Implications of Scottish Independence

[Skepticemea]

Actually won't independent Scotland have a permanent -90% recession if it goes independent from the UK? Talk about hacking the economy off at the neck . . . . Somebody tell Wings!

I thought the definition of recession was two periods of negative growth!

The "10% recession" was hyperbole, something both sides of the debate are guilty of and which the more febrile denounce as "LIES!"

WOS is certainly guilty of bias, it is quite clear and open about that even registering itself as such.

 

[Rolfe]

I think the truth is some way between the two extremes. England will lose some fairly significant assets it's had to call on annually in the past. And at the moment the DSS is saying that it will be responsible for all state pensions of people who have paid into the system as UK citizens. That would cause quite a hit to a system that had just lost close to 10% of its NI contributions. I suspect that won't stand because it seems unfair to me, but since Westminster won't pre-negotiate that is the position we have to work with.

As I said back in the thread, Wings is not where I'd look for economics and finance. Business for Scotland is the place for that.

Rolfe.

 

[Francesca R]

Hyperbole / schmyperbally. I suspect their knowledge is lacking.

Of course you can refer to the description of a complete economic non-event (pretty much an accounting entry) as an apocalypse as hyperbole if you wish. Others may see that as rather desperate

 

[Rolfe]

I think the choice of the word "desperate" to describe someone like Stu Campbell says more about you than it does about him. You've latched on to a particular item where you believe the arithmetic is questionable. I think your interpretation is also questionable. I also agree that I'd rather go to Business for Scotland for the economic and financial arguments.

Now, there are almost 2,500 posts on that blog. Have you only read one of them?

Rolfe.

 

[Francesca R]

"Desperate" is the bit about excusing the post as hyperbolic. It was . . . to use your words, just wrong.

No I haven't read any other posts from that site and the others may all be sparklingly accurate. But it's not like I searched a sample bigger than one to find a shocker like that.

 

[Rolfe]

I don't think Scepticemea is desperate either if it comes to that. I would probably describe that sort of language (yours, I mean, using the emotive word "desperate") as hyperbole.

And still you ignore my repeated point that for economics and finance I'd read Business for Scotland.

I also regard your entirely wrong remark about an independent Scotland "repudiating its sovereign debt" as a bit of a shocker. Suggesting you don't understand the issues quite as well as your superior attitude seems designed to suggest.

Rolfe.

 

[Francesca R]

It is my considered opinion (this is in agreement with the Citibank analysis that nobody on the pro-indie side in this thread will comment on, and also with a JP Morgan analysis from a week or so ago which I would dearly like to post but it is gated) that, regardless of what you think the legal situation is, or even what the legal situation really is, if Scotland were to say "The debt is none of our obligation anyway, end of", then the capital market interpretation of that statement would be one of a total sovereign default with zero recovery. Which is more severe than, say, the defaults in Latin America and Russia over the last few decades, and is equivalent to outright repudiation.

Now I may be wrong, and your view that weasel words like that from the Scottish administration may garner the complete pardon of investors who will thereafter be only too happy to buy post independence Scottish debt may be right.

But I really don't think so. That really would be a shocker to me

 

[Rolfe]

But that is not what they are saying nor what they will say nor what the situation will be. No sovereign debt will be defaulted on, so there will be no unpaid creditors. The entity that has already accepted 100% liability for that debt will continue to service it.

What you are trying to drill into is the exact outcome of the post-independence negotiations as to how much Scotland should agree to pay to England to support the servicing of that debt. At the moment England is trying to say Scotland has to take responsibility for the equivalent of 8.4% of that amount, and yet will be allowed none of the joint assets. Scotland is saying, in your dreams, this will be negotiated and if you are intent on us having none of the joint assets then we won't be helping you pay off that debt of yours.

This isn't a case of Scotland the supplicant and England in a commanding position at all. This is a case of negotiations that will probably be quite hard-ball, on both sides. Especially since the figures show that Scotland's economy was in surplus at the time the debt was being run up.

You really have to untangle the spin on the side you favour as well, you know. This false characterisation of Scotland reneging on sovereign debt and so becoming an international pariah is totally dishonest.

Rolfe.

 

[Skepticemea]

"Desperate" is the bit about excusing the post as hyperbolic. It was . . . to use your words, just wrong.

