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Britain warns Scotland: Forget the pound if you break away

Sample polymer five and ten GB pound banknotes are seen on display at the Bank of England in London September 10, 2013. REUTERS/Chris Ratcli
Sample polymer five and ten GB pound banknotes are seen on display at the Bank of England in London September 10, 2013. REUTERS/Chris Ratcli

By Belinda Goldsmith

EDINBURGH (Reuters) - Britain will warn Scotland on Thursday it can't keep the pound if it votes for independence, its boldest attempt yet to scuttle a nationalist bid to break the 307-year-old union with England.

In the latest salvo of a choreographed campaign to keep Scotland in the UK, George Osborne will seek to play on Scottish fears of losing the pound to argue that secession would put Scots' prosperity at risk, pushing them into a tempest of volatility.

"The pound is one of the oldest and most successful currencies in the world," Osborne, Britain's finance minister and Prime Minister David Cameron's closest ally, will say in a speech in Edinburgh, according to his office.

"The UK economy is growing faster than any other advanced economy in Europe. And within the UK, Scotland is growing faster than the rest," Osborne will say in the speech which is due to begin at 0900 GMT.

Two sources familiar with the matter said Osborne will tell Scots they cannot keep the pound if they vote for independence in the September 18 referendum which will be open to about 4 million residents of Scotland over the age of 16.

In the speech, entitled "Scotland to keep the pound and the economic security that it brings", Osborne will echo some of Cameron's attempt last week to make the emotional and patriotic case for unity.

But the 42-year-old architect of Britain's drive to reduce spending will deliver a much harsher message to Scots: Leave the UK and risk losing the pound you have used for more than three centuries.

Osborne's warning will be repeated in future days by the finance chiefs of Britain's two other main parties: Labour's Ed Balls and the Liberal Democrat Danny Alexander.

CURRENCY WAR?

By honing in on Scottish hopes of keeping the pound, London politicians hope to undermine the economic case for independence though the leaders of Scotland's bid to breakaway said it amounted to panicked bullying and would cost London dearly.

"We've gone in under a week from David Cameron's 'love-bombing' to attempted bullying and intimidation - from a charm offensive to just plain offensive," Scotland's Deputy First Minister Nicola Sturgeon said.

"This is a panic move which will backfire spectacularly. People won't take kindly to the Westminster establishment ganging up to try and bully Scotland in the decision that we are being asked to take on the referendum," she said.

Sturgeon indicated that if London prevented a currency union, an independent Scotland could refuse to take on a share of the UK's 1.2 trillion pounds ($1.99 trillion) of government debt which Britain has promised to honor.

"Osborne's position is also a bluff," she said. "It would leave them having to pick up the entirety of UK debt."

Nationalists in Scotland, whose waters contain the European Union's biggest reserves of oil and gas, say they want the Bank of England to remain the lender of last resort for financial institutions after possible independence.

Bank of England chief Mark Carney cautioned last month that any currency union would entail a surrender of some sovereignty and nationalists have refused to say what they would do if they failed to get a currency union.

One possible option would be for an independent Scotland to continue to use the pound in a similar way that Ecuador uses the U.S. dollar ahead of a possible entry into the European single currency, the euro, at some later date.

Carney has refused to speculate on the risks of Scotland using the pound without a formal currency union. Scotland's First Minister Alex Salmond has said that despite the rhetoric before the vote, London might be willing to do a deal on the currency if Scots voted for independence.

Royal Bank of Scotland , Lloyds Banking Group and other major financial institutions based in Edinburgh, have begun contingency planning in case of independence, Reuters reported on Friday.

Industry sources told Reuters on Tuesday a key part of that planning is what they will do in the event of a currency union not being agreed. RBS, Lloyds and Standard Life declined to comment.

($1 = 0.6030 British pounds)

(Writing by Guy Faulconbridge and Andrew Osborn; Editing by David Evans)

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