Friday, October 17, 2008

State size follow-up

I speculated last week that the way the financial crisis swamped Iceland and seems to show the need for deep pockets and deep capital reserves within a financial system ("seems"-- I have no view about whether that's an economically true lesson to draw) probably did some damage to small-nation secessionists such as Quebec or Scottish nationalists.

From yesterday's Washington Post:
The massive bailout of banks has been widely received as welcome and necessary across the United Kingdom. But it has not been lost on Scots that the largest shareholder in Scotland's two largest banks is now the British government.


Prime Minister Gordon Brown, a native Scot but an outspoken advocate of keeping Scotland in the U.K. fold, seemed to go out of his way Tuesday to tweak advocates of independence, especially the SNP.

Brown said the $65 billion bailout of the Royal Bank of Scotland and the bank formed by the merger of Lloyds TSB and the Halifax Bank of Scotland (HBOS) proved that the United Kingdom was "stronger together."

"We were able to act decisively with 37 billion pounds; that would not have been possible for a Scottish administration," said Brown, whose own political fortunes have been boosted by his handling of the crisis.

Others have pointed out that the bailout for eight major British banks -- including capital for banks and government loan guarantees -- is worth a total of almost $700 billion, which is about five times Scotland's annual gross domestic product.

Brown particularly seemed to taunt Alex Salmond, the SNP chief and head of the Scottish government, who has said he wants an independent Scotland to be part of an "arc of prosperity" stretching from Iceland to Ireland to Norway.

The SNP Web site speaks admiringly of Iceland as "the sixth most prosperous country in the world," words that were written before last week's massive banking and economic crash, which nearly bankrupted the country.

"We've seen the problems in Iceland; we've seen the problems in Ireland. We were able to put the whole strength of the United Kingdom's resources behind these two banks" in Scotland, Brown said, provoking an irritated response from Salmond. [...]