Goldman Sachs Is Freaking Out About Scottish Independence

From The Telegraph:
Scottish 'Yes' vote could cause eurozone-style currency crisis, Goldman Sachs warns
Economist at bank warns of 'severe consequences' of vote in favour of independence

 

 The gap between the 'Yes' and 'No' camp has narrowed recently

Goldman Sachs has warned that the UK could fall into a eurozone-style crisis if Scotland votes for independence later this month.

In some of the most bleak predictions economists have made about independence, the Wall Street bank said a "Yes" vote on September 18, while looking unlikely, "could have severe consequences" for both the Scottish economy and the UK overall.

Goldman warned that public services would have to be cut if Scotland goes it alone, and that the country would face much higher borrowing costs.

But the most worrying consequence, the bank predicted, would be that uncertainty over a currency union would cause a run on sterling and a capital flight with echoes of the eurozone crisis. 

"The most important specific risk, in our view, is that the uncertainty over whether an independent Scotland would be able to retain sterling as its currency could result in an EMU-style currency crisis occurring within the UK," wrote Kevin Daly, senior economist at Goldman.

He said that despite Holyrood claiming the UK would be forced into a monetary union with an independent Scotland, Westminsters's threat to leave an independent Scotland on its own is "credible".

"One of the main lessons from the euro area crisis is that a reasonably high degree of fiscal and/or financial integration is necessary, as a means of effective risk sharing, for a monetary union to work," Mr Daly wrote....MORE

HT: Marginal Revolution