A new player waded into the
sovereignty question this week: the
Supreme Court of Canada
It was only a matter of time before the fate of Quebec as a sovereign nation got down to a bare-knuckle legal brawl between Quebec-born federalist
Prime Minister Jean Chretien
and Quebec's separatist premier,
. Initiated by Chretien, the court case will decide whether Quebec can declare a "unilateral declaration of independence." Bouchard wishes to have such authority after a majority "oui" vote, even a small one, in a provincewide referendum on sovereignty. That's slated to follow the next provincial election, expected later this year. The court case will be decided within six months. The stakes for Quebec, Canada and investors -- both domestic and foreign -- are high.
For U.S. investors, chatter of Quebec separation might elicit a ho-hum response. But those south of the border tend to underestimate the intensity of the separatism issue here in Canada. Just let me say that this issue remains very much alive in Canada, and it is elemental to those following the Canadian stock markets.
And separatism is not going to quietly disappear from the Canadian scene. The minority of Quebeckers, and particularly Bouchard, are still stinging from the last narrow referendum loss. Although the most recent polls show the majority of Quebeckers don't want to leave the Canadian Federation, Bouchard charges forward, all guns blazing, to complete what to some is beginning to look more like a personal rather than political battle. One thing is certain: If he manages to pull off a Quebec secession, it will be years before all the lingering questions are answered. And as we all know, "lingering questions" are not good for markets. Some already poised to cause trouble:
Quebec's substantial native population, very large landowners, doesn't want to separate.
Some rural areas have already voted for "partitioning" of their areas in the event of a pro-secession referendum. In essence, no matter what the vote outcome, they want to stay in Canada.
There are constitutional questions concerning how much of Quebec's current land would revert to the Canadian government.
Quebec is one of the largest employers of federal civil servants in the country. Where will they go if Quebec secedes?
And most importantly to investors, what happens to those companies headquartered in Quebec? (
Bank of Montreal
, among others.)
The U.S. has stated that entry into any trade deal with Canada would not automatically extend to a separate Quebec and would have to be renegotiated.
Canada's national debt is north of C$600 billion. How much would go with a separate Quebec?
How would one get to/from the Maritimes provinces?
There are also the questions of currency, passports et al, but these percolate in the background of the bigger question.
The court challenge could also blow up in the federal government's face, no matter the outcome. If UDI is denied, Bouchard could claim "bully tactics" and use the decision as a rallying point to pull those on the periphery into the sovereignty camp. If UDI is allowed, Bouchard will be seen as victor over the Federalist forces and gain support. Interesting to note that those Quebec communities that have voted to stay within Canada no matter what the referendum vote line up almost perfectly along the shared border with the U.S.
Chretien and the Federalists' inattention to the separatist threat in 1995 is widely criticized for the near win of the "oui" forces in the last referendum. Keenly aware of this, the prime minister has since put more and more roadblocks in the way, of which the Supreme Court challenge the latest. There's also the new caveat that should a referendum be successful, the rest of the provinces would have to agree -- like that's about to happen. British Columbia, Canada's prodigal province, has alluded to separation musings of its own. It really boils down to equality for all.
Quebec desperately needs investment in the province to pull off anything like separation. However, the provincial economy is a mess. The March 1998 deficit was C$2.2 billion, businesses are leaving and the province is a net loser of people. The recent ice storm that hit the area is expected to have an estimated C$601 million impact, but the provincial government has not yet factored this into its forecasts yet. Quebec asked the feds for C$2 billion in aid for a
infrastructure rebuild, but the request for special funds was denied.
Given the wacky French First (with bigger letters) signage and immigration laws, the drawbridge continues to rise and should frighten investors. And since the last referendum squabble pretty much single-handedly began knocked the pins out from under the US$.75 plus Canadian dollar, which recently hit a low of US$.6809, further saber-rattling by Quebec and the feds should keep any upward movement in check.
The federal government has avoided discussing the Quebec question outside Canada. Instead, the world is constantly treated to bland epithets extolling the significant 1998 projected GNP growth (4% earlier, now 3%) as the envy of the G7. Make no mistake, the fate of Quebec is tied directly to the future of Canada. Given that the Quebec question has now been thrust into the largest court in the land, markets and investors (both domestic and, more importantly, foreign) that have pretty much ignored Canada's dysfunctional family will have no choice but to react. And thereby increase volatility.
Bob Beaty writes about Canadian issues from the quiet confines of Bowen Island, British Columbia. He welcomes your feedback at