Debt and Doom

There’s a particularly worrisome article about the UK’s debt online. Whilst the article spends a lot of time trotting out the website’s credentials, and generally has such an enormously pessimistic slant that it is hard to take it completely seriously, it does bring up a lot of important points about how important debt is to the UK.

For argument’s sake, we’ll pretend that the article is correct and the UK is facing a looming and catastrophic debt crisis. The question becomes whether Scotland would be better off weathering this storm from within the UK, or untying itself to go wheresoever the wind blows it.

Well, a big thing is interest rates. With UK inflation having fallen, the spectre of increased interest rates gets that little bit further away. However, they do have a degree of volatility, making them hard to forecast.

Scotland, with its economy following the UK in growth, would be faced with a potential debt crisis upon independence. If the UK can’t pay its debt, and Scotland received a fair share of those debts, then it stands to reason Scotland would struggle as well. Without the backing of the UK’s low rates on bonds, Scotland would have to pay more interest, which could cause problems sooner for it than the rest of the UK.

Oil and gas would play an important part in mitigating this, but remember than BP has predicted slow growth in that area. Furthermore, oil and gas could result in Scotland suffering from the ‘Dutch disease’ and find that its currency becomes over valued, negatively affecting other areas of its economy. Whilst this would have a positive short-term affect on interest rates, since a smaller amount of money will go further on the currency market, it will simply push the problem into the future. And this is assuming that Scotland has its own currency, and isn’t relying on either the euro or pound sterling to pay its debts.

This ties us into the other big set of stories today, which are all to do with Scotland’s place in the EU. Obviously, if the UK starts to face a debt crisis, the EU would represent a safety net for the country. It could easily be that the referendums on independence and the EU are all for naught, as the UK has to seek greater European integration just to save itself.

The benefits of EU membership now would be greatly out weighed by the benefits in the event of a UK or Scottish debt crisis. As such, claims of continuing Scottish involvement in Europe are greatly welcome. Whilst it wouldn’t be the most auspicious start for an independent Scotland, it would keep the country alive, giving it time to get its books in order. Of course, what’s really important is the actual scrutiny being applied to the independence EU plans. More should be reported on that later.

I’m in no position to say whether the predictions in that article will come true. Best I can do is work out what might happen if they do. But even so, it deals with a number of issues facing the UK, and that Scotland will have to deal with if it gets independence.

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