Empty threats

With referendum day just a week away, the campaign over Scottish independence has suddenly taken a nastier turn, after months of remarkably civil debate.  Recent polls have suggested that the pro-independence side has gained momentum late in the campaign, and a YES vote is a genuine possibility. This has lit a fire under Westminster politicians, prompting a last-minute charm offensive (to the extent that David Cameron et al can actually do charm), coupled with dire warnings about what Scotland stands to lose if it opts to go it alone.

A lot of the most divisive rhetoric has surrounded the question of the pound Sterling. Scotland's First Minister, Alec Salmond, has always stated that his first preference would be for Scotland to continue to use the pound after independence.  Politicians in London have always warned that this would not be acceptable, and those warnings have become louder as the polls have shown the YES side gaining ground.  The last few days have seen some harsh rhetoric and threats over this key issue.

Chancellor George Osborne has said there are "no ifs or buts": if Scotland goes it alone, it will not be allowed to keep using Sterling. Bank of England Governor Mark Carney, who as a Canadian must feel a little uncomfortable dealing with this topic, says that for Scotland to retain Sterling would not be compatible with sovereignty.

I'm no lawyer, but it's not entirely clear to me that the rest of the UK can prevent Scotland from using Sterling if it chooses to do so.  Who actually owns the currency?  Surely, as part of the United Kingdom since well before the Bank of England was created, Scotland has just as much claim to ownership as England or Wales does.  To use an analogy, modern legal practice does not discriminate against the instigator of divorce in dividing up the assets of a marriage. Why should the legal breakup of a union between states be any different?

A further threat has also emerged at this late stage, with several banks, including Royal Bank of Scotland, warning that they would feel compelled to move their head offices from Scotland to London in the event of independence.  It's not clear that this would be anything more than the unbolting of a nameplate in Edinburgh and its reattachment in London: no operations or jobs would move south. In that sense it may be a bit of an empty threat, but that hasn't stopped the NO side from sounding the alarm.  One argument being advanced for the banks to move south is that they would need to be close to the Bank of England as regulator and lender of last resort, but this seems far-fetched.  No French or Italian banks have felt the need to move their HQs to Frankfurt in order to be close to the ECB.

Not all of the threats have come from the NO side. Alec Salmond has responded to the warnings about Sterling by vowing that Scotland will refuse to assume its share of the UK's national debt if it is not allowed to retain the pound.  This may be the emptiest threat of all: as a new country and an untested credit, Scotland could not afford to alienate capital markets by simply walking away from the UK's obligations in that way.

It's hard to know how seriously to take all of this posturing.  If there really is a YES vote, there will certainly be hurt feelings on both sides of the border, but Edinburgh and London have agreed a timetable that allows a full eighteen months for negotiations on the precise terms of separation.  It's not in anyone's interest to make economic relations between Scotland and the rest of the UK more difficult, so in the end, it's probable that some sort of arrangement over Sterling (and the UK's national debt) will be reached.  Too bad this rather technical issue has introduced a last-minute element of element of rancor into what has been, for the most part, an exemplary democratic exercise.