Politics muddies the waters of Scotland and the pound

It's simple, until it's not.

Simon Wren-Lewis digests the Treasury's report on the relationship an independent Scotland would have with sterling and the Bank of England (rUK is his shorthand for the UK excluding Scotland):

The real problem for Scotland is that, in forming a sterling currency union, it will be dealing with a government that thinks like Germany. What is worse, although Germany can sometimes be persuaded to go against its austerity instincts for the sake of European unity, after an independence vote rUK is unlikely to let its heart strings be pulled in a similar way! The problem for Scotland is that the rUK can provide something that in fact costs it very little, but the absence of which would cost Scotland a great deal, so rUK will be able to ask for a high price. Unless the new Scottish government is prepared to pay for a Bank of England LOLR role with some of its oil revenues, it may find it has nothing to bargain with. If no agreement can be found, the Treasury paper is quite right to conclude that using sterling unilaterally would not be attractive for Scotland. So rather than accept damaging fiscal restrictions, the new Scottish government may end up with its own currency after all.

George Osborne is right to present the Treasury's analysis as a stumbling block for the SNP, in other words; but he's slightly disingenuous in pretending that he has nothing to do with that fact.

As Wren-Lewis points out, politics muddies all waters. Normally, the study of Optimal Currency Areas is relatively simple: the more alike two countries are, the greater the benefits of having a shared currency, and the lesser the disbenefits. That's why the euro is such a startlingly bad idea on paper – there's basically no possible group of countries less economically, socially and politically coherent than the eurozone. And in in nations like rUK and Scotland, which are pretty damn similar, the whole deal comes down to one basic question: is the loss of flexibility of monetary policy a worthwhile cost to pay for those benefits?

But that assumes that there is any way a currency union between rUK and Scotland could actually exist as a union. It's a political, not an economic question: what possible scenarios can we imagine in which the Bank of England would view the Scottish economy as anything other than entirely subordinate to the interests of rUK's? And, moreover, what possible scenarios can we imagine in which an actually existing rUK government – as short-termist, economically-illiterate and vindictive as they tend to be – would allow that to happen?

It may just be the case that the rUK would be better off if the Bank of England carried its policy equitably, allowing the rUK to take a hit to ensure the continued strength of Scotland, which would be on of its biggest, if not the biggest, trading partner. But it's nigh-on impossible to imagine a rUK government letting the Bank of England incorporate that rationalisation into its mandate.

Compared to questions of fair allocation of public debt, North Sea Oil and monarchs (Scotland can have em, frankly), the question of Scottish monetary policy might seem boringly technical. But it's one of the most intractable problems standing in the way of Alex Salmond's dream.

Floating away. Photograph: Wikimedia Commons

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Northern Ireland election results: a shift beneath the status quo

The power of the largest parties has been maintained, while newer parties running on nicher subjects with no connection to Northern Ireland’s traditional religious divide are rapidly rising.

After a long day of counting and tinkering with the region’s complex PR vote transfer sytem, Northern Irish election results are slowly starting to trickle in. Overall, the status quo of the largest parties has been maintained with Sinn Fein and the Democratic Unionist Party returning as the largest nationalist and unionist party respectively. However, beyond the immediate scope of the biggest parties, interesting changes are taking place. The two smaller nationalist and unionist parties appear to be losing support, while newer parties running on nicher subjects with no connection to Northern Ireland’s traditional religious divide are rapidly rising.

The most significant win of the night so far has been Gerry Carroll from People Before Profit who topped polls in the Republican heartland of West Belfast. Traditionally a Sinn Fein safe constituency and a former seat of party leader Gerry Adams, Carroll has won hearts at a local level after years of community work and anti-austerity activism. A second People Before Profit candidate Eamon McCann also holds a strong chance of winning a seat in Foyle. The hard-left party’s passionate defence of public services and anti-austerity politics have held sway with working class families in the Republican constituencies which both feature high unemployment levels and which are increasingly finding Republicanism’s focus on the constitutional question limiting in strained economic times.

The Green party is another smaller party which is slowly edging further into the mainstream. As one of the only pro-choice parties at Stormont which advocates for abortion to be legalised on a level with Great Britain’s 1967 Abortion Act, the party has found itself thrust into the spotlight in recent months following the prosecution of a number of women on abortion related offences.

The mixed-religion, cross-community Alliance party has experienced mixed results. Although it looks set to increase its result overall, one of the best known faces of the party, party leader David Ford, faces the real possibility of losing his seat in South Antrim following a poor performance as Justice Minister. Naomi Long, who sensationally beat First Minister Peter Robinson to take his East Belfast seat at the 2011 Westminster election before losing it again to a pan-unionist candidate, has been elected as Stormont MLA for the same constituency. Following her competent performance as MP and efforts to reach out to both Protestant and Catholic voters, she has been seen by many as a rising star in the party and could now represent a more appealing leader to Ford.

As these smaller parties slowly gain a foothold in Northern Ireland’s long-established and stagnant political landscape, it appears to be the smaller two nationalist and unionist parties which are losing out to them. The moderate nationalist party the SDLP risks losing previously safe seats such as well-known former minister Alex Attwood’s West Belfast seat. The party’s traditional, conservative values such as upholding the abortion ban and failing to embrace the campaign for same-sex marriage has alienated younger voters who instead may be drawn to Alliance, the Greens or People Before Profit. Local commentators have speculate that the party may fail to get enough support to qualify for a minister at the executive table.

The UUP are in a similar position on the unionist side of the spectrum. While popular with older voters, they lack the charismatic force of the DUP and progressive policies of the newer parties. Over the course of the last parliament, the party has aired the possibility of forming an official opposition rather than propping up the mandatory power-sharing coalition set out by the peace process. A few months ago, legislation will finally past to allow such an opposition to form. The UUP would not commit to saying whether they are planning on being the first party to take up that position. However, lacklustre election results may increase the appeal. As the SDLP suffers similar circumstances, they might well also see themselves attracted to the role and form a Stormont’s first official opposition together as a way of regaining relevance and esteem in a system where smaller parties are increasingly jostling for space.