. And they believe to know better than anybody else, so they will do so with no hesitation.

Try to imagine that Trump could not just issue executive orders, but rewrite the constitution at will. That is basically the scale of the Aricle 50 bill that has been handed to May.

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