In less than two weeks (Sept 18th) Scotland will vote to decide whether or not they will stay a part of the United Kingdom. This would be a huge political schism. For over 300 years England and Scotland have been united. The depth at which the political and economic ramifications would be from such a split can only be speculated about…Here are some speculations from yours truly.
In the middle of the last decade I studied politics and economics abroad in England. At the time, a major push in the House of Commons was to enact what was termed “devolution”. Devolution references the central government granting powers back to other lower regional governing bodies to make certain legislative decisions. For example, while studying in England I took a train to Edinburgh, Scotland where their new parliament had recently been constructed. This is part of the political devolution enacted in the United Kingdom to provide Scotland with greater governing autonomy.
Now, around ten years later we have a situation where the drive for political independence has grown from devolution to outright independence. A few months ago the thought of independence from the United Kingdom was more or less a funny detraction for news outlets. Now polls reflect what might become a reality. Recent polling shows the drive for independence, yes vote, to have the support of over 50% of decided voters. Months ago those supporting independence lagged those of support of unification by over +20%. This has been a dramatic momentum shift.
If independence does succeed, it could serve as a tipping point for the start of similar political movements throughout mainland of Europe. The political change in the U.K. and any subsequent changes in other European regions will create a certain degree of uncertainty within the market. I do not foresee the uncertainty as being seen as a positive, at least in the short term.
I would assume that if the trend stays in tact, as the election approaches the British Pound (currency) will weaken versus the dollar and euro. I’m sure currency traders are salivating based on the build-up to this event.
If Scotland does vote for independence, a short-term ruffle in European markets will likely be felt. I don’t suspect the impact to be overly large, but who knows what kind of turmoil could be cause from the political shift.