One of the world’s biggest investment banks has warned that a vote for Scottish independence could have severe consequences for the economy and risk a eurozone-style crisis in the UK.
In an outspoken note yesterday, Goldman Sachs said that a surprise independence vote would result in a prolonged period of negotiation over the terms of the separation, which could be “severely negative” for both countries.
Kevin Daly, a senior economist at the Wall Street bank, said that although Scottish independence was “unlikely”, if it went ahead fears over currency union could spark a run on sterling and the sell-off of Scottish assets. He added that although Holyrood claimed that the UK was making shallow threats about disbanding the sterling monetary union in the event of a “yes” vote, it was a “credible” threat.
“The most important specific risk, in our view, is that the uncertainty over whether an independent Scotland would be able to retain sterling as its currency could result in an EMU-style currency crisis within the UK. In our view, the threat to disband the sterling monetary union with Scotland is credible,” he said.
“One of the main lessons from the euro area crisis is that a reasonably high degree of fiscal and/or financial integration is necessary, as a means of effective risk-sharing, for a monetary union to work. Without political and fiscal integration, it is difficult to see the rest of the UK agreeing to provide a monetary and financial backstop to Scotland.”
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Goldman Sachs warned that even without the currency risks, uncertainty surrounding the future of an independent Scotland could still prompt investors to sell Scottish assets and cause a run on retail deposits in Scottish banks:
Mr Daly said that although the Bank of England could intervene until at least 2016 to prevent the worst of these short-term consequences, the decision on currency was a “political one”.
On Tuesday, sterling fell to a five-month low against the US dollar after a YouGov opinion poll showed that the Yes campaign was gaining momentum and closing the gap to the unionists.
Mr Daly said that there would have to be long negotiations over splitting UK debt between the countries, which could lead to a “painful” and “significant” reduction in the provision of public services in Scotland.
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Goldman’s bearish tone was echoed by economists at Berenberg Bank. Rob Wood, at Berenberg, wrote: “The biggest initial issue would be a spike in uncertainty. Firms could delay investment and consumers could shun big-ticket spending until the post-independence arrangements became clear. That could cause a serious setback for the Scottish economy and a material hit to the ‘rump UK’.”
The chairman of Lloyd’s of London insurance market has added his voice to the chorus of business leaders urging Scots to vote “no” to independence in a fortnight’s time.
Speaking at the annual Lloyd’s City dinner last night, John Nelson said that it would be in the best interest’s of Scotland and the rest of Britain to maintain the Union, particularly against the backdrop of increased globalisation. He said he would be “extremely sad” if the Yes campaign won out on September 18 and that he “very much hoped the Scottish people vote to stay in”.
Scotland is home to several big insurers, including Standard Life and Aegon.
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