Alex Salmond would ditch the pound and adopt the euro to safeguard Scotland’s economy against a future credit crunch.

The first minister believes the economic turmoil underlines the case for joining the single currency, which has shown greater stability in the crisis.

Such a move would also be likely to reduce mortgage payments for homeowners and give Scottish firms a competitive advantage as a result of lower interest rates.

However, it could create tensions within his own party, whose membership is split on the issue, which has not been the subject of a major debate in Scotland for several years.

Salmond’s intervention came as Labour used the collapse of Icelandic banks to warn of the economic risks of independence.

Referring to Salmond’s claim that an independent Scotland could join an “arc of prosperity”, comprising Ireland and the Scandinavian countries, Jim Murphy, the new Scottish secretary, said the Icelandic experience showed that Scotland risked joining an “arc of insolvency”.

Launching an offensive designed to undermine the SNP’s economic case for independence, he said: “Sometimes you get the SNP saying, ‘If we were independent it would all be fine’, and you find yourself having to explain the truth.

“The countries a year ago they were comparing us to — look at this arc of prosperity some commentators are now calling the ‘arc of insolvency’ . . . Iceland, Ireland, Norway.

“Iceland is on the verge of bankruptcy, Ireland officially in recession, Ireland and Norway trying to borrow from the US and Russia. That’s not Scotland’s destiny. Scotland isn’t Iceland and it shouldn’t be Iceland, and as long as I’m doing this job, I don’t want Scotland to be Iceland.”

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