Between 1870 and 1909, the British Government passed a number of Land Acts aimed at improving the lot of Irish tenant farmers. These included loans for tenants to purchase land which were funded by the Irish Land Commission, set up in 1881. Finance for the Commission was provided by the British Government. Following the establishment of the Irish Free State in 1922, repayments to the British government of £250,000 per annum, known as “land annuities”, were held in a Land Purchase Fund by the Irish Government. In 1933, the new Irish Government under Eamonn De Valera decided to stop repayments to Britain and instead diverted the repayments to local government projects.
This was effectively a debt default by the Irish Government. It was a major trigger in the “economic war” which then ensued between Britain and Ireland. The UK imposed a 20% import duty on all Irish agricultural products. This was a serious blow for Irish farming and for the Irish Free State since agriculture accounted for 90% of all Irish exports. Ireland responded by imposing tariffs on British exports. The effects were less important for the UK because of its more diversified export markets. Eventually, the dispute was settled by a one-off payment of £10m from Ireland to Britain in 1938.
Much of this history is summarised in “Irish Perceptions of the Great Depression” by Frank Barry of Trinity College (who is presenting at our September Conference) and Mary Daly of University College Dublin.
The lessons for Scotland? Debt default is clearly part of the UK’s historical experience. And some accommodation is likely to be eventually found. But there are risks of economic harm in such conflicts, especially to the smaller player. Because of their increased importance compared with the 1930s, it is likely that the focus of conflict would be capital flows rather than trade flows should debt default be implemented by an independent Scotland. More likely debt default would be used as a threat point in a complex bargain over debt, assets, fiscal and monetary regulation. However, to be useful in negotiations, threats have to be credible, which would imply convincing other players that the Scottish population is willing to accept the costs associated with default.