ALEX Salmond's plan for an independent Scotland to keep the pound would not be in the best interests of the rest of the UK, a leading economist has warned.
Dr Angus Armstrong, of the National Institute of Economic and Social Research, said the risks to the UK of entering a formal monetary union with an independent Scotland would outweigh advantages highlighted by the First Minister.
The economist spoke out as Scottish Secretary Alistair Carmichael stepped up pressure on Mr Salmond to produce a "Plan B" for the currency ahead of a meeting of the First Minister's economic advisers in Edinburgh today.
Giving evidence to Holyrood's economy committee yesterday Dr Armstrong dismissed claims by Nationalist MSP Chic Brodie that Chancellor George Osborne's decision to rule out a currency union was "a piece of nonsense" and "sabre rattling". He said: "I don't think it's nonsense. I'm afraid I think it's a reality."
Dr Armstrong said an independent Scotland's high levels of debt would increase the chance of an economic crisis, which could have a series impact on the rest of the UK if it was tied into a currency deal.
He warned the UK would also have no way of enforcing the strict limits on an independent Scotland's tax and spending policies that would be required to make a currency union work, as the newly independent state could pull out at any time.
Arguing that the Chancellor's warning last month was "entirely rational" he said a brand new currency pegged to sterling would be the best option for an independent Scotland and the rest of the UK. Mr Salmond insists an independent Scotland would be able to negotiate a currency union with the rest of the UK.
He maintains the plan is best for both countries and claims Mr Osborne is "bluffing".
Dr Armstrong, a leading authority on the economics behind the constitutional debate, addressed MSPs as Mr Salmond's Fiscal Commission Working Group prepared to meet in Edinburgh today to reassess possible currency options. The panel is expected to re-endorse his currency union proposal.
The group's chairman, Crawford Beveridge, appeared to confirm that yesterday when he told the same Holyrood committee they still supported the plan. He added: "All of us felt politics would prevail until the time of the vote and what we are seeing are political not economic statements."
Scots Secretary Mr Carmichael wrote to Mr Beveridge yesterday reiterating the Treasury's objections to a currency union. He said: "I would urge the Commission not to waste a minute of their time considering a currency option that is dead."
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