Scotland: Down to the Wire

Published on September 16, 2014

With less than 48 hours to go before balloting opens at 7 a.m. on September 18 for a historic vote on Scotland’s independence from the United Kingdom, all the latest polls show a race that is far too close to call, leaving an enormous cloud of uncertainty over what will be a momentous decision for history, politics, and markets.

*** While some analysts may find solace in the fact that the latest broad poll of polls show a narrow three point margin lead for the pro Union “NO” vote on independence, the bad news is that the combined forces of the Labour Party, British and Scottish Industry, the Prime Minister, yes, the media, and even now quietly the Queen, have until now barely budged the needle from the vote essentially being a toss-up. ***

*** We are extremely loathe to even attempt a handicap of such a high stake, high risk vote. But to share what we have picked up at the last minute on the margins, while the pro-independence YES vote is clearly highly energized for an extremely strong turnout, a critical factor in such a close election, we understand a majority of the surprisingly large number of mail-in “postal votes” that have come in are suspected to lean towards the status quo, NO vote. ***

*** Furthermore, the undecided votes, which are probably at this point closer to 4-5% than the official 10-12% or so, appear to be gravitating towards the more cautious, stay the course, NO. ***

Not Winning Hearts and Minds

After a campaign that has up to now clinically focused on the costs and risks of independence and the economic benefits of union, Tory Prime Minster David Cameron and former Labour PM Gordon Brown (who has in all effect taken the mantle of the “Better Together” leadership away from the lackluster Alastair Darling) have been making last ditch efforts to capture the hearts and minds of Scottish voters in what the press has been quick to cover as new, emotional, even “impassioned” pleas for union.

But we have been struck since arriving in the UK by how effectively Scottish Nationalist Party leader Alex Salmond has been able to neutralize all these efforts as too little, and too late – nothing more than last minute threats and promises from London made from a position of desperation.

To a significant degree, his case has been relatively easy to make, as the Better Together campaign does reek of a last ditch and desperate effort to salvage what has been an historically disastrous campaign of threats and promises to a Scottish electorate, marked often in ad campaigns and a condescending tone from London that would make any third party observer cringe. That campaign today culminated with the impassioned plea from Brown. But one could not help but wince at the visuals of a line of supporters behind him brandishing huge red banners with the word “NO” on them.

And still further working in Salmond’s favor has been the all-out effort to bring industry out on the side of union, only to be badly bungled by what appears to be clear government interference in leaking the RBS warning that headquarters would be moved to London in the event of a YES vote.

Indeed, even if the NO campaign does manage to squeak out a win at this point, after an initial gasp of relief, there will be no question that the whole crisis has been aggravated by Cameron’s clearly colossal series of strategic and tactical blunders: letting it be decided by a 50% simple majority; lowering the voting age to 16; failing to push for or include a “mini-devolution” third option on the ballot; allowing the separatists to phrase the question on independence in such a way as to leave the union side running for a negative “NO” vote, and; allowing the vote in the first place.

What’s more, over these final days of campaigning, while Salmond may not have been able to strengthen his case for the independence dream versus the economics arguments, he has been able to largely neutralize the last minute push from Better Together as threats and hollow promises by a group that has, for its part and for all of Cameron’s rhetoric, failed to capture any of the “vision” element of a union versus independence.

And as the undecided do not trust either side, that lack of trust seems to favor a vote for the status quo. In essence, the failure of either side to change the debate in the last few days appears may be favoring the NO camp. Indeed, for all the efforts it is surprising at how little the “language” of the debate has moved – none at all really – from a debate between the vision against numbers.

The Morning After

A YES vote would clearly have dramatic consequences for sterling, stocks, and UK credit markets.

But even while a NO is clearly and obviously far more positive for markets and will rally sterling sharply, victory will come at a cost to the UK and to Prime Minister Cameron.

The promises on the devolution of taxation and spending powers, including remittances from London to Scotland on NHS health care costs, that have been made by Labour, the Liberal Democrats, and Tories all reek of a “deal with the devil” – a deal in allowing for, or more accurately, promising three alternative devolution versions all of which allow the transfer of varying yet still significant taxation and spending power to Holyrood while retaining the guarantee of Westminster.

Tory backbenchers are already livid at Cameron. And it is not lost to the rest of the British that Scotland already has the highest per capita remittance for health care in the UK. So even in case of a victory for the NO that we now suspect will be Thursday’s outcome, the battle for the union will have been won but the political games will have just begun.

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