Scotland and the Debt Problem

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It may be a moot point, in a couple of days time depending on the result of the Scottish referendum, however it represents one of the biggest decisions if they vote yes to independence. The basic premise is that Scotland want to maintain the pound as it’s currency, the UK Government have rejected this. In response Alex Salmond has said that Scotland will renege on it’s share of the UK National debt if they stick to this line.

It’s an interesting gambit, whatever happens a Nation needs to be trusted in order to succeed. Without trust in the financial markets borrowing costs can sky rocket. The National Institute of Economic and Social Research (NIESR) suggested that if Scotland did not honour it’s debt obligations it could cause huge economic problems for them.


The first likely result would be a plummet in the credit rating that Scotland enjoys. This is almost certain to happen simply because it would be one of the first decisions that the new country would take and so it’s trust would be severely affected. This would leave the country unable to raise funds for a decade or more, at a time when the country would desperately need funds to build up it’s own infrastructure.

Whether this situation actually occurs or whether it’s brinkmanship is difficult to say. But most economic predictions suggest that Scotland would be a lot more expensive place to live at least for a few decades. The issue is that smaller economies have to pay higher costs simply due to economies of scale plus the huge rise in uncertainty in almost every area of life. Where do Scots get a passport, how do they pay their taxes, how do they tax their cars are just a small selection of the challenges that will be faced.

This will also be combined with reduced investment due to this uncertainty, higher costs in association with credit cards, food bills, and things like insurance and pension costs. There are probably thousands of other small challenges that will need to be faced, things like replacing the national broadcaster – the BBC and you won’t even be able to watch online without using a Smart DNS service or something similar.

The situation will be very similar to that of the Canadian and US border where you cannot access the other TV channels online when you happen to drift across a few mile. They are two different countries and although there’s no real physical barrier, if you connect from an independent Scotland you will need to change your IP address if you want to access any UK resources.

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