An independent Scotland "would fail within a year" if it kept the pound informally and refused to take on its share of the national debt, according to an influential think-tank.
The National Institute for Economic and Social Research warned that such an approach would lead to "unprecedented" austerity in a newly-independent Scotland. Meanwhile, any attempt to effectively default would see Scotland get a "junk" credit rating from international investors, who would then push up borrowing premiums or bar Scotland from capital markets.
The think-tank also indicated that it either risked isolating Scotland in Europe or setting off a "domino effect" of other European nations defaulting on their debts.
The think-tank said: "If Sterlingisation is combined [with] repudiating Scotland’s fair share of UK debt, we expect this regime would fail within a year."
This comes as Mark Wilson, the head of insurance giant Aviva, warned that the cost of borrowing would "almost certainly go up to cover the increased risk of being a smaller independent country".
The three main Westminster parties have ruled out sharing the pound in a formal currency union arrangement, but pro-independence campaigners have insisted that an independent Scotland would still use it informally, which has sparked warnings that it would need to make drastic cuts or tax rises to build up sufficient currency reserves.
Meanwhile, Alex Salmond has reportedly laughed off questions of how the UK government would react if a newly independent Scotland refused to shoulder its share of the national debt, saying: “What are they going to do – invade?”
He has argued that Scotland cannot default on a debt it is not legally liable for and would have no moral obligation to pay without a share of Bank of England assets.
In the NIESR's report, titled "Is This Plan B?", economists Angus Armstrong and Monique Ebell warn that Scotland would be forced within a year to introduce its own currency if it tried to keep the pound while refusing to take on its share of the debt.
"Leaving aside that taxpayers in the rest of the UK would each face an additional £5,900 in debt, we believe that this ‘opportunistic’ behaviour would be seen as a default," they wrote.
"As a result Scotland would be outside of the EU and capital markets leading to unprecedented degree of austerity and the eventual a collapse in the currency regime."
"We would expect the currency arrangement to fail and Scotland would be forced to introduce its own new currency within one year."
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NIESR also warned that such a path "might jeopardize Scotland’s entry into international institutions, including the European Union."
The authors wrote: "If the EU were to admit a country – any country – which had just seceded and walked away from its debts, it would be creating an extraordinary precedent with potentially far reaching consequences."
"Many EU countries are heavily indebted, and many regions in the EU have long harboured separatist sentiment."
They suggested that Scotland's successful re-entry into the European Union in such circumstances could encourage Greece to "abandon its efforts at austerity and default on (more of) its debts, without fear of any (broadly defined) sanctions."
"This might in turn set off a ‘domino effect’ of defaults from other southern European countries. While the secessionist domino effect from Catalan or Basque independence might be a more medium term risk, as independence movements take time, the risk of such a Greek domino effect might be more immediate."
In response to the NIESR report, Scotland's finance secretary John Swinney said: "There will be a formal currency union, as a UK Government minister admitted, because it's in the overwhelming financial interest of the rest of the UK as well as an independent Scotland.
"If there was no currency union, Scotland would be debt-free and the rest of the UK would have to shoulder £120 billion extra debt that would be lifted from Scotland."