Scotland exits United Kingdom exits European Union

When I checked into my London hotel Monday night, on Aug. 25, I was soaking wet. I had come to London for a few business meetings, but more importantly, to watch my beloved Beşiktaş against Arsenal in a heartbreaking loss in their Champions League qualifier.

I turned on the TV in my room, after a much-needed hot shower, hoping to catch some British humour (no typo; when in Britain, you have to do as the Brits do). Instead, I read that a televised debate between former chancellor Alistair Darling and a salmon was coming up. “This is even weirder than Monty Python,” I thought.

I had, in fact, misread the screen without my glasses on. That salmon turned out to be Scotland’s first minister Alex Salmond. 709 years after William Wallace cried “freedom” as he was hanged, drawn and quartered, and 307 years after Scotland and England united to form the United Kingdom, the Scots will be voting on Sep. 18 on whether to go their separate ways.

Salmond, leader of the pro-independence Scottish National Party, had a debate with Darling, who is leading the pro-union camp, the night of Aug. 25. Although he was seen as having won that debate, according to a snap poll, as well as most political commentators, Scotland will probably prefer to stay in the Union.

Even if she doesn’t, the economy and financial markets of the United Kingdom of England and Northern Ireland (U.K.), as the remaining country will probably be called, should not be affected a great deal. For example, the division of public debt would have a minor impact on U.K. government bonds, simply because Scotland’s GDP is relatively small.

The impact of the separation on the pound would depend on the currency Scotland ended up using, which was incidentally an important issue in Monday night’s debate. In a recent research note, analysts at economics consultancy Capital Economics argued “sterling would be weaker against other major currencies in most scenarios, all else equal.”

The largest impact would be felt in U.K. equities: Many firms in energy and financials, the two largest sectors of the stock exchange, earn a significant share of their revenues from operations in Scotland. Besides, as Capital Economics noted, “new regulations and tax codes, as well as potentially dealing in a new currency, could also affect firms’ performance.”

However, Scottish independence would indirectly harm the economy the most by making it more likely that the U.K. would leave the European Union (EU): Political analysts have argued the loss of Scottish seats in the Parliament would leave euro-skeptic conservatives with a permanent majority.

If the U.K. were to leave the EU, the country’s financial sector would take a huge hit: The foreign banks in London who have based their main European subsidiaries there would not have automatic permission to operate in the EU anymore. The Financial Times recently reported that several American banks are already considering moving to Dublin. 

The supposedly small and trivial Scotland is not so small and trivial, after all.