No I haven't read any other posts from that site and the others may all be sparklingly accurate. But it's not like I searched a sample bigger than one to find a shocker like that.

Desperate? Me? I'd only just been!

 

[Francesca R]

But that is not what they are saying nor what they will say nor what the situation will be. No sovereign debt will be defaulted on, so there will be no unpaid creditors.

I agree there will be no unpaid creditors, I never said there would be. In the post you are referring to I am speaking of the ability of an independent Scotland playing this card to borrow thereafter. That borrower would--in my view--be treated by investors as one who repudiated.

And I am sure Scotland's political leaders know this. Hence I do not regard this as a credible (usable) threat.

Viewed this way, it really doesn't matter if Scotland has a copper bottomed legal case or not.

This false characterisation of Scotland reneging on sovereign debt and so becoming an international pariah is totally dishonest.

I think it would become a "pariah" of the bond markets yes. On this matter I am diametrically opposite in view to you, since you apparently think that investors would still be lining up to lend money to Scotland. I really could not disagree more. I may be wrong.

 

[Rolfe]

You are entitled to disagree. I believe you are wrong.

You are talking about the end result of a hard-negotiated settlement. It will, however, be a settlement. England will agree not to receive any contribution from Scotland towards servicing the debt, in exchange for whatever it is that England wants more than that. Or not. It may agree to give Scotland some of what Scotland wants because it wants to keep that less than it wants the money to service the debt.

You seem to think that foreign investors are going to look at the end result of this agreed settlement and say, oh we think Scotland came out of that with too good a deal so we won't lend to the country. It's ridiculous.

In any case, we're only talking about interest rates. The UK is already paying rather poor interest rates on its sovereign debt compared to other northern European countries. Just how bad are the rates you envisage being offered to pariah Scotland going to be, for goodness sake?

In any case Scotland doesn't really care, because with no legacy sovereign debt round her neck she can easily afford a rather higher interest rate on the relatively small amount of borrowing she would need in that situation.

Rolfe.

 

[Francesca R]

You seem to think that foreign investors are going to look at the end result of this agreed settlement and say, oh we think Scotland came out of that with too good a deal so we won't lend to the country. It's ridiculous.

An agreed settlement will be fine. But that will be without the threat being exercised. And you are pre-supposing that it won't be. Which is why it doesn't actually feature in Scotland's "armoury", if you like. It's bluster pure and simple.

Just how bad are the rates you envisage being offered to pariah Scotland going to be, for goodness sake?

For a nation that is regarded as walking away from its debt (even with a legal backing--the thing about sovereigns is that it is rather hard to hold them to legal account about this kind of thing anyway, unless you've got something they want), the interest rate charged thereafter is effectively infinite. Argentina has not issued any bonds abroad since 2001. And it still can't. Capital markets have a long memory in respect of this.

In any case Scotland doesn't really care, because with no legacy sovereign debt round her neck she can easily afford a rather higher interest rate on the relatively small amount of borrowing she would need in that situation.

You and I have both agreed Scotland will need to borrow. So, it will very much care whether or not it can at all.

 

[Rolfe]

Frankly I think you've swallowed an awful lot of spin on this.

Of course Scotland will introduce the question of debt repayments in the negotiations, why wouldn't it? I don't like the divorce analogy, but if one partner insists on keeping the house and the car and the record collection and the savings account, then the other partner isn't going to meekly agree to pay half the mortgage. That's not a threat, or bluster, it's a bargaining point.

And the negotiations will arrive at an agreed settlement. Which may involve Scotland not paying towards the servicing of the debt, or paying considerably less than a population share. This will be perfectly fair because England will have got other assets to counterbalance this.

That's the actual scenario. All this stuff about reneging on sovereign debt and walking away from liabilities and so on is so much rhetoric being flung at Scotland to demonise the independence movement.

You are in effect proposing that international bond markets will comb through the details of the settlement and say, Scotland negotiated too good a deal, it should have gone on paying towards the mortgage even though England got the house and the car and so on. So we'll punish this rather rich wee country by refusing to lend to it.

Get real.

Rolfe.

 

[Francesca R]

All this stuff about reneging on sovereign debt and walking away from liabilities and so on is so much rhetoric being flung at Scotland to demonise the independence movement.

