Unionist arguments in Great Britain and Spain

Modest Guinjoan
4 min

After the Scottish referendum on independence was called, in March 2013, British unionists began to strip away and examine the foreseeable negative economic consequences of the separation. They did it with more precision once they knew the contents of the white paper on independence, Scottish Future. By looking at what the prestigious The Economist said, one can get a pretty clear picture of the economic debate that took place. The arguments of the learned English weekly revolved basically around six points. Now that the Catalan process has the elections of 27 September on the horizon, it would be useful to contrast those points with the Spanish case against the Catalan process.

First: The oil from the North Sea. The Economist raised doubts about the extent of oil profits that the pro-independence Scottish were claiming, basically arguing that the best reserves had already been exploited, many wells would run dry in the next decade, opening new ones would be increasingly more expensive and would require higher market prices, and that the Scottish economy would be highly concentrated in a single sector (18% of GDP), one with highly volatile prices, by the way. In Catalonia there is no oil and the economy is very diversified; the unionist argument is not applicable in this area.

Second: The pound sterling as currency. The Scottish proposal to keep the pound as its currency was seen as foolhardy. It would mean applying a monetary union without a political and fiscal union (like the Eurozone), and would require that agreements be reached with a resentful London. The alternative of using the pound without an agreement with the Bank of England would leave Scotland an orphan when confronting possible monetary problems. The alternative, to create their own new currency, would be a move full of uncertainty and risk. These three doubts they raised would have been seconded by most economists worldwide. Catalonia uses the euro, and whether it remained in the EU or not, the euro would continue to be the Catalan currency. Not participating in the ECB is considered a minor cost.

Third: Fiscal balances. In a country where fiscal balances are not published, The Economist argued that London spent 1,200 pounds more per capita in Scotland than in the whole of the UK. The separatists claimed that Scotland would be richer by 1,000 pounds per person. The weekly challenged this, saying that Scotland would have to make up in taxes what they lost in subsidies from London. In Catalonia the accounts are documented much more thoroughly. There is a quite general agreement that the new country would benefit ... by a lot.

Fourth: Maintaining the welfare state. Public services in Scotland have historically been more generous than in the rest of Great Britain, and the proposal for independence claimed that this would even improve in the future. The Economist questioned this because the increase in spending would depend on oil revenues, on which they had raised doubts previously. In Catalonia the public services have suffered a lot in recent years but could improve considerably with the additional resources that the Catalan state would have access to.

Fifth: Financial sector. In Scotland the financial sector is very significant (12.5% of GDP), and its banks have assets of more than 12 times the Scottish GDP (4x in the rest of the UK, 3x in Spain). This makes the country very vulnerable, and unable to respond in the case of problems. The Economist claimed that, should Scotland choose independence, the big Scottish banks would relocate to the south and Edinburgh would lose its status as a financial center. Catalonia is not a financial center, and the sector has very little economic weight (3.5% of GDP). A hypothetical flight of the central services of CaixaBank and Bank Sabadell would be a shame, but would these banks renounce their presence in the Catalan market? And the Santander Bank and BBVA, would they go away, too?

Sixth: Debt. The amount of British debt to be assigned to Scotland would have had to be negotiated, and the newspaper asked if the new state would be able to pay it back, and at what interest rate. In a show of finesse that The Economist printed, someone estimated that Scotland would pay interest of between 1 and 1.5 points above what Britain paid. In Catalonia, the independence movement maintains that Catalonia would be solvent in the case of assuming a fair part of the Spanish debt, but neither the State nor unionist economists have entered seriously into this debate.

Although the editorials in The Economist were clearly pro-union, the weekly didn’t hide some virtues of independence; for example, by staying in Great Britain the Scottish (who are pro-European) would run the risk of leaving the EU if Great Britain decided to do so; or that, with their own state, they could lower taxes to attract foreign investment. They also didn’t hesitate to proclaim that Great Britain needed Scotland for many reasons, and a greater devolution was long overdue. In Spain only a couple of “eccentric types” have defended similar viewpoints.

Finally --and this is highly commendable--, The Economist argued that, although they considered that the difference in power between the current devolution and independence was very small, if the Scottish wanted to be independent for reasons of culture, politics, or identity, then full speed ahead! They would not be the ones to oppose the will of the people. Do you think Spain would be equally respectful? If you do, think again.

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