I rarely find much of interest in Paul Krugman’s blog, but he’s pretty good in this brief analysis of Scotland’s monetary future in a post-independence scenario:
Whether it’s overall a good idea or not, however, independence would have to rest on a sound monetary foundation. And the independence movement has me worried, because what it has said on that that crucial subject seems deeply muddle-headed.
What the independence movement says is that there’s no problem — Scotland will simply stay on the pound. That is, however, much more problematic than they seem to realize.
[…]
In fact, Scotland-on-the-pound would be in even worse shape than the euro countries, because the Bank of England would be under no obligation to act as lender of last resort to Scottish banks — that is, it would arguably take even less responsibility for local financial stability than the pre-Draghi ECB. And it would fall very far short of the post-Draghi ECB, which has in effect taken on the role of lender of last resort to eurozone governments, too.
Add to this the lack of fiscal integration. The question isn’t whether Scotland would on average pay more or less in taxes if independent; probably a bit less, depending on how you handle the oil revenues. Instead, the question is what would happen if something goes wrong, if there’s a slump in Scotland’s economy. As part of the United Kingdom, Scotland would receive large de facto aid, just like a U.S. state (or Wales); if it were on its own, it would be on its own, like Portugal.
As Stephen Gordon points out, this is “another analysis where you can substitute Qc/RoC for Scotland/UK”.
