No Matter the Outcome, Scottish Vote Will Shake U.K.
Until this week, almost nobody outside Scotland took very seriously the possibility that Europe’s most stable and durable nation, the only big country on earth not to have suffered invasion, revolution or civil war at any time in the past 300 years, might soon be wiped off the map.
It now seems quite conceivable, however, that the United Kingdom of Great Britain and Northern Ireland will cease to exist after the referendum on Scottish independence, set for Sept. 18.
The prospects for Britain changed abruptly on Tuesday when YouGov, one of Britain’s most authoritative polling organizations, published a survey showing the unionist lead narrowing to just 53-47, compared with the margins of 10 to 20 percentage points typical in previous polls. So sudden and large was the shift that Peter Kellner, the president of YouGov, could hardly believe his own numbers. As he said on his weekly blog:
“A close finish looks likely, and a ‘yes’ victory is now a real possibility.
“When I first saw our data, I wanted to make sure the movement was real. All polls, however carefully conducted, are subject to sampling error. Can we be sure the rise in support for independence is real?” Mr. Kellner wrote. “I am certain it is.”
By tracking how individual voters had changed their minds on the referendum, Mr. Kellner concluded that the independence campaign was gaining about four voters for every one it was losing, while the unionists were losing about two supporters for every one gained. Analyzing the data by party affiliations yielded the same conclusion: The shift in opinion was for real.
The shift in public opinion had a clear catalyst: a televised debate last week that was clearly won by Alex Salmond, the first minister of Scotland and an advocate of independence. More fundamentally, the assumption that the Scots would be mainly swayed by economic issues, which favor risk-averse voting for the status quo, has been proved wrong. It now appears that many voters are focusing mostly on the political implications of independence.
Many Scots see the referendum as an opportunity to turn their country into a Scandinavian-style social democracy, expressing a collectivist national spirit that has been suppressed by English conservatism, especially since Margaret Thatcher’s election as prime minister in 1979. The fact that Scotland did not elect a single Conservative to Parliament in the last British election provides clear evidence of this ideological divergence.
Whatever the reasons for the pro-independence upsurge, financial markets have suddenly taken notice. The YouGov poll on Tuesday set off an immediate sell-off in the pound, along with the biggest jump in the expected currency volatility implied by option premiums since the 2011 euro crisis, and big declines in the shares of Royal Bank of Scotland. The panicky reaction made sense.
Even if the chances of Scottish independence remain quite low — the odds are only 20 percent, according to political betting markets — the consequences would be immense. The referendum could lead to all kinds of other risks that financial markets and international business leaders do not yet fully understand.
Most financial and business analysis has focused on economic issues like currencies, government guarantees for financial institutions and revenues from North Sea oil. Troubling as these are, the political consequences of independence would be even more disruptive.
The problems would begin immediately after the referendum, because a vote for independence would probably bring a rebellion against the British prime minister, David Cameron, by rightist members of his own party, whose historic name is the Conservative and Unionist Party.
A huge constitutional challenge would loom in May 2015, when a general election must be held in Britain as a whole. Scottish independence would shatter the democratic legitimacy of whatever government emerged from this election. If Labour won a majority, its victory would depend on Scottish members of Parliament before they left the British government. A Labour-led government elected next year would therefore have no democratic mandate.
If, on the other hand, the Tories win the election next year, even after a vote for Scottish independence this month, they will become extremely confident of securing an even larger majority after Scotland is gone. In that case, they will probably replace Mr. Cameron with a much more euro-skeptical prime minister who would campaign for Britain to leave the European Union — and a British electorate without pro-European Scottish voters would almost certainly endorse this decision.
Finally, we need to consider the impact of Scotland voting to stay in the union, but only by a narrow margin. If the vote turns out to be as close as suggested by the latest polls, then the nationalists are unlikely to accept the outcome as final. Mr. Cameron’s authority as prime minister and Conservative leader would still be seriously diminished, and the outcome of next year’s general election, already too close to call, would swing in favor of Labour. Even if the Tories did stay in power, the outcome of the E.U. referendum question in 2017 would become increasingly uncertain.
Political instability looks as if it is becoming a permanent fact of life in Britain, unless the unionists can win the referendum by a decisive margin. Because such a clean-cut outcome now looks unlikely, the volatility this week in the pound and other British assets is probably a portent of things to come.
Author: Anatole Kaletsky is a Reuters columnist and chief economist of Gavekal Dragonomics, an asset management company based in Hong Kong.
Source: NYT
