The Guardian view on an independent Scottish economy

Many smaller and less prosperous states can and do pay their way. But economic sovereignty is rarely absolute, and a go-it-alone Scotland would face many constraints

- Editorial
- The Guardian, Tuesday 9 September 2014 15.42 EDT
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A crow sits on a sagging saltire — A go-it-alone Scotland would face many constraints. Photograph: Murdo Macleod

Son of Kirkcaldy, and scholar not only of Glasgow but also of Oxford, Adam Smith propounded that the wealth of a nation depended upon its division of labour, which in turn depended upon the breadth of the markets in which it traded. This might sound like an argument for retaining the union, but so long as an independent Scotland could remain in the EU – as it probably could – it is the single market that matters most. Smaller economies can and do thrive, and there is little serious doubt that – in the end – the new country could survive on its own.

This is worth remembering as foreign exchanges and stock markets zigzag around, and the financial world awakes to the possibility of a yes vote. The first thing that needs to be said is that Scotland’s monumental decision is not primarily financial, and it would be a travesty if financiers were to call all the shots in the closing days of a campaign that has energised and engaged a nation. The second is that it is easier to assert than to prove that market movements reflect sentiment about any one thing. Some of this week’s movements – for example, of the pound against the euro – have been unexceptional in scale, and inconsistent in direction. The final lesson of the past couple of days in the markets, however – most particularly the sell-off of shares in big Scottish firms on Monday – is one that many Scottish voters will be weighing carefully over the week ahead. Namely, that there is often a price to be paid for uncertainty. For there would be a good deal more of that around, during a transition to independence that could prove very rocky, even if all the details are ultimately satisfactorily resolved.

Above all, there is the great question mark that has been scrawled on every page of the campaign by Better Together: Scotland’s future currency arrangements. The sheer repetition of Alistair Darling on this point has, on the evidence of the polls, become counter-productive. But Mark Carney’s newly strident assault on the SNP’s proposed sterling union with the rump UK, in a speech to the TUC in Liverpool, could breathe life back into the issue. The governor of the Bank of England needs to be mindful of not getting bogged down in the political mire at this highly charged time. Just like the three Westminster leaders, who have agreed to absent themselves from prime minister’s questions to campaign in Scotland, he could yet find that his voice irritates more Scots than it persuades. But on the substance, he is surely correct to argue that shared currency arrangements have implications for national autonomy.

Sovereignty is not an all-or-nothing absolute but a question of degrees. It is something that nominally independent countries lacking their own currency have rather less of than those that mint their own money. With that facility, governments cannot run out of cash in the same way that a family might; without it – as the citizens of Spain, Portugal and Ireland have learned to their cost – states can be forced to choose between bankruptcy and surrender to external power. Just as Berlin, Brussels and Frankfurt now dictate so many budgetary decisions supposed made in the capitals of the Mediterranean, so London – especially if reluctant divorce were to be followed by an outbreak of English bloody-mindedness – could make strangulatory fiscal rules the premium for the financial insurance that’s implicit in a currency union. In these circumstances, Scotland might consider joining the euro, or perhaps even printing its own pound. That could work in principle, but in practice it could take a long time to bed in – especially because it is not part of the plan.

Yes, Scotland could eventually find a way to pay its way in the world. That is not in doubt. But Scottish voters who care about effective, as opposed to purely formal, self-determination over the economy, cannot avoid thinking through all the prospective restrictions on this. No state is an island in these globalised days, and the Scottish half-island state would not be one either.