Is this the end for Scottish Nationalism?

So is that the end of the nationalist dream? Have hopes of an independent Scotland crashed to the ground, like Pan Am 103, following he fiasco over the release of Al Megrahi? Well, nationalism has seen better days. Megrahi’s triumphant return to Libya outraged many Scots and, for the first time, a credibility gulf has opened up between Alex Salmond and the Scottish voters, many of whom refuse to believe that economic motives did not play a part in the Lockerbie bomber’s compassionate release.

The Scottish government suffered a humiliating defeat in the Scottish parliament on Megrahi last week, and it didn’t stop there. The SNP’s third legislative programme, featuring that referendum on independence, has been greeted by howls of derision. In the midst of a financial crisis and with the government accused of double dealing over oil and compassion, what point is there in publishing a referendum bill that will almost certainly not be passed by parliament and, even if it were, would likely return a decisive rejection of independence. Has Alex finally lost it?

The Diageo affair has been another awkward moment for the Nationalists. The Scottish government has managed to appear opportunist, even as ministers tried to defend jobs in Kilmarnock. The drinks company contemptuously rejected their plan to save the plant, as economically illiterate. The sub-text was that the SNP were playing for votes in a target seat by attempting to demonise one of Scotland's most important and successful firms. The SNP has been very successful in its double strategy of being the government and the opposition in one party, but there are limits - a government has to accept that it is there to govern not campaign. And as the novelty of nationalism wears off, the voters are beginning to regard the SNP as just like any government: deeply fallible and morally unreliable.

This is clearly a defining moment for Scotland’s first ever nationalist government. From here on Alex Salmond either consolidates his position as a national leader, or things fall apart and the government collapses into one of those ignominious troughs that the SNP experiences every decade or so. The odds against that happening, but the danger is very real, and is apparent on the faces of the party leaders. Alex Salmond has been going non stop for the last three years and he should remember that exhaustion is a greater enemy for a radical administration than any opposition party.

However, it’s worth recalling just how popular this administration had been until the Lockerbie issue broke. Alex Salmond’s personal popularity has remained unnaturally high over the last two and a half years of government, despite the banking collapse, local income tax and more broken promises than Amy Winehouse made in rehab. In June, an ICM poll asked how good or bad a job the UK party leaders were doing. Salmond was rated plus 34, Gordon Brown, plus 4 and David Cameron minus 15 - and this poll wasn’t commissioned by the SNP but by the BBC. In the only poll that mattered in June, the European elections, the SNP surged ahead of Labour and delivered 29% to Labour’s 21% - a 7.5% swing to the SNP. .

Mind you that was against the background of the expenses scandal in Westminster, which didn’t engulf the SNP, and followed a period of six months in which Labour had been in the lead in voting intentions for Westminster. Following the Lockerbie row, it seems most unlikely that Alex Salmond will gain his 20 seats and hold the balance of power in Westminster. But the SNP can’t be written off yet. The SNP have published opinion polls suggesting that more people are coming round to their side on Megrahi, thanks to the support of Nelson Mandela and the Scottish churches.

No one came out of the Megrahi affair smelling of roses, but at least the SNP managed to prevent Gordon Brown escaping the ordure. The Prime Minister’s refusal to comment on the repatriation of Megrahi left him looking ridiculous, especially after it emerged that his own ministers had been telling the Libyans that they didn’t want the Lockerbie bomber to die in jail. Labour are now insisting that the SNP administration was under pressure from the Arab oil state of Qatar to release Megrahi in exchange for investment in Scotland. This may or may not be true, but the UK government was clearly in the same game over oil projects in Libya. A sceptical public, many of whom believe that we haven’t been told the whole story about Lockerbie, have been left doubting the integrity of either Brown or Salmond on this. But at least this has prevented the SNP being landed with all the blame.

Lockerbie aside, the next couple of years were never going to be easy for the SNP. The policy on restricting alcohol sales has been unravelling and there is still no clear funding mechanism for the new Forth road bridge as public spending is axed. Unemployment will be growing fast in Scotland even as the financial crisis abates. Labour will be quick to blame the Scottish government for being unprepared at the same time as arguing that the case for independence has been ruined by the credit crunch and the UK bail out that saved the Scottish banks. Moreover, the Calman Commission has unexpectedly produced a rather compelling case for a form of federalism. Though Calman’s tax-splitting mechanism is defective, his arguments for a transfer of fiscal responsibility to Holyrood have been almost universally accepted. The SNP however, is not making the mistake of disowning Calman as it disowned the Scottish Constitutional Convention in 1988. Indeed, Salmond is making clear that there should be a third ‘Calman’ question in the referendum on independence - if the opposition parties can come up with one.

The likelihood is that the opposition parties will unite to defeat the referendum bill in parliament in order to show, as they did over local income tax and Megrahi, that the Scottish government is faltering. However, the collapse of the bill needn’t be a crisis for the SNP. Everyone assumes that Alex Salmond really wants a referendum in November 2011, but tactically the failure of the bill might suit the SNP rather well. Remember, the SNP only gained power in Holyrood by factoring out independence, and promising to govern within the constitutional terms of devolution. The referendum gave Scottish voters confidence that a vote for the SNP wasn’t an immediate vote for the break up of Britain. If the referendum bill is rejected by the Scottish parliament, as expected, it can provide the top line for the 2011 manifesto, and will again allow the Scottish voters to vote SNP without registering a direct vote for separation.

Will the SNP win in 2011? Yes. I think they probably will. With a Conservative government in Westminster pushing through deep public spending cuts, the SNP will be in a strong position to go into the 2011 election campaign defending Scottish jobs and services, especially if Labour is in disarray following a serious electoral defeat. In two years time, Lockerbie will be a distant memory, and most people will remember Gordon Brown’s evasion as much as Kenny MacAskill’s questionable compassion. The election is likely to be all about jobs and cuts. It will be up to the SNP to persuade worried voters that they, and they alone, can stand up for Scotland.