Scotland and Greece

Generali

princeofpounds wrote: »

It depends.


What is the national debt in your scenario? Most natural assumption would be proportionate share but I've seen plenty of SNP types claim they don't have any national debt. Greece of course is hugely indebted.


What is the fiscal policy pursued by the government in your scenario? Stated SNP policy would be pretty disastrous in terms of budget deficit but they would probably stop the milk and honey once they won their goal. Greece has only a minimal budget deficit, these days.


What currency do they run? Scotland would have similar competitiveness issues to Greece under the Sterling pound at current levels. A Scottish pound would devalue and leave a more competitive economy but crush the purchasing power of the Scots people. Either scenario is possible mid-term, although a national currency would be hard to avoid in the longer term (despite the almost counter-intuitive SNP position on the issue)


Ownership of oil and oil price... of course.

According to the Scottish Government:

http://www.gov.scot/Topics/Statistics/Browse/Economy/GERS/GERS2015xls

the Scottish Government is running a deficit of about £12.4bn/year or 8.1% of GDP. It wouldn't take too many years of that for Scotland to face a Greek financing scenario. As the SNP MSPs have stated that they do not believe in austerity, I don't see any reason to expect that figure to fall should Scots have the misfortune to see FFA imposed upon them. 5 years of a deficit at that level should start to see the lenders starting to worry about the future, even if the debt level started at 0.

princeofpounds

It wouldn't take too many years of that for Scotland to face a Greek financing scenario.

I do agree with that. The point I was making is that economies are never static and so you would expect that there would be a reaction (cutting spending, raising tax, devaluing a Scottish pound).


But the SNP is never going to be honest about what they will do in such circumstances and indeed I think that the political dynamic in Scotland would change very rapidly when real decisions need to be made, so the current mob might not even be the ones who have to sort things out.


Also, there's likely to be significant sterling pound/Scottish pound currency mismatch on personal and corporate balance sheets. So it's not just the amount of debt, it's also about trying to pay it off with a structurally weaker currency (or, if retaining Sterling, a much lower rate of growth)

elantan

Just a quick answer... NO it wont


Hope that helps

Generali

princeofpounds wrote: »

I do agree with that. The point I was making is that economies are never static and so you would expect that there would be a reaction (cutting spending, raising tax, devaluing a Scottish pound).

Thanks and I was trying to amplify what you were saying not disagree so sorry if it came across differently.

Where I do disagree with your analysis is that there simply isn't going to be a Scottish Pound because the SNP missed their chance for independence during a one-off spike in the oil price which made the finances for a stand-alone Scotland appear to be sustainable. The only way Scotland is going to be independent of the UK is if England votes to leave.

princeofpounds wrote: »

But the SNP is never going to be honest about what they will do in such circumstances and indeed I think that the political dynamic in Scotland would change very rapidly when real decisions need to be made, so the current mob might not even be the ones who have to sort things out.

The SNP's fiscal argument for independence was so bad that not even that bunch of fanatics could maintain the pretense that they were honestly presenting the likely finances of an independent Scottish state. Obvs they waited until after the vote to admit this so they could appear to be honest without actually facing the consequences.

princeofpounds wrote: »

Also, there's likely to be significant sterling pound/Scottish pound currency mismatch on personal and corporate balance sheets. So it's not just the amount of debt, it's also about trying to pay it off with a structurally weaker currency (or, if retaining Sterling, a much lower rate of growth)

If the Scots keep voting in the SNP and there is independence of some sort you can be sure that the Scots economy will be FUBAR'd.

wotsthat

Generali wrote: »

If the Scots keep voting in the SNP and there is independence of some sort you can be sure that the Scots economy will be FUBAR'd.

Do you think though that Scotland would be partially aided by markets pricing in an assumption that if it really did go tits up the UK would step in to help.

It's an insurance policy/ blackmail - any wealthy and stable country wouldn't want a failed state as a neighbour.

princeofpounds

Thanks and I was trying to amplify what you were saying not disagree so sorry if it came across differently.

Not so much in terms of content, I was really trying to clarify for anyone reading.

The only way Scotland is going to be independent of the UK is if England votes to leave.

You'd think so, personally I think the referendum was meant to settle the issue, but politics is not always rational.

The SNP's fiscal argument for independence was so bad that not even that bunch of fanatics could maintain the pretense that they were honestly presenting the likely finances of an independent Scottish state.

At the time it looked better than it would right now - poor rather than disastrous - but I agree that there was a troubling amount of misrepresentation.


In particular, I didn't like the idea that the SNP were selling independence as a way to fight austerity, when independence would have virtually guaranteed painful austerity and/or crippling taxation. Even at higher oil prices.


Edit to add: and I don't think constitutional questions should be influenced by something that is nothing more than a mid-term economic program consideration. A bit like picking your wife based on which girl is most available to go to the cinema tonight.

Do you think though that Scotland would be partially aided by markets pricing in an assumption that if it really did go tits up the UK would step in to help.

No. That's a fantasy. I don't doubt that there would be some token aid on offer but it would be for political purposes only, not to solve anything.

Generali

wotsthat wrote: »

Do you think though that Scotland would be partially aided by markets pricing in an assumption that if it really did go tits up the UK would step in to help.

It's an insurance policy/ blackmail - any wealthy and stable country wouldn't want a failed state as a neighbour.

I expect that markets would use the Irish secession as a model. Ireland was left to succeed or fail on its own terms but the people of Ireland were, and are, welcome to come to Britain to live and work as their country failed to provide them with a properly functioning economy.

Luckily, Scotland is also small enough in population terms that her economy can partly fail and Britain (London really) can step in to prop up those that don't want to hang around as the country goes to wrack and ruin.

If a Scotland that was financially independent from Britain was to get into trouble then it would be for the Scots to fix this.

antrobus

Generali wrote: »

I expect that markets would use the Irish secession as a model..... .

And of course, Ireland did indeed "go tits up" recently and, whilst the UK certainly helped, they were largely obliged to help themselves with assistance from the usual suspects. (IMF, EZ)

I can't see why it would be any different with a hypothetically independent Scotland. Other than the fact that a hypothetically independent Scotland's major creditor might well be the UK government which might therefore, have to take a hit, if if did (hypothetically) 'do a Greece'.

Generali

antrobus wrote: »

And of course, Ireland did indeed "go tits up" recently and, whilst the UK certainly helped, they were largely obliged to help themselves with assistance from the usual suspects. (IMF, EZ)

I can't see why it would be any different with a hypothetically independent Scotland. Other than the fact that a hypothetically independent Scotland's major creditor might well be the UK government which might therefore, have to take a hit, if if did (hypothetically) 'do a Greece'.

The plan if Scotland had been dumb enough to vote 'Yes!' in the referendum was that the UK would retain the debt and Scotland would pay the UK the costs of servicing it.

As the debt matured and required repaying or rolling over, Scotland would be expected to make good on those sums so over time Scotland's share of the UK's debt would revert to Scotland.

On top of that, an independent Scotland would then be able to choose to save or borrow money in excess of Government spending.

kabayiri

Personally I would love it if Scotland were in a good fiscal position to go ahead with independence tomorrow.

The rest of the UK could continue trade quite easily with our Northern cousins.

A Scotland in such a position would have a negligible deficit and a thriving economy, perhaps at the expense of a smaller state and higher taxes.

Unfortunately I don't think the ruling party in Scotland has any intention of directing their economy towards such a position. I don't trust them.

They would rather play it out as one big poker game, trying to bluff their position and win all the takings from the nasty Westminster opponent across the table.

Making others pay for your lifestyle is an easy political win....if you can make it stick.