Scotland could end up going the way of Greece if it voted to leave the UK in order to remain a member of the European Union as an independent country, a new report has argued.
The Centre for Policy Studies (CPS) has warned Nicola Sturgeon the economic case for independence is even weaker than it was in 2014, and cited the case of Greece as an example of how small countries with shaky public finances can suffer inside the EU and the Eurozone.
"Scottish independence would entail significant economic risk," the think tank said. It pointed out estimates from the Institute for Fiscal Studies (IFS) which suggest an independent Scotland would have a budget deficit of 9.4 per cent of GDP this year, compared to 2.9 per cent for the entire UK.
The IFS calculations, made before the referendum and thus before George Osborne ditched his budget surplus target, also forecast a deficit of 6.2 per cent by the end of the decade, while the entire UK was on course to have balanced the books.
The CPS acknowledged, however, that "Nicola Sturgeon’s push for independence does have some logic from a democratic standpoint. Scotland is being taken out of the EU despite voting to remain within the institution.
Since the EU referendum, Sturgeon has made protecting Scotland's position in the EU her top priority. In the hours after the vote she said the option of a second independence referendum was firmly on the table and quickly arranged a series of meetings with top EU officials to make her case. She was rebuffed, however, by French and Spanish politicians, which do not want to set a precedent for breakaway states to slot into the EU with ease.
The CPS also said if joining the euro was a requirement of entering the EU as an independent state, Scotland's finances could fare even worse.
"Euro membership would expose Scotland to the risk of more asymmetric economic shocks, and the European Central Bank (ECB) would be less capable to respond to shocks compared to the Bank of England.
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"There is a precedent for a small, romantic country, surrounded by hundreds of islands, perched on the extremity of Europe, seeking membership of the Euro: Greece."
The CPS added: "Of course, it would be impertinent to suggest that Scotland’s circumstances are directly equivalent to those of Greece, but it does undoubtedly serve as a useful reminder that countries with challenging public finances can end up suffering inside the euro."
A spokesperson for the SNP said: "The reality is that Scotland is the wealthiest part of the UK per head outside London and south east England.
"The biggest risk to Scotland’s economic stability and security – without any question – is the threat to take us out of the EU and a single market of almost 500 million people."