Newsweek Scotland: Economics of Independence

In an independent Scotland, Edinburgh would have faced the bill for the whole Scottish banking bail-out (circa £470b - although not in cash) and as a result would have been bankrupted like Ireland, Greece and Iceland. Our interview with the professor of economics at St Andrews University Andrew Hughes Hallett (on a rather scratchy line from Western Australia) indicated that was far from the case. He said the convention was that bail-outs were proportionate to the amount of business done in each country... so Scotland would pay 10 per cent and England 90 per cent because that's where most of the RBS and HBOS business is done.

We have been seeking other views from banking experts and made contact with two eminent professors of international banking. They don't agree on all points but they do share the Hughes Hallett doctrine that the bail-out would be divided between countries, probably through inter-governmental negotiation. After all, the impact of sending all the bills to a brass plaque in Edinburgh would be the collapse of RBS which is precisely what the bail-out was designed to avoid. The knock-on effect would have been ruinous to the rest of the UK which any case, has been in receipt of tens of billions in Scottish bank corporation tax over the years.

And didn't David Cameron give the game away this week when he said the reason Britain helped bail-out the Irish banks was because our economy is so deeply integrated with theirs? That is self-interest. And isn't Scotland's economy even more tied into England's than is Ireland's? So we hear from the big brains of banking and the man who was the Treasury helm during the bail-out, Alistair Darling.

Also we remember the 1999 annexation of Scottish fisheries waters off the east coast, a strange affair which seemed to take everyone by surprise and has never been fully explained to the critics. We ask if moving the maritime line for fishing also gives England the oil rights. Was it all a canny move to deprive a future independent Scotland some of the vast undersea reserves? Or is that more conspiracy, baloney, that gives the cybernats a bad name? We hear from an expert in maritime law. Join me tomorrow at 8.

Last week we invited the Secretary of State, Michael Moore to come on the programme to respond to Professor Andrew Hughes Hallett. He wasn't available. But his office did send a statement which was read out in part on last week's programme. Here it is in full.

STATEMENT FROM THE SECRETARY OF STATE'S OFFICE RECEIVED FRIDAY 1ST JULY.

The Secretary of State was simply pointing out that a Scottish annual budget of around £30 billion a year could not cope with a £470 billion banking crisis package on its own (Source: Scottish Parliament SPICe briefing).

The scale of that crisis was so great that it could only be effectively dealt with by the resources of the United Kingdom as a whole. The idea that the Royal Bank of Scotland is primarily an English institution as far as the allocation of that debt is concerned is simply wrong - the UK as a whole shares and spreads economic risk, as it does rewards.

The GERS figures simply assign a population share of the bail out to Scotland - around 10 per cent - on the basis that the whole of the UK has benefited equally from the stabilisation of the UK financial system. That does not address the issue of whether an independent Scotland would have been able to save the banks.

The same GERS figures published recently also showed that Scotland had a £9 billion deficit including all of the oil revenue.

One of the lessons of the crisis was that smaller states with banks with big balance sheets failed to cope with significant consequences for their citizens (Iceland/Ireland).

We would contest the suggestion that state boundaries would have isolated any country from the consequences of the crisis or of the failure of one of its banks, especially one more than 15 times the size of that country's budget.

This was an international crisis with examples of the trading arms and subsidiaries of banks around the world contributing to their collapse in their home state - at which point the state had to step in at the expense of their citizens.