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European and global implications of separation

Chapter summary

  • The Scottish Government’s assumption that a Scotland which had seceded from the UK would automatically be welcomed as a new member of the European Union is not shared either by the European commission or by many member states. The Scottish Government’s retort that it would retaliate against the EU if membership were not granted is not credible. Scotland would be in a very weak position to dictate terms, given its lack of economic muscle and its population of 5.3 m people, little more than 1% of the EU’s population of 503 m.
  • In time Scotland might well be granted EU membership, but at a cost. Scotland would be unlikely to secure an opt-out from adopting the euro. The same goes for other vital interests: regulation, EU immigration and border control, fisheries, VAT exemptions, employment law and the environment.
  • The process of agreeing terms for Scottish EU membership could well take years. Scotland’s negotiating position would not be strong.
  • The UK is not the only EU nation to have a separatist movement. Spain, Belgium, Italy and parts of France also have them. Similarly, the Eastern European post-war settlement could come under scrutiny. Scottish separation could create an unfortunate precedent for a number of European capitals.

A separated Scotland would be a globally uninfluential Scotland

The Scottish Government’s assumption that Scotland would automatically be welcomed as a new member of the European Union on seceding from the UK is not a position shared either by the European commission or by many member states. The Scottish Government’s retort that it would retaliate against the EU if membership were not granted does not seem a credible response. Scotland would be in a very weak position to dictate terms, given its lack of economic muscle and its tiny population of 5.3 m people, little more than 1% of the EU’s population of 503 m. Scotland’s position in terms of relative GDP is outlined below.

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In time Scotland might well be granted EU membership. However, there is significant risk attached to the terms. Scotland would be unlikely to secure an opt-out from adopting the euro, as part of the price of joining the EU. The same goes for other vital interests: regulation, EU immigration and border control, fisheries, employment law and environmental obligations. Given the complexity of EU law and the opt-outs that the UK currently enjoys, the process of agreeing terms for Scottish EU membership could well take years.

Scotland should bear in mind the UK’s global reach. The EU, while important, is in structural decline. Real power remains with the US and increasingly the East. There is a danger that Scotland, feeling the need to have a substantial ally, cosies up to the EU just as it turns inwards in an attempt to resolve the structural flaws of the eurozone. The EU is a declining bloc, as can be seen from the chart below. This rate of decline is unlikely to be reversed given demographic trends, regulatory excesses and emerging growth from a low base in competitor countries, particularly in Asia.

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Scotland’s influence and ability to negotiate trading arrangements and limit regulation is best placed within the context of the UK’s much more significant voting power both in the EU and at the UN, where the UK is a permanent member of the Security Council.

The effect of Scottish separation on other EU nations

While one should not exaggerate the importance that the destiny of 5 million people can have on an EU population 100 times greater, the impact could be profound. For instance, the UK is not the only EU nation to have a separatist movement. Spain, Belgium, Italy and parts of France also have independence movements. Similarly, the Eastern European postwar settlement could come under scrutiny. Scotland could create an unfortunate precedent for a number of European capitals. Scotland’s negotiating position would not be strong.

Could Scotland stay out of the EU’s banking union or the euro indefinitely? It is also doubtful that the EU would allow Scotland the luxury of Ireland’s low corporation tax. Would Scotland be obliged to adopt the Schengen border arrangements? Could Scotland really play hardball over fisheries? Very little has been said of Scotland’s proposals to defend its territory and its waters – a sizeable fraction of the EU’s total fishing waters – in the event of separation. The Royal Navy proved powerless to defend our trawlers against the unilateral expansion of Iceland’s fishing waters: a Scottish navy for which no plans and no keels have been laid would be in no position to defend Scotland’s waters, her fisheries, her offshore oil installations or her offshore wind and tidal generating systems.

Over-fishing of Scotland’s waters by the trawlers of other EU nations, notably Spain, has done drastic damage to Scottish fish stocks. Scotland’s fisherman still resent the decision of Edward Heath to hand over Scotland’s waters to the EU as a “common European resource”. The only realistic hope for a recovery of Scottish fish stocks lies in a repatriation of Scotland’s fishing waters from Brussels to Edinburgh. A separated Scotland would need to ensure that the UK negotiated on its behalf the restoration of Scotland’s fishing waters from the EU to Scotland. It is by no means certain that any such negotiation would be successful. It is still less certain that the EU would accept a membership application from a Scotland determined to retain her own fishing waters and thus to permit her fish stocks to recover before terminal damage was done – if it has not already been done.

The legal position of the rest of the UK, as the successor nation, would be little changed. Current treaties and opt-outs would remain in force. At present, for instance, the UK has a derogation allowing it to zero-rate food, books, children’s clothes and other essentials for VAT. A separated Scotland would not be automatically entitled to the VAT opt-outs. The impact of a refusal on the part of the EU to permit Scotland as a member state to continue to enjoy the UK’s VAT opt-outs would fall disproportionately on low-income households, of which Scotland has many.

Scotland should also be careful. In negotiations, the EU may prove less flexible than the United Kingdom. Scotland has had a disproportionate influence on the destiny of the UK politically and economically. That would not be likely if Scotland were a sovereign member of the EU. Scotland would account for little more than 1% of the EU population. Its negligible influence would wedge in between Greece and Portugal in terms of GDP weight.

The global effect of Scottish separation

The United Kingdom is the sixth-largest economy on Earth, behind the US, China, Japan and Germany and almost the same size as France. The loss of £129 bn of Scottish GDP would reduce the rest of the UK’s GDP by 8.3% to around £1.45bn, roughly equal to the seventh-largest global economy, Brazil. The UK is a permanent member of the UN Security Council and an influential voice in almost every significant international organisation. Scotland would not be influential.

According to the IMF, the Scottish economy would rank 47th in the world, sandwiched somewhere between Kazakhstan and Algeria. Scotland’s diplomatic position and importance would undoubtedly diminish.

While size is not closely related to GDP wealth, one of the biggest implications of separation is one of perception. The collapse of the Soviet Union changed the world order. It ushered in a globalised age, but it also demolished the old certainties, increased risk and highlighted the chaotic nature of much of the world. This new world is a dangerous place, as is witnessed by capital flows to safe havens like London.

In an uncertain world, the splitting of the hitherto politically stable UK would be seen as a profound event. It would raise questions about the UK’s safe-haven status. Although the separation of Scotland from the UK would be of secondary importance in decisions on whether to invest in the UK in general, or London in particular, separation would be seen in a negative light.

The impact of Scottish inward investment should also not be underestimated. Building credibility for investment can take years. Investors might well choose to sit on the side-lines while they judged the new Scottish government.

on September 16 | by

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