Scotland politics

Scottish independence: Deutsche Bank calls for 'financially viable' Scotland

Deutsche Bank building in Frankfurt Image copyright Reuters
Image caption Deutsche Bank, based in Frankfurt, has offices in Edinburgh, Glasgow and London

A leading investment back has called for governments to work to ensure a "financially viable" Scotland if voters back independence.

Deutsche Bank has produced analysis of the financial implications of independence, ahead of September's referendum.

The report speculated there could be "capital flight" to the remaining UK.

But it said that successful independence negotiations would be "in the interests of both countries".

The report, written by Deutsche Bank's chief UK economist George Buckley, examined possible implications for both Scotland and rest of the UK of a "Yes" vote in the referendum.

"If Scotland votes 'Yes' in September there will be a substantial amount of negotiations which need to be conducted, the most important financially being the choice of monetary regime, allocation of oil revenues and apportionment of public debt," the report concluded.

"With Scotland operating a highly open economy with the rest of the UK being its most important trading partner, it will be in the interests of both countries to ensure that these negotiations leave the newly independent Scotland in a financially viable position."

'Capital flight'

The bank concluded that "capital flight" - the exit of businesses or investment from Scotland - was a risk, referring to a recent survey for the Scottish Chambers of Commerce which indicated that a total of 18% of businesses surveyed were at least considering leaving Scotland following a "Yes" vote.

Deutsche Bank's report said the survey "found 8% of firms have definite plans to move out of Scotland in the aftermath of a 'Yes' vote, and 10% more said they would consider such a move".

The report argued that many businesses would back a currency union with the rest of the UK, allowing Scotland to continue to use the pound with the backing of the Bank of England.

The Scottish government has argued that a currency union would be in the interests of both an independence Scotland and the rest of the UK.

However, UK Chancellor George Osborne has said a vote for independence would mean Scotland walking away from the pound, a position backed by Labour and the Liberal Democrats.

The report considered other currency options including "sterlingisation" in which Scotland continued to use the pound without a formal agreement with the rest of the UK or the Bank of England as lender of last resort.

"It is in the economic interests of the continuing UK as well as Scotland to select a monetary arrangement which as far as possible minimises disruption to the financial markets and cross-border trade," Mr Buckley wrote.

"If a sterling currency union is not an option for the continuing UK and euro membership is a distant possibility, then it would fall to either a new currency (possibly initially fixed in value to sterling to minimise uncertainty) or sterlingisation to fill the gap. The latter may well be adopted as a precursor to - or even alongside - the former."

Monetary union

The report added: "The risk of capital flight following independence (or even following a 'Yes' vote) may make a formal currency union difficult to sustain, just as was the case with the Czech/Slovak monetary union in the early 1990s (which lasted just six weeks before breaking down).

"The failure of Scotland to assume its fair share of the national debt along with the risk of a depreciation in a new Scottish currency could also trigger capital flight by worried savers ahead of any decisions being made."

Scotland's First Minister Alex Salmond has called the UK government's position "bluff and bluster" and argued that Scotland could walk away from its share of the UK debt if there is no currency union.

"If you claim ownership of all the assets of the United Kingdom, like the Bank of England and the currency, then you end up with all the liabilities - that includes £100bn which would otherwise be Scotland's share of the national debt," he told the BBC in March.

"That's why it is bluff and bluster and that's why people will see through it."

Responding to the report, Scottish Conservative finance spokesman Gavin Brown said: "This is yet another highly respected international organisation raising some very serious questions for the SNP's case for independence.

"The Scottish government cannot resort to its usual tactic of accusing anyone who questions its plans as scaremongering or lacking impartiality."

He added: "People and businesses will also want to hear answers from the Scottish government on the risk of capital flight should Scotland breakaway from the rest of the UK."

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