Scotland's Referendum

Scotland's referendum to break away from the union jack is a big currency moving event, already the pound has tumbled to a ten month low on news that 51percent of Scots support the yes vote for an independent Scotland, according to a recent YouGov poll.

Whether the Union Jack would look the same, or Londoners would need a visa to visit Edinburgh Festival to listen to some fine music, should the Scottish yes vote win, might well be an interesting question to ponder over, but that would deflect us from the big issue. 

Perhaps it’s the politics behind Scotland's independence and its far reaching consequences on finance and politics, not only within the UK but beyond its borders, that merits us taking a closer look.

While a financial meltdown and economic collapse has been averted or delayed, following the financial crisis in 2008 and the longest recession in history that ensued, the populace frankly don't feel the recovery. Real incomes have not recovered for millions of workers struggling to meet daily expenses and the jobs that have been created in the service sector are lower paid and less secure. To some extent this economic recovery sustained by loose monetary policy has been built on a sandcastle of debt and cheap money. UK Industrial Product and construction remains stubbornly below pre 2008 financial crisis level, youth unemployment at 20.6 percent in Scotland, which is 0.5 percent above UK national average, according to May 2014 figures. Meanwhile, we have stock markets at record high, unaffordable property prices and low bond yields. So the economic policy pursued may have aided and abetted an unbalanced economic recovery, where there are relatively just a few gainers and many losers. When the populace voice their concerns the government's and central bank's solution is the same; more austerity and loose monetary policy. 

Then it is no surprise that the electorate feels unrepresented, disconnected and alienated from the political establishment who fail to address the electorate's basic needs for better job security and wages, affordable housing, functioning essential public services and more employment for the youth. If the Scottish people believed that their political needs were being addressed by the leading coalition Conservative party in Whitehall in London, or even the main opposition Labour party, they would most likely be less support for the “yes” vote in the forthcoming Scottish referendum on independence.

So this political alienation has to some extent created a type of political vacuum, a situation where the electorate no longer feels represented by the mainstream political parties, and it can manifest itself in several forms. On one end of the spectrum is voter apathy typified by low voter turnout while on the other more dangerous extreme end of the spectrum is radicalisation. With Muslim extremists on the rise in Britain that might lead us to the politically explosive Rivers of Blood by Enoch Powell's and it’s best not to go there. 

However, with respect to Scotland's rise for the “yes” to independence, could that then be a kind of anti-elite and anti-establishment vote by the disenfranchised Scottish electorate. Perhaps that's a moot point but what is more clear is that this rising political uncertainty is not beneficial for business. Large scale capital investment tends to be delayed or put off by private enterprises during a climate of political ambiguity. Investment in Scottish real estate is being put on hold until the outcome on the September 18 Scottish Independence Referendum. Some real estate agents believe that property prices have already discounted the political uncertainty and could rebound strongly if the “no” vote wins. Alternatively, if the “yes” wins some analysts are predicting property prices to fall a further 15 percent one year after the referendum.

So the “wait and see,” or expand elsewhere approach to business investment as a result of the political uncertainties might act as headwinds on the UK’s economic growth. 

The political and financial fallout of an independent Scotland could also have ramifications in Europe too. It might give further impetus to the Spanish Catalans to push for independence from Spain. Catalonia is also facing a referendum and no doubt how Scotland votes will be closely watched by the Catalans. In many ways the two regions share similarities, Scotland is wealthy due to its natural resources such as oil and Catalonia is the most industrial region of Spain. Like Scotland, Catalonia believes its paying too much into central government and gets less in return, thereby bank rolling the poorer autonomous regions of Spain. So it too sees central government as a drain and believes it would be financially better off independent. 

It seems paradoxical that on the one hand the architects of the European super state, the EU, are peddling for more integration and austerity amongst its members as a solution to Europe's woes. Meanwhile, the autonomous regions within the EU states are pushing for separation from their central government. Believe it or not there's even a push for independence in the country where the EU parliament is situated, Belgium, where independence movements are growing stronger.

No doubt the Belgians too will be watching the outcome of the Scottish Independence referendum on September 18. With all this in mind an independent Scotland might have more than just an impact on sterling. Could it herald in a new era of anti-globalisation and the super state? If so, then its impact on the Euro and beyond might be wider than anticipated.