Iain Macwhirter on election fears

SNP activists have been doing their best to avoid too much use of the G-word at their conference in Perth this weekend. No, not Glenrothes - Garscadden, scene of the greatest-ever SNP by-election setback. It was 30 years ago that Donald Dewar put an end to the last great surge of Scottish nationalism - a high tide that swept 11 SNP MPs into Westminster, their highest representation ever.

The similarities are ominous. In 1978, Glasgow Garscadden was a safe Labour seat, but the Labour government of James Callaghan was in deep trouble. The Nationalists had been polling well in local elections and everyone expected the SNP's Keith Bovey to win. But the late Donald Dewar held the seat for Labour on a much reduced majority, and the effect was shattering. The SNP went on to lose all but two of their Westminster seats in the 1979 general election and were out of the game for a generation.

Labour are hoping that history might repeat itself in Glenrothes. Party morale has leapt to giddy heights following the banking bail-out and the emergence on the world scene of "SuperBroon"- a financial Ubermensch who has saved the world, according to people such as the Nobel Prize-winning economist, Paul Krugman. Gordon Brown is to break with convention and campaign hard in Glenrothes, with superspouse Sarah. Labour hope that that, head to head against Alex Salmond - the Lex Luthor of nasty nationalism - the Superbroons will become the Invincibles.

But, superheroes aside, could Labour do a Garscadden in Glenrothes? Well, the SNP are still the bookies' favourites to win in Glenrothes, but the Nationalists are not counting any chickens.

After Glasgow East, everyone assumes Glenrothes is in the bag. But Peter Grant, the SNP candidate and local council leader, needs to overturn a 10,000 Labour majority in the Prime Minister's backyard. Coming a good second would be an excellent result, but such has been the hype, it would go down as a historic defeat. A sign perhaps that the SNP honeymoon is finally over.

Certainly, the Nationalist government is no longer a novelty, and is getting into the kind of difficulties all governments get into in mid-term - acquiring daft policies like trying to make it illegal for young married couples to buy a bottle of wine at an off-licence. The magic is fading, and policies like free school meals and local income tax are in difficulties.

Historically, nationalism has been a fair-weather phenomenon in Scotland and in recessions, Scots have tended to support unionist parties. We seem to be heading now for the mother of all recessions. The collapse of RBS and HBOS has been a blow to Scotland's confidence - at least in Edinburgh. Labour MP Anne McGuire last week compared this to the Darien Scheme of the 1690s "an international financial disaster that impelled Scotland into the Union with England". Her message: Scotland is still too wee to count out there, so be warned.

This is, of course, highly debatable. Darien was an ill-starred colonial adventure, not a global financial meltdown. Nor is there any particular reason why Scotland should have ended up in the same basket case as Iceland last week. Brown's banking bail-out was, after all, modelled on the Scandinavian bank rescues of the early 1990s. Norway, a country the same size as Scotland, was able to mobilise the £30bn necessary to restructure its banks, and of course has a £200bn oil fund as a financial stabilisation device.

Nevertheless, fear of the unknown is a potent force. And there is no doubt that Scotland's economy has been overdependent on the fortunes of HBOS and RBS - neither of which, it turns out, were being run on a prudent or even sane manner. According to the IFS, the liabilities of RBS alone amounted to £1.8 trillion. Scotland would have had to arrange a cross-border rescue, working very closely with the Bank of England and the English treasury. Which, of course, is exactly what happened.

Indeed, the more you think about the bank rescue, the more you realise that it would have happened whether or not Scotland was independent. RBS and HBOS are two cross-border financial behemoths with more assets and mortgages in England than in Scotland. The recapitalisation would have been in the joint national interest. The only difference might have been that HBOS remained a nominally Scottish bank.

So what am I saying: that an independent Scotland would still effectively be part of the UK as far as banking is concerned? Well, yes. I don't think anyone seriously believes that Scotland could ever become wholly financially separate from England - the two countries are joined at the hip. Moreover, the last time I looked, the Nats planned to remain in the sterling zone after independence, at least until membership of the euro could be negotiated.

Of course, Labour have every right to make political capital out of independence. The SNP is still formally a separatist party, even though every thinking nationalist realises total separation would be inconceivable. But Labour have to be careful not to make the same mistake they made in Holyrood in 2007 in misunderestimating (as President Bush might put it) Scottish voters.

Scots did not vote Nationalist in 2007 because they thought it would bring independence - far from it. They only started to lend their votes to Salmond after he made it clear that supporting the SNP would not mean a vote to leave the UK. Scots have used the SNP essentially to deliver a better form of home rule, to shake up Labour and to get more out of the Scottish Parliament.

Yes, the voters of Glenrothes may decide that Brown deserves a vote of thanks for saving the world. Then again, they may just think of fuel prices, inflation, public sector pay, unemployment, and lend their votes to the SNP. We in the meejah all believe Brown is a miracle worker, but a lot of ordinary Scots just see £500bn of their money going to bail out bankers who have just awarded themselves another £18bn in bonuses.

By-elections are always local, and if all Labour has to offer is warnings of Darien disasters and the horrors of independence then Glenrothes may well say "stuff all that" and vote Nat on November 6. We simply don't know what will happen, which makes this by-election so exciting.

Oh, and one final point. For all his abilities, Labour's candidate, Lindsay Roy, isn't Donald Dewar.