economics shaky for a sovereign quebec

The "neverendum" is back. Even though Pauline Marois only won a minority, we're sure to be talking about sovereignty, separation, independence - call it what you will - as long as there is a Parti Quebecois premier in Quebec City.

The “neverendum” is back. Even though Pauline Marois only won a minority, we’re sure to be talking about sovereignty, separation, independence – call it what you will – as long as there is a Parti Quebecois premier in Quebec City.

As if to underline the old metaphor that French and English Canada are like two ships passing in the night, recent polls have shown that support for independence is flat or down in Quebec even as English Canadians are becoming increasingly comfortable with the idea.

Just before the election, an Ipsos Reid poll had 49 per cent of “Rest of Canada” respondents agreeing with the phrase, “If Quebec separates, it’s not really a big deal to me.” Meanwhile, 49 per cent of Quebecois said they would vote against sovereignty while only 31 per cent said they would vote in favour.

This is down markedly from the last referendum in 1995, which was a 51 per cent to 49 per cent squeaker, as you’ll recall.

If there is another referendum, and I’ll leave the speculation on that to the political pundits back East, there will be a very different economic context for the Quebec voter to think about.

Back in 1995, sovereignists could make a relatively coherent argument that the nation state was becoming less important economically thanks to free trade. Over in the European Union, Catalan companies could trade as easily with French clients as with Spanish ones. The same for Scottish or Bavarian businesses. In North America, Quebec sovereignists looked to the North American Free Trade Agreement as evidence that Quebec’s economic success didn’t depend on special access to Canadian markets any more.

American clients would be just as likely to buy Quebec maple syrup or regional jets if they said “Made in Quebec” instead of “Made in Canada.” Same for Albertan, German or Chinese clients.

However, the recent global financial crisis has reminded us of some economic truths we hadn’t thought about for a long time. The messages are especially sobering for small countries with high debts and aging populations. And while Quebec is no Greece, or even a Portugal, the issues are serious enough that Quebec voters have some big economic topics to think about.

The first topic is debt. Quebec is the most indebted province, with provincial net debt at 52 per cent of gross domestic product. According to TD Economics, the next highest province is Ontario at 40 per cent, while the Western provinces are all under 30 per cent.

If Quebec separated and took a share of the federal debt equal to its share of GDP, the new nation’s debt to GDP ratio would be 88 per cent. Nowhere near as high as Greece or Italy, but still well over the 60 per cent figure used in the famous “Maastricht criteria” in the European Union.

And to pay this debt back, it’s worth noting that the province’s economy has tended to grow a bit more slowly than the rest of the country over the last decade or two. In fact, the only year since 2001 when Quebec has grown faster than the Canadian average was 2009. And that wasn’t really growth. It was just that the Quebec economy sank less than the rest of the country during the downturn.

Recent events in Europe have reminded us how unpleasant it is to be a small, slow-growing country rolling over a large debt if the markets happen to be in a funk.

Then there’s demographics. All advanced Western countries are worrying about aging populations and how a smaller number of workers will pay for all the services older citizens have come to expect. According to the most recent census, Quebec’s population is older than the average for the rest of Canada. Quebec now has more senior citizens than youth under 15.

And Quebec gets fewer immigrants as a share of its population than the rest of the country. The Parti Quebecois’ election platform may not help, since one doesn’t appeal to most immigrants by forbidding their children from attending English-language junior colleges, banning non-French-speaking citizens from running for public office or forcing non-Christian government employees to put away their yarmulkes, kirpans or turbans.

The financial crisis also forces the awkward question of a Quebec dollar onto the agenda. Previous sovereignist governments have claimed they would keep using the Canadian dollar, hoping to reassure Quebecois that their assets wouldn’t be rapidly devalued (or Florida vacations more expensive) after a “oui” vote.

However, as Eurozone governments have found out, not controlling your own currency in a crisis means that your government loses a bunch of useful economic tools that countries like the U.K., Iceland and the U.S. have used lately. These include devaluation to boost exports, printing money to shore up your banks, or inflating your way out of a debt crisis.

I have heard sovereignists talk in the past about scenarios where the loonie becomes some kind of jointly-controlled “Canada-Quebec” common currency. This seems highly improbable, even before you factor in how voters in the rest of Canada would react to such a scheme. It would be a choice between using the Canadian dollar, with the Bank of Canada in control, or the massive and risky process of launching a new currency.

These challenges seem substantial, even before you start to worry about scenarios where the break up of Canada gets messy. If some relatively minor tuition hikes can bring business to a halt in Montreal, think what will happen to the economy if there is a close “yes” vote but northern Quebec aboriginal communities and some anglophone parts of Montreal decide they don’t want to leave Canada.

Quebec voters will have to think all this through. If Premier Marois does manage to get a new referendum bill through the National Assembly, her minister of finance is going to have a lot of convincing to do.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s adventure novels.