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Nicholas Leonard: Salmond facing big struggle over financial risks

The Scottish First Minister, Alex Salmond, used to love visiting Dublin. In the halcyon days of the Celtic Tiger, the rampant success of the Irish economy enabled him to claim that an independent Scotland could thrive equally well.

Things are rather different these days. When Mr Salmond met Taoiseach Enda Kenny in Dublin last week, their personal rapport was evident but Ireland is no longer being paraded to doubtful Scottish voters as an argument for full independence from Westminster.

Instead, Mr Salmond's biggest dilemma is to convince the sceptics that Scotland will not be financially undermined by breaking away from Westminster.

"The downsides are immense. The risks are amazing. The uncertainties I just don't think are worth gambling on," said former chancellor Alistair Darling at the weekend, as he explained why he would be campaigning to prevent Scottish independence.

Mr Darling played a key role in saving the British banking system from collapse in 2008. The biggest potential casualty of all was the Royal Bank of Scotland group, which owns Ulster Bank.

Mr Salmond, who worked for the bank as an economist in the 1980s, was an enthusiastic supporter of its catastrophic over-expansion just as the US subprime mortgage crisis was developing.

He is not so keen on it nowadays and wants the Treasury in London to continue to have the responsibility of nursing it back to financial health, even though its headquarters are in Edinburgh.

The biggest short-term dilemma for Mr Salmond, however, is what to say to voters about the currency that would be used in an independent Scotland.

When the new Irish government faced this problem after partition, it decided to keep the link with the pound sterling.

That link was maintained until March 1979, when the Irish pound split with sterling for the first time and went into the European Exchange Rate mechanism.

Back in 1922, not many politicians really understood the implications of linking currencies but nowadays they all have to read up on it and the implications for Mr Salmond's hopes of gaining independence are not at all reassuring.

If he keeps the link with sterling, he would effectively be surrendering control of interest rates and monetary policy to the Bank of England and the Treasury.

Mr Salmond had talked of putting a new Scottish currency into the euro, but as the eurozone teeters on the brink of disintegration, that option is being soft-pedalled.

There is equal scepticism about the notion of creating a separate, new currency. Only an extraordinarily benevolent series of decisions in Westminster could give such a currency the credibility needed to prevent a flight of capital out of the country.

Against this background, it is not surprising that the latest opinion polls suggest that there is much more enthusiasm among Scottish voters for increasing the devolved power of their parliament rather than complete separation.

Equally unsurprisingly, support for letting go of Scotland is a good deal higher among voters in England, who believe that, even with the loss of North Sea oil revenues, they would be better off without it.

Both British Prime Minister David Cameron and the Labour leader, Ed Miliband, fundamentally disagree with this selfishly opportunistic approach.

But the fate of Scotland is a minor preoccupation for Mr Miliband, who is fighting to keep his job. He is the first leader of his party to have a negative rating among its own voters and the odds against him being replaced have tumbled.

Irish Independent