Tony Yates argues that if an independent Scotlandwanted to use Sterling as its money, then the rest of the UK (RUK) would want to insist on prudent Scottish fiscal policy “to guard against a market run on Scottish bonds”.
Strikes me that RUK’s attitude to a profligate and independent Scotland that suffered a run on its bonds would be “Tough luck mate: you wanted independence and the right to your own fiscal policy. Now you’ll have to live with the consequences”.
That’s very much Germany’s attitude to Greece. Of course a Greek/Scottish bond problem is not entirely beneficial for Germany/RUK respectively. But the really big penalty in Europe is being paid by the periphery, not Germany. Likewise, the real penalty would be paid by Scotland, not RUK.
But of course Scotland would try to have its cake and eat it: in the event of problems, Scotland would get all emotional about Scotland and RUK’s shared history. Scottish politicians would be on the train to London, begging for free money.
Perhaps the solution is to spell out in very blunt terms in the independence agreement what the consequences of a run on Scottish bonds would be.