From a small northwestern observatory…

If you haven’t been keeping up, about 4 million voters in Scotland will go to the polls tomorrow (Thursday, Sept 18) to decide one simple question, “Should Scotland be an independent country?”  If a majority vote no (the “unionist” position), then the question of Scotland’s independence should be put to rest for a long time to come.  If a simple majority votes “yes”, then Scotland and the United Kingdom will sever most of the ties that bind.  Scotland will apparently remain part of the British Commonwealth, but with the same relationship to London and the Crown that Australia, New Zealand, and Pakistan have. (Yes, folks, Elizabeth is the Queen of Pakistan.  Betcha didn’t know that.)  As of this writing (Wednesday afternoon here in the states), it is reported by the Washington Post that the independence movement is slightly ahead.

So what are the implications, other than for scotch and haggis?  As with any such major event, the unknowns outnumber the knowns, and the negatives may be overblown.  However, from the perspective of global finance and European stability, no one can discern a plus and the minuses seem to be having a field day.

One thing is obvious — Scotland is the heartland of liberalism in the U.K.  Independence means the remaining components of the U.K. (England, Northern Ireland, and Wales) will be governed by the conservatives for the foreseeable future.  More to the point, Scotland’s indigenous political parties range from left of center to further left of center.  Proponents of independence hope for a Scandinavian-style socialist state free of meddling from the Tories in the south.  Of course, exactly how Scotland plans to pay for this isn’t quite clear just yet.

Oh, did we mention oil?  Britain’s oil comes mainly from the North Sea.  However, those reserves are being pumped by firms with names like BRITISH Petroleum, not SCOTTISH Petroleum. However, actual ownership of the oil revenues is a matter which has yet to be discussed, much less decided. Indeed, the Institute for Fiscal Studies indicates that Scotland will actually have to cut social spending by about $9.9 Billion per year.

Then there’s the issue of currency.  Scotland benefits by using the pound, which is a globally accepted reserve currency.  London is adamant that the pound will not be shared with Scotland, any more than it is shared with any other commonwealth state. (Note that Australia, Canada, Lesotho, and the like may have the Queen on their currency, but have to print their own money.  As a result, many Scotland based businesses have threatened to de-camp to the south.  Will Royal Bank of Scotland become Royal Bank of…… East Northumberland?  (In fairness, Scotland could unofficially use the pound the same way Equator uses the U.S. dollar.)

How about nuclear weapons?  Currently, Scotland is where the U.K. keeps theirs.  Scotland has declared that they will be a nuclear-free zone.  Further, Scotland’s chances of joining NATO or the European Union appear slim.

All of this has some very real implications for one of the world’s anchor currencies and 6th largest economy ($2.8 T estimated 2014 GDP, according to CNN.com).  To suggest that this wouldn’t have implications for global real estate investment would be short sighted in the extreme.