THE euro may emerge as a more attractive currency than the pound for an independent Scotland if another referendum on leaving the UK is triggered by Brexit, a leading economist has predicted.
John McLaren, in a new analysis of the fiscal position facing Scotland ahead of a likely second independence referendum, also said that the country's financial status has worsened since 2014 and called on politicians to be more honest about tough decisions they would be forced into.
As a result of the tumbling oil price, which has seen offshore revenues plummet from £10 billion in 2011 to zero in the last financial year, he said Scotland would continue to face a significant deficit of over £6 billion at the end of the decade even if the most optimistic Scottish Government projections are realised.
He also warned that Scotland's status as a relatively rich country by European standards would be likely to mean it would become a net contributor to the EU, and that substantial tax rises or spending cuts to balance the books would be needed.
However, he said that it would be feasible to meet the immediate challenges without forcing the public into significant lifestyle changes and that, over time, "it may be possible for a new Scotland, similar in its tax and spend structure to many other existing OECD countries, to emerge."
Mr McLaren said: "This analysis highlights the changes in economic circumstances since the first Scottish independence referendum. In particular, the seeming demise of the North Sea as a source of tax revenue and a Brexit vote in the UK that puts the validity of a post-independence sterling zone in doubt.
"However, the pull of these two apparent negatives to the success of a Yes vote in another referendum may not be enough to overcome the push of the UK’s decision to leave the EU and the prospect of a right of centre UK government for some time to come.
"Furthermore, any new offer of independence will be put to the electorate after a brief taste, sweet or bitter, of what leaving the EU is like and this may well have a significant impact on the outcome."
Mr McLaren suggested that a new whisky tax, proposed by left-wing alliance Rise at the last Holyrood election, would be a "not outlandish" option for a newly independent Scotland, potentially raising £1 billion, while income tax rises and adopting an "unarmed" approach to defence to avoid taking the axe to public services would also be on the table.
On the currency, which many saw as a decisive issue in 2014, the euro or an independent Scottish pound may emerge as a more realistic option than maintaining sterling, the analysis claims.
The economist said that arguments for joining the euro would be stronger ahead of a new referendum, and that despite difficulties, "it may turn out to be a more reliable and stable currency than sterling".
The value of the pound has dropped significantly since last week's EU referendum with ongoing uncertainty predicted, leading Mr McLaren to claim the euro would be easier to sell to the public due to the ease of transition and the benefits of being part of such a large currency zone.
Nicola Sturgeon has said a new referendum on independence, within the two year period the UK has to leave the EU after formally requesting to do so, is "highly likely".
The First Minister has dismissed suggestions an independent Scotland could join the euro, despite appearing to flirt with the idea in the days before the EU referendum. In a statement to Holyrood yesterday, she said the country may now face risk and uncertainty greater than at "any time in the post-war period".
However, Scottish Conservative MSP Alex Johnstone said Mr McLaren's analysis showed Scotland was best served by remaining in the UK, regardless of its EU status.
He added: "The SNP cannot be allowed to use this as an excuse to reignite those old arguments. Its figures were found to be wrong and misleading in 2014, and people will be sceptical about trusting them again."
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