To be quite specific, any idea that Scotland could or would credibly threaten to not pay "its share" is utterly fanciful, and likely only believed by the clueless. It is a non-threat. Something that looks cool in pro-indie commentary "Yeah we can just kick the English in the nuts if we want"

Bluster, pure and simple. (Get real )

 

[Skepticemea]

It is my considered opinion (this is in agreement with the Citibank analysis that nobody on the pro-indie side in this thread will comment on, and also with a JP Morgan analysis from a week or so ago which I would dearly like to post but it is gated) that, regardless of what you think the legal situation is, or even what the legal situation really is, if Scotland were to say "The debt is none of our obligation anyway, end of", then the capital market interpretation of that statement would be one of a total sovereign default with zero recovery. Which is more severe than, say, the defaults in Latin America and Russia over the last few decades, and is equivalent to outright repudiation.

Now I may be wrong, and your view that weasel words like that from the Scottish administration may garner the complete pardon of investors who will thereafter be only too happy to buy post independence Scottish debt may be right.

But I really don't think so. That really would be a shocker to me

I've a fair idea of why no one from the pro-independence side of the debate has commented upon the Citibank analysis; most don't understand it. I'm reasonably economically literate (I run an operational compliance depart for a city asset management firm) and I find it dense. I would also hazard a guess (perhaps uncharitably) that some on the no-independence side have agreed with your understanding of it rather than their own.

In short, it's down to trust. Many, perhaps the majority, on the pro- side don't trust the UK government's position. They feel that they have been lied to in the past and have little or no reason to believe they're being told the truth now. It's a position I have some sympathy with having grown up in the 70s and 80s.

Many, perhaps the majority, on the no- side have little reason to believe the Yes campaign/SNP position, perhaps through political affiliation, perhaps through a genuine desire to maintain an historic union. Expecting either side, however deeply entrenched, to understand the detailed implications of a "yes" vote is a pipe-dream. Look how many voted for UKIP recently!

I have found it hard to hear the Scots voices on the No side of the debate due to those not involved making noises about "Braveheart" etc. That's irritating as there are valid concerns that should be discussed calmly without making reference to idiotic films or which politician looks like a woodland creature or acts like a dictator.

 

[Francesca R]

I would also hazard a guess (perhaps uncharitably) that some on the no-independence side have agreed with your understanding of it rather than their own.

I don't understand this bit?

(Infuriating as it may possibly be, I don't think there is any evidence on this forum that puts me on the no-independence side! Nor the yes for that matter.)

 

[Skepticemea]

I don't understand this bit?

(Infuriating as it may possibly be, I don't think there is any evidence on this forum that puts me on the no-independence side! Nor the yes for that matter.)

It's a while ago (and I'm not trawling back through as I'm still at work) but I believe your position was that this report should be of concern to the pro-independence group that all was not going to be hunky dory (I may be paraphrasing). This was attended by some "yeah, sucks, booo, nyer nyer" commentary by those definitely on the no side (I'm DEFINITELY paraphrasing).

My assertion is that those agreeing with it being bad news for the Yessers likely had as little understanding of the nuances as the Yessers themselves. In short, you said "bad" and they said, "yeah!".

I'm not trying to position you as taking any side, I don't believe you have stated an opinion on independence, yet your opinions of the yes campaign's rhetoric and supporting evidence has seemed to me to be pretty scathing on occasion and those statements have been used by others to support their own negative views on independence without their necessarily understanding the data as well as you.

No other implication intended.

 

[Skepticemea]

double post

 

[Francesca R]

My assertion is that those agreeing with it being bad news for the Yessers likely had as little understanding of the nuances as the Yessers themselves. In short, you said "bad" and they said, "yeah!".

Well I'm often right about stuff (joke)

[ETA: remainder deleted]

 

[Blue Mountain]

I think it would become a "pariah" of the bond markets yes. On this matter I am diametrically opposite in view to you, since you apparently think that investors would still be lining up to lend money to Scotland. I really could not disagree more. I may be wrong.

If you've given your reasons for believing this earlier in this tread I'm afraid I've missed it. Why do you think no one will be willing to lend money to an independent Scotland?

From this side of the Atlantic (and not being an economist) I see an independent Scotland as a liberal democratic country with a stable government, a strong and diverse economy, and an immediate and ready source of income in North Sea oil. Who wouldn't want to lend to a country with those attributes?