The Flaw in Osborne’s Pre-Emptive Strike

Wednesday, 26 February 2014 23:13

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By David Scheffer
 
Recently, misleading presumptions about what international law requires and seeming indifference to the necessity of negotiations following a possible pro-independence vote in Scotland on September 18th have framed the referendum debate.  Politicians can always craft arguments around faulty presumptions and then make a dire outcome sound eminently plausible.  But the fate of Scotland cannot be so easily disposed of by the Rt. Hon. George Osborne MP, the Chancellor the Exchequer.

Mr. Osborne’s February 13th speech in Edinburgh, in which he rejected any currency union between Scotland and the remainder of the United Kingdom (rUK) in the event Scotland’s voters approve a referendum for independence, was partly based upon the presumption that the rUK would be the “continuator” state of the existing United Kingdom.  This means that the United Kingdom would continue as essentially the country it currently is (shorn of Scottish territory), oblivious to any equitable claims by Scotland and dictating that Scotland start from scratch, or with a “clean slate,” to establish a resurrected independent nation.

The alternative to the antiquated continuator argument would be to view both Scotland and the rUK as two co-equal successor states (even though the rUK obviously is the larger of the two but still equal under the law) whose fates are tied to an amicably negotiated transition from one nation to two nations following a “yes” vote on the referendum.  International law recognizes that possibility of a negotiated outcome, one that can be easily embraced by both Holyrood and Westminster if their mutual intent is to facilitate a smooth transition rather than one seeking to sabotage it.

By laying down the gauntlet of rejecting any currency union with Scotland even before any referendum vote has taken place, and promising to ‘punish’ the Scottish people if they vote for independence by staging this pre-emptive strike at the heart of the economic relationship between Scotland and the rUK, Mr. Osborne overlooked an inconvenient truth.  His entire argument rests on the presumption that no workable currency union is plausibly negotiable between Scotland and the rUK in the aftermath of a “yes” vote for independence.  Mr. Osborne simply assumes nothing can or would be negotiated in terms of the character or functioning of a currency union that would work to the benefit of both the rUK and Scotland.
 
Yet there will be negotiations following a pro-independence vote on the referendum.  Otherwise, the rUK would have far too much to lose on other fronts that also require negotiations, talks London will be keen to take up but which the Scottish Government, if it follows Mr. Osborne’s punitive example, could refuse to negotiate about at all.  Scotland need not negotiate sharing the UK debt and simply let Westminster shoulder the entire estimated UK debt of £1.6 trillion in 2016/17. 

That is certainly the logic of the rUK being a continuator state.  Nothing in international law requires Scotland to pay one pound Sterling of UK debt if the rUK is deemed the continuator state.  Nonetheless, the Scottish Government already have offered to accept the liability of an estimated £100-£130 billion as an independent Scotland’s share of the overall UK debt, but only as the end point of post-referendum negotiations.
 
Dire warnings that Scotland’s credibility in the markets somehow would nosedive if this transfer of debt were to happen overlook two simple facts:  First, the UK Treasury already has agreed to cover all UK gilts in the event of independence, a point Osborne made in his speech.  So there is no default on the horizon to panic investors.  Second, Scotland would start fresh as a debt-free nation with the apparent agreement, indeed blessing, of the rUK. 

Perhaps Westminster really has decided to absorb completely the UK debt and thus not negotiate, but rUK taxpayers may wonder about the wisdom of such folly, particularly by a Conservative government.  Creditors and investors might view the Scottish position—one of willing to pay, in good faith, its fair share of the UK debt but reluctantly avoiding that financial burden if London insists on being a continuator state and rejecting negotiations—as a sign of financial strength and political acumen rather than weakness or naivety in Edinburgh.

David Scheffer is a law professor and director of the Center for International Human Rights at Northwestern University School of Law in Chicago.