EUROSCOPE. Scotland’s tryst with destiny

On October 27 1995, around 60,000 Canadians from across the country made their way to Place du Canada in downtown Montreal to call for Quebecois to vote “No” to a sovereign Quebec. Three days later Quebec residents voted by a wafer thin majority to remain in Canada: 50.6 per cent to 49.4 per cent.

Organisers of a rally that took place in Trafalgar Square, London, this week, will be hoping that the gathering of several thousands from across the country (certainly no way close to the numbers who gathered in Montreal) will spur those crucial undecided Scots to vote to remain in the United Kingdom on Thursday.

From 28 per cent in late September 2012, the “Yes” to independence campaign has gained ground rapidly — some, including an early September poll for the Sunday Times , have even put them slightly ahead of the pro-union Better Together campaign. Three of the most recent surveys from the weekend put the “No” campaign ahead, but only just, while one for the Sunday Telegraph gives the Yes campaign an eight point lead (54 per cent to 46).

Emotions abound in the discussion — evident in everything from the heated televised political debates that took place between the leaders of the Yes and No campaigns, to the heckling of politicians, to protests outside the offices of the BBC ’s Glasgow offices to protest supposed bias in favour of the “Yes” campaign. However, the factor likely to dominate — particularly in the mind of the still undecided — is the economy, and whether the Yes campaign has managed to do a good enough job making the economic and business case for change.

The economic case for an independent Scotland has, by and large, been drowned out by the huge attention given to its pitfalls, as viewed by pro-unionists.

Those arguments have largely hinged around the uncertainties that would be created for a new state — much of whose architecture and substance would have to be thrashed out with politicians in Westminster in the event of a yes vote. What currency an independent Scotland would use has been at the centre of the debate. Entering a currency union with the rest of the UK, is something Westminster has repeatedly rejected, while the option of using the pound or pegging to it would leave it bound by interest rate and policy decisions made in London.

Other options such as joining the euro, or creating a currency of its own also leave much room for uncertainty. In any case, pro-unionists argue, it would be unlikely that the Bank of England would be willing to bailout Scottish banks in the event of a future banking crisis.

The economic and regulatory uncertainty that would be inevitable around the creation of a new currency has also triggered numerous warnings about a loss of business from across sectors. The Royal Bank of Scotland and Lloyds TSB have both warned that they would shift headquarters south of the border (though operations would largely remain the same), while members of Scotland’s shipbuilding industry have raised alarm bells about what would happen to the sector, given projections of lower defence spending and naval procurement in an independent state.

Scotland’s ability to live up to the welfare pledges made by many of the parties and groups supporting independence — including the SNP and the Radical Independence Campaign — have also been questioned by those who question its capacity to create a Nordic-style oil economy. Sir Ian Wood, a Scottish oil tycoon, has warned that the SNP’s claims of oil reserves amounting to 24 billion barrels are overestimates and the true figure is closer to 15 to 16.6 billion barrels; by 2050 production would be down to around 250,000 barrels a day.

The conclusion of the pro-unionists is stark. In a widely circulated report published last week, a Deutsche Bank economist concluded that a vote for independence would be a “political and economic mistake as large as Winston Churchill’s decision in 1925 to return the pound to the Gold Standard or the failure of the Federal Reserve to provide sufficient liquidity to the US banking system, which we now know brought on the Great Depression in the US.”

Yet, despite the steady stream of negativity particularly about the economic potential of an independent Scotland, the Yes campaign has continued to gain momentum — and with good reason.

The economic case against it is far from made. Just as there is no assurance that a Scotland would be able to enter a currency union with the rest of the United Kingdom, there is no certainty that this couldn’t happen following negotiations with Westminster. Many within the Yes campaign question whether, at the end of the day, the Bank of England would allow a bank (albeit a Scottish one) using its currency to fail, with major repercussions for the UK too.

The country is also far less dependent on oil revenues than many suggest: oil accounts for some 10 per cent of tax revenues against over a quarter for oil states, with industries from food and beverage to manufacturing and financial services accounting for a sizable chunk of revenues.

According to the latest figures from the Scottish government, exports (including those to the rest of the UK) amounted to just under £74 billion in 2012, excluding oil and gas revenues. Besides, claims of dwindling reserves seem to go against the huge investment made in recent years by oil companies, including BP, and BG.

But perhaps the biggest question the No campaign has failed to tackle are the possibilities for investment and growth under an independent Scotland. In the late 1970s the British Labour government infamously deliberated over but failed to introduce an oil fund — something that has proved immensely beneficial to other European oil producers such as Norway, which has the world’s largest sovereign wealth fund, with over $600 billion in assets.

Among the proposals of the SNP is the introduction of such a fund — once the initial fiscal challenges have been met — with the potential to invest in domestic infrastructure and growth, as well as make overseas investments.

Scotland, by contrast, has so far seen limited benefits of the profits reaped from North Sea oil, being part of a union where much investment into infrastructure has been frittered away into London and the South East of England. (It is noteworthy that a number of business people including Nat Puri, an Indian-origin businessman, are backing independence in the hope it will lead to a re-balancing of the UK economy away from London).

Writing in the Scotsman newspaper earlier this week, Nobel laureate Joseph Stiglitz warned against the “fear-mongering” and “arcane” monetary issues that seems to have taken hold of the debate and urged Scots to focus on the meatier and more crucial question of whether an independent Scotland would be better able to deliver the increasingly different aspirations Scotland had to the rest of the UK, such as its continued commitment to free education (domestic students do not pay tuition fees in Scotland, unlike south of the border), a less restrictive immigration policy, and a less unforgiving welfare system.

Whether the potential for such change, or the uncertainty surrounding those arcane issues, dominate will become apparent in the next 48 hours.