In the financial crisis that came with the credit crunch and which led to the Great Recession, the two principal Scottish banks, the Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS), got into severe financial difficulties. The subsequent bailout by the UK government led to the government taking a stake overall of 82% in RBS and 43% of a new entity formed from the government encouraged merger of Lloyds bank and HBOS.
The scale of the assets of RBS and HBOS to Scottish GDP - which does not include oil - in 2008 is shown here and compared to Iceland and Ireland.
The story of Iceland and Ireland is well known. That of Scotland is less so because of Scotland's place in the wider UK monetary and fiscal union.
The subsequent GDP performance of Scotland compared to Ireland, Iceland and the UK is shown in the chart below.
Scotland broadly tracked the UK during the recession and in fact did a little better. Its performance compared to Iceland and Ireland, the former a completely independent country with its own currency and the latter a member of the Eurozone, speaks for itself. (Ireland does even worse on GNP but we don't have GNP data for Scotland, itself home to several multinationals.)
Is there any better example of the benefits of a true fiscal union?
Surely it depends on the performance of the fiscal union you are a member of!
Posted by: Dom Boyle | 29 February 2012 at 02:04 PM