Independence for Scotland and a UK haggis famine

Furgeson Wellman by Brad Houle, CFA Executive Vice President

Haggis is a cuisine of Scotland characterized by Wikipedia as a savory pudding containing sheep's pluck (heart, liver and lungs) minced with onion, oatmeal, suet, spices and salt mixed with stock. It is traditionally encased in the animal's stomach and simmered for approximately three hours.

The often lampooned delicacy was featured in the 1993 film, “So I Married an Axe Murder,” staring Mike Meyers. In the comedy, Mike Meyers’ character of Scottish decent when as asked about his fondness for haggis responded, “I think it's repellent in every way. In fact, I think most Scottish cuisine is based on a dare.”

On September 18, a referendum for Scottish independence from the United Kingdom will be put to a vote. Recently, polls suggest that it will be a close outcome. This situation is creating uncertainty and we have seen the pound sterling weaken as a result. At stake is revenue from the oil-rich North Sea which has been greater than 2 percent of the UK's revenues down from over 6 percent of revenue in the 1980s. The North Sea fields are off the coast of Scotland and there is some question about which country would control the revenue after a split. There have been many comparisons of an independent Scotland and Norway based on the countries similar populations and potential energy wealth. While the North Sea fields are in a period of declining production, the revenue would be material to an independent Scotland.

If a vote for independence passes, the UK's fragile recovery from the financial crisis will be called into question. The UK economy has slowly been crawling out of the economic downturn of the Great Recession in a similar fashion to the U.S. A split-off of Scotland would potentially stall the recovery.

The pending referendum has also created uncertainty relative to business investments in that there is a question about the political landscape should a split occur. In a similar situation, Quebec had a referendum for independence in 1995 that failed. However, the uncertainty that it could occur again was at least partly responsible for an economic malaise in the province and reduced business investment.

In Spain, the region of Catalonia has a referendum in November of 2014 for possible secession.  The impact of this would be negative for Spain as its economy is in far worse shape than the U.S. and the UK.

While not a catastrophe in the making, an independent Scotland or Catalonia destabilizes what is a tenuous recovery in Europe. Most of Continental Europe is suffering from anemic growth, continued high unemployment, massive indebtedness and the specter of deflation.  Above all, the financial markets hate uncertainty and these types of changes are potentially disruptive to the European recovery.

Other Takeaways for the Week

  • Apple introduced the iPhone 6, Apple Watch and Apple Pay this week, which were generally well received. The Apple Pay secure transaction using an iPhone rather than a physical credit card has the potential to revolutionize how items are paid for at retailers.
  • The late Joan Rivers often used humor regarding her financial life as part of her act. One memorable quote that bears mentioning is, “People say that money is not the key to happiness, but I always figured if you have enough money, you can have a key made.”