While recent opinion polls have swung slightly back toward the "no" camp, there remains a distinct possibility that Thursday's Scottish referendum will trigger a previously unthinkable breakup of Britain.
If this were to happen, the biggest risks for global businesses and investors do not lie in the economic problems created by Scotland’s choice of currency or the inevitable arguments about sharing North Sea oil revenue and the British national debt. These are crucial challenges for Scotland and have been much discussed in financial institutions and think tanks. But the crucial issue for the world economy and financial markets is about the resulting impact on the European Union -- and especially on Britain, which would remain the world’s sixth largest economy even if Scotland departs.
These political risks, which I discussed here last week, can be broken down into four questions: What would Scottish independence, if it happens, mean for British politics and economic management over the nine months, until the May 2015 general election? What effect would it have on the election results? How would all this turmoil affect Britain’s fraught relationship with Europe? Would Scottish independence act as an inspiration for secessionist movements in other European countries?
Starting with the issue of other European independence movements, the answer is obvious. If Scotland votes for independence, it would become extremely difficult for the Spanish government to continue denying a similar democratic right to the Catalans and Basques. Beyond that, Flemish separatists would intensify pressure in Belgium, and the Northern League in Italy could get a new lease on life.