Scottish independence has been viewed as a low risk, low probability scenario for some time. Conventional wisdom hasn’t changed much in this regard despite recent polls which displayed a surge in position for independence. And because no one expected the vote to be close, there has not been a lot of preparation for this event. As a result, expect a corresponding surge in volatility if the vote on Thursday is even close.
There are broader issues here. A recent article from Foreign Affairs does a good job outlining Scottish sentiment. History shows that when people are asked, they almost always say yes to independence.
The Guardian looked at about 50 independence votes since 1846, and the vote for independence has averaged 83%, and came out on top in 88% of the votes. The median winning margin across the votes is 93 percentage points.
This is a union that has existed for over 300 years. A very complex sharing of assets and liabilities makes it very unclear how it would split. The linkages between Scottish and British financial institutions raises the risk for financial market instability. The fact that banking assets in Scotland would total 12x national GDP does not help matters.
Needless to say, the break-up of a 300-year union would not bode well for the rest of the Eurozone. We would expect nationalism to intensify across the EU with implications for risk formally knows as the European sovereign debt crisis.
On a somewhat related note, I learned tonight that the Scottish National Animal is actually the Unicorn, which isn’t even a real animal the last time I checked. Then again, bears are as hard to find as Nessie in this market, so what do I know. Probably best to just leave this debate to someone closer to home. The clip below from John Oliver is another must see. Is there anyone better on late night television today?