I just read the latest depressing news about the Puerto Rican economy:
Puerto Rico’s economic activity has slumped to its lowest level in two decades, according to an index released by the commonwealth’s Government Development Bank (GDB), which also showed a sharp drop in electric power generation and cement sales.
The bank’s economic activity index fell 1.1 percent in August year-over-year, putting the headline index at the lowest level since 1994.
As I was reading it I realized that this is that the “No” campaign should have scared the Scottish people with at the recent vote on Scottish independence.
What Puerto Rico has is a monetary union, but not a full fiscal union, with the US. This is exactly what the Scottish independence proponents were favouring – continued monetary union with the UK, but complete fiscal sovereignty.
I am not sure that this makes sense (I have not been thinking too much about it…), but maybe the Scottish National Party should send a couple of observers to Puerto Rico to study the drawbacks to having a monetary union without full fiscal union before the next referendum.
PS There is a solution for Scotland that might solve this challenge. See here.