Independent Scotland open to ‘Cyprus risks’

LONDON - Reuters

An independent Scotland would have a vastly oversized financial sector that would leave it vulnerable to a Greek Cyprus-style banking crisis, Britain’s finance ministry says.

Before a referendum due in September 2014 on whether Scotland should split from the United Kingdom, the British government is analyzing the impact of independence on Scotland, which has a population of about 5 million.

A report from the finance ministry - or Treasury - says that without the British government’s regulatory framework, Scotland would be left vulnerable by having a banking sector that dwarfs its economy, driving businesses out of the country. “An independent Scotland would have an exceptionally large banking sector compared to the size of its economy - with banking assets of more than 1250 percent of Scottish GDP - making it more vulnerable to financial shocks and the volatility of the sector,” said a Treasury statement.

The Scottish National Party (SNP), which controls Scotland’s devolved government and is behind the independence campaign, dismissed the report and said it would produce its own study on Tuesday highlighting the benefits of a split from Britain

“An independent Scotland will be an economic success story, as we will outline this coming week, and the tall tales from the Treasury can’t hide that reality,” said Scottish Finance Secretary John Swinney of the SNP.

At 12-1/2 times the size of Scotland’s economic output, Scotland’s banking sector would be even more out of proportion to the economy than that of Greek Cyprus, which ground to a standstill earlier this year as the cost of recapitalizing its banks, which had assets worth nine times its GDP, spiraled.