Paola Subacchi
Research Director, International Economics
The British islands are becoming the ideological lab for thinking, and re-thinking, the concept of a nation state and its role in a highly integrated and global market place.
The white paper guide to Scottish independence launched by First Minister Alex Salmond on 26 November 2013 in Glasgow. Photo by Jeremy Sutton-Hibbert/Getty Images.The white paper guide to Scottish independence launched by First Minister Alex Salmond on 26 November 2013 in Glasgow. Photo by Jeremy Sutton-Hibbert/Getty Images.

The release of the Scottish government’s White paper at the end of November raised the temperature of the debate on Scotland’s independence. The referendum will be held in September 2014 and could lead to independence from the United Kingdom - although the chances of this are low.

The consultation on Scottish independence comes at a time when Britons are questioning their own relationship with the European Union and playing with the idea of eventually severing the link with Brussels.

A referendum on EU membership in 2017 has gained enough traction, and it cannot be dismissed as the latest concoction of a small bunch of Eurosceptics.

It would be wrong to ignore this debate as too focused on narrow interests and too parochial. In both cases the debate has become mainstream, reflective of a large chunk of public opinion in the United Kingdom.

The British islands are becoming the ideological lab for thinking, and re-thinking, the concept of a nation state and its role in a highly integrated and global market place. The new variable geometry of sovereignty as implicit in the Scottish claim to independence has profound implications for other countries as well.

How would Scotland’s ‘independence à la carte’ affect the claim to self-determination of minorities in large nation-states like, for example, China?

And how would Scotland’s claim to economic independence within the supranational framework provided by the European Union affect other regions and communities in Europe?

Prosperity and the preserve of domestic interests increasingly define the debate about national sovereignty.

Scotland’s right to self-determination could be narrowed down to a claim for prosperity, and is based on the yet undemonstrated assumption that a small European country can enjoy a significant degree of economic independence in the global marketplace and therefore function without being part of a larger sovereign state.

With just over five million people, Scotland has nine per cent of the United Kingdom’s population, and eight per cent of total output - but with the same income per head of slightly more than £20,000.

For proponents of the Scottish referendum, an independent Scotland would have better opportunities to compete, and thus be better off, without the drag of being part of and being ruled by the central government in London.

For instance, it could generate up to £57 billion in tax revenues by 2018 from the production of oil and gas in Scottish waters. The simplification of the tax system, as described in the White paper, could reduce tax avoidance with a net gain of £250 million per year.

And the public debt to GDP could go down to 61 per cent from the current 73.5 per cent. But Scotland is deeply intertwined with the rest of the United Kingdom - more than 60 per cent of Scotland’s trade is intra-UK - and so the Scottish government would have to forge stronger links with Europe while maintaining good trade relations with the United Kingdom.

Brussels and London are both, in opposite ways, critical of the narrative of Scottish independence. An independent Scotland would be an integral part of the supranational framework provided by the EU, and have access to Europe’s single market.

At the same time, an independent Scotland would maintain the link with London, having the queen as head of state and keeping the pound sterling as its currency.

Replacing the Westphalian system

If this seems a contradiction that defeats the intrinsic concept of independence, it surely does not bother those in favour of the referendum. There is indeed no plan B, and the fact that London may not be amenable to forging a currency union with an independent Scotland does not concern the Scottish government.

The way economic integration - or globalization - has developed in the past twenty years and the huge policy experimentation in building a single market and a single currency in Europe have fundamentally transformed the concept of national sovereignty.

If monetary sovereignty as the ability to issue its own currency has been one of the defining features of the Westphalian state system - 'great nations have great currencies' - this is no longer the case. With all its faults, the euro has shown the trade-off between monetary sovereignty and macroeconomic stability (at least in principle).

For the Scots - and presumably the Catalans, the Flemish, the Bavarians - issuing their currency no longer defines national identity and so sovereignty, nor does the loss of monetary independence seem to impinge on the country’s competitiveness.

Within the context of the global market place and the variable geometry of regional arrangements, sovereignty has become a ‘multi-tier’ concept both vertically - defined by the different levels of government, from local to regional to global - and horizontally - delineated through, for example, the membership of multilateral organizations and forums such as the G20.

Notwithstanding the ongoing economic and financial crisis, the EU integration model remains particularly attractive for small countries even if this comes at the price of some concessions on sovereignty.

Global markets have come to replace the Westphalian system of territorial demarcation in today’s world order.

The trade-off between limited sovereignty in areas such as monetary policy and access to the global marketplace is worth pursuing if this leads to autonomy in fiscal and tax policies. But, as the euro crisis has shown, this may need reconsidering.

How the forces of European integration and national independence play out in the United Kingdom in the future is worth watching.

This article was originally published by EU Observer