The debate on Scottish Independence and the EU

The arguments for hearts and minds of Scottish voters went into overdrive in the last few weeks, from PM Cameron’s speech, a choreographed doomsday scenario by the 3 main parties at Westminster and now the departing president of the European Commission, Manuel Barroso , putting his oar into the debate.

I have commented previously on the debate in 2012 when I looked at the country risk and macro aspects of the independence debate and pretty much all those points remain valid. The pro campaign’s economic case is on the whole somewhat weak. That said, sovereign dissolutions in Europe since the Second World War have been political in nature even though the economic dislocations were catalytic – from the dissolution of the USSR signed off by the presiding heads of the soviet republics in 1992 to the velvet divorce of the former Czechoslovakia in to the resultant Czech and Slovak republics in 1993 and the economic impact that hit and ultimately dismembered Yugoslavia.

So the debate about a currency union post-independence in Scotland, pooled fiscal policy and the like are indeed important but miss the point somewhat. Ultimately if the Scots want independence a solution will be found to these economic issues as it always is. Connoisseurs may recall the IMF’s advice to Estonia to retain the rouble in 1992 but the latter did pretty well with its Kroon that ultimately sailed into the Euro-zone in 2011.

So why my angst?

As an economic liberal I fully support the rights of the Scots for quasi self-determination that is at stake in the debate even though I don’t see the economic case for it. If the Scots gain independence and see a Norwegian style oil economy they will also suffer the boon-curse conundrum of rising real exchange rates as echoed in the 2012 blog.

And if East Germany could be absorbed into the EU through a union with West Germany despite the huge structural differences and if the Czech and Slovak Republics are now merrily back in the bosom of the EU then why cannot an independent Scotland be a successful part of the EU, of which it has been a de facto member through the UK’s membership since 1973? Does Scotland not explicitly, if not implicitly, already comply with the EU’s body of law – the acquis communautaire – which the would be accession states are busily internalising? And would an independent Scotland really not be more in line with economic convergence with the EU than say Serbia or Montenegro let alone new Member States like Bulgaria and Romania that joined in 2007?

Moreover the pro-independence waffly goal is precisely akin to the EU geek-speak of “subsidiarity” implied by granting political, economic, fiscal and administrative functions to the lowest level. So why did Mr Borosso get involved?

The on-going peace dividend following the end of the Cold War in Western Europe, at a time of increasing global technological connectivity, is seeing a part resurgence to the pre-industrial revolution sense of European regionalism over nation states – and the spectre of an independent Scotland therefore raises temperature in Madrid (fear of Catalonia saying adios to Spain proper let alone the regular feast of El Clásico football matches between Real Madrid and FC Barcelona) or the north of Italy doing the same or even the possible break off in Belgium where the EU institutions are housed.

I don’t expect the Yes-campaign to win but what chances that there won’t be demand for another one within the decade – particularly if the rest of the UK continues – at least politically if not at the street level - to project an anti EU-and an anti-Johny Foreigner mentality driven by UKIP.

The somewhat bizarre sight of Messrs Cameron and Barroso playing from the same hymn sheet is a reflection of a common political goal to stop a possible rise in demand for splitting existing EU states. Bizarre because of the Cameron-led Conservatives have been pushed by UKIP to a more antagonistic stance toward all things EU (except for the Single Market that is).

The real story in the early 21st century EU, especially post-financial crisis, will be what shape and form the EU will develop as regards further economic, fiscal and political integration – now that financial and monetary integration are so developed. And that in turn smacks of what form federalism will take, to allow so many member state countries to work as a cohesive economic group.

So one hopes the debate in October after the likely failure of the yes campaign turns to how to provide even greater fiscal autonomy in the UK, where so much remains centralized and defeats the often well-meaning structural programmes by successive governments in various sectors as there is no real incentive for reform where purse strings are almost fully based on central transfers.

And that in turn could help to invigorate the direction and vision of the EU that remains such a lodestar for the likes of those outside such as Ukraine where it – or rather the EU’s prevailing requirement of standards of democracy, governance and rule of law – remains such a beacon.