Speaking of imminent downgrades (S&P are about to pull the plug on various eurozone countries apparently), what about Scotland? George Osborne put a fundamental question yesterday about the currency of an independent Scotland. Alex Salmond wants Scotland to join the European Union in its own right and that means joining the euro – and leaving the pound. Yet he has also talked in the past about remaining in a currency union of some sort with the rump UK. There is then, at the very least, a question mark over the First Minister's intentions, which is why the Chancellor tried to put him on the spot about his plans. Here's another question that I gather the Treasury is studying with great interest, which is part and parcel of the currency issue: what would the credit rating for an independent Scotland be? The reckoning down here is that Scotland would have to apply for a rating from the various agencies, which in turn would beg some interesting questions about its credibility as a sovereign. It will be new so it won't have a record to lean on. And as the FT details today, the independence negotiations would have to resolve a number of difficult money issues specifically Scotland's share of UK debt and whether it has to take over responsibility for HMG's £129bn contingent liabilities for RBS. Scotland would be relatively small and still wealthy, but its credit rating will be in part a factor of its political credibility: the agencies might conclude that the SNP's social democrat statist model is not a reliable long term bet, and mark the new sovereign down accordingly. Now that Mr Salmond has conceded a date for a referendum, we can expect more questions like this from the Treasury about the difficult detail that must be hammered out.
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