Just about inhaled my muesli this morning when I glanced at today’s Hootsmon front page to see that prophet-of-doom-who-should-know-better Bill Jamieson was querying whether Scotland could retain the present AAA credit rating the UK (and very few other countries) enjoy. Why do I say he should know better? Well, firstly, his speaker’s bio runs eloquently over his financial experience and astuteness:
“Bill Jamieson’s areas of expertise include corporate finance, mergers and acquisitions, capital markets, funds and structured finance. He has considerable experience in cross-border corporate and finance transactions, and has advised multi-national, public and private companies, financial institutions, governments and multi-lateral institutions during 8 years in the City of London and 14 years in Asia.”
Secondly, his track record of doom and gloom outbursts is both depressing and inaccurate. Over a year ago, he was prophesying that Ireland was in such dire straits they would run out of cash by last summer. As of writing, Eire’s still afloat. Its BBB rating isn’t the best but it’s a sight better than most countries, especially as they have little beyond a young, dynamic workforce as resources. His most recent analysis is based on a ‘bond vigilante’ at M&G Group observing that most small economies do not merit a AAA rating. But it stands up badly under deconstruction.
First of all, the ratings themselves are hardly standards of objective science. They are an amalgam of what pointy-heads at a handful of key rating agencies think. Standard & Poor, Fitch, Moody’s and Dagong set the standard between them, even if they don’t all agree on the scale to use, let alone the rating to assign. Secondly, the ratings given to Lehman Bros and similar financial Icaruses were sky-high when the junk bond/mortgage boom that brought the financial world low was at it height. Hardly a resounding endorsement of their objectivity, their analysis or their foresight.
Thirdly, the article presumes that the UK will continue to merit its rare AAA rating as it is. With two tranches of ‘quantitive easing’ (used to be calling printing money with nothing to back it—but that sounds bad) behind us and the Chancellor admitting in his autumn statement that he needs to borrow an extra £111bn over the next five years, the UK is courting the same situation as the once-mighty US, which has recently seen its rating fall to AA+ for the first time ever.
Fourthly, he cites Iceland and Ireland that Bill and Jim Murphy have both enjoyed kicking around since both fell from AAA fiscal grace to BBB- and BBB+ respectively. Yet those ratings still qualify as “investment grade” for bonds. Neither country is as large as Scotland, nor boasts a fraction of our resources. He cites that agencies “would look at Scotland’s poor relative growth”. But Scotland is the only area of the UK outside London to have growth between 2007 and 2010.
In fact, if we look at Scotland as if it were an independent, the countries closest to it in terms of size, economy and geography are our Scandinavian neighbours: Norway (AAA); Denmark (AAA); Sweden (AAA); Finland (AAA). Not bad company to keep, especially if Scotland were to join the Nordic Union and become an active member of their prosperous little club.
And, looking at Scotland—even taking our share of the unprecedented defecit that Brown and Osborne have run up for us—the defecit-to-GDP ratio of 9% for the UK almost halves to 5%—if Scotland were on its own. We are one of the few non-Third-World major oil producers. If the agencies can rate repressed Saudi Arabia at AA- and tinder-box Abu Dhabi or Kuwait at AA, then boringly stable, energy-rich Scotland ought to be rated along with resource-poor but also boringly stable Austria and Switzerland at AAA.
And, if small countries have little hope, how come Edinburgh-sized Singapore (of which Mr Jamieson knows much) and Argyll-sized Luxembourg both deserve AAA rating?
Only towards the end does the article admit that several factors favour independence, including budget defecit and the positive effects of controlling 90% of North Sea oil revenues. While I am delighted that the debate on the pros and cons of independence is growing, badly researched articles framed as scare stories to suit the policies that Mr Jamieson favours does little to advance the debate and, frankly, undermines the otherwise important contributions that someone of his stature ought to be articulating for the unionist side.
When his source says “if I’m rating Scotland as a standalone country, I worry what will happen going forwards”, it may sound reasonable. But it is partisan. In the last four years, Scots have become over 10% poorer by remaining part of Britain and there is every indication that the worst is not over. Why are such articles not asking the real question: whether things might not be even worse if Scotland stays part of basket-case Britain?