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by Dr Savvas Savouri, Toscafund's chief economist
21 March 2016
Brexit could well lead to Sexit - a second Scottish independence referendum

Brexit could well lead to Sexit - a second Scottish independence referendum

Let us for a moment suppose the electorate across England votes to a sufficiently large degree that there is a UK-wide majority for an exit from the European Union.

Since it is inconceivable that a majority across Scotland - and almost certainly Wales - vote to leave the EU, we will find ourselves facing legitimate calls for a second referendum on Scottish independence.

Of course so much was written ahead of the referendum of September 2014, one might imagine this could be recycled. Well, not quite.


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An independent Scotland in the EU with the rump of the UK also a member would have very different questions to answer than an independent EU embedded Scotland, where the rump of the UK was sans the EU.

The issue of which currency Scotland would utilise was one thorny question ahead of the first Referendum. The thorns here would become even sharper ahead of a second. Could the SNP still claim it would continue within the sterling bloc whilst inside the EU without meeting with resistance from other EU members complaining this afforded it an unfair competitive advantage because the pound had weakened with Brexit?

If unable to continue with the pound how would Scotland transition to a new currency, and what would this be, the euro or some entirely new fiat? Indeed, the complexity, not the possibility, but the sheer complexity of a 'double departure' is such that anyone claiming to know its resolution reveals an ignorance of just how many contingent outcomes there could be.

As much as I was confident in claiming Scotland's economic interests were best served within a United Kingdom inside the EU, I am convinced that a sovereign Scotland inside an EU which - in particular - England was not a member, would face considerable economic challenges.

It could for one prove a pawn in a power game between a Westminster Government navigating an un-chartered Brexit course and an EU leadership resentful over being slighted it might try to make the aftermath of Brexit as fraught as possible for England .

One way of doing this would be to isolate it. Another would be to encourage Scotland's nationalists that a sovereign Scotland would be welcomed within the EU. Let me consider these concerns in sequence.

I say again what I have written elsewhere, that any attempt by the EU to isolate the UK would be pure hubris. The result would be self-inflicted pain to its members who enjoy a net trade surplus with the UK and have nationals working there, as well as businesses operating out of it.

As for encouraging Scottish nationalism here, too, the EU would meet with self-inflicted harm. It would after all face an internal backlash, as for one the Spanish Government would hardly welcome any move which might be used by its own 'separatist' elements. 

Let me turn now to reflecting on two 'island' stories which to my mind at least provide an insight to matters on the British mainland in the event of a 'double-departure'. Consider first Ireland.

Just as much as a 'double-departure' could be said to open a front-line on the British mainland between an EU member and one outside it, Ireland is certain to see this in the event of Brexit. And any attempt by the EU - or isolationist minded Brexiters - to frustrate the considerable commercial links between Northern Ireland and the Republic, would damage the economies on both sides and could wreck far wider unwelcome implications.

More positively Ireland provides a practical illustration of how a euro-zone nation can work literally on the same ground as a part of the sterling bloc.

The second island which I believe might provide some insight into the practicalities of a 'double departure' is Cyprus, one side of which is within the EU, the other not.

Whatever tensions can be said to exist between the legitimate Republic of Cyprus and the self-proclaimed Turkish Republic of Northern Cyprus, the border is now open for populations to move across and even some commercial trade to be performed (even if informally).

On one side there is the euro, on the other a lira (the name incidentally which Greek Cypriots have for the Pound) linked to the currency of its Turkish namesake.

My intention in drawing upon the island of Cyprus is to show those concerned about a 'double departure' that if stability - of sorts - can exist across Cyprus forcefully divided in 1974, there should be little to concern us across Britain, where rivalries whilst competitive have not been combative, not that is for many hundreds of years.

As for economic growth, the Republic is reeling from EU imposed austerity, whilst the TRNC is benefiting from a markedly more competitive currency in its efforts to attract tourists which might otherwise opt for the south.

I noted earlier the considerable literature produced ahead of the 2014 independence referendum.

There was a contribution to this anthology from Toscafund, where I was the author. I wrote then that Scotland's best economic interests were served being untied but still united to the other elements of the UK.

Indeed, in related research Toscafund has stressed the importance of devolving economic management widely across the United Kingdom, not only to Holyrood but City Hall and Cardiff and indeed to new Combined Authorities across England.

Facing as we do the possibility of Brexit let me make clear that I am convinced that Scots wishing to reclaim the maximum power over their economic management can best serve this ambition by remaining within a devolved UK outside an EU which is keen for ever more centralised economic management.

Let me close by considering a particularly important Common cause which Scotland would still share with England were it to Sexit following Brexit.

Since the SNP has maintained it wishes to see the Queen remain as head of state one imagines it is committed to remaining within the Commonwealth of Nations. An independent Scotland would keep the EU at 28 but take the Commonwealth from 53 to 54 nations, a reflection to my mind at least, at the stagnation in one and the dynamism in the other.  

Dr Savvas Savouri is Toscafund's chief economist

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