Referendum jitters

Largely ignored by politicians the Quebec issue is ruffling investors

BRUCE WALLACE March 6 1995

Referendum jitters

Largely ignored by politicians the Quebec issue is ruffling investors

BRUCE WALLACE March 6 1995

Referendum jitters

Largely ignored by politicians the Quebec issue is ruffling investors




There are not more than a handful of Canadians who sit in the House of Lords at Westminster. One of them

is William Graham Shaughnessy,

Lord Shaughnessy, the 3rd Baron Shaughnessy of Montreal. But rarely do his British peers approach him to ask what on earth is going on back in the old colony these days. “Oh, there’s the odd question now and then,” Lord Shaughnessy said one afternoon last week, sipping red wine with ice in the wood-panelled Peers’

Guest Room at Westminster during a break between committee meetings.

But there are no British Lords demanding to know how it has come to be that the Leader of Her Majesty’s Loyal Opposition in Canada is a Quebec separatist. Or why another referendum on separation—which they assumed had been resolved with the defeat of that René Lévesque chap 15 years ago—is in the offing sometime this year. “It hurts me, but frankly much of the affection for Canada, the spiritual connection, has gone out of the Brits,” said the 72-year-old former businessman sadly. “We’re just another country to them now.”

It was not always this way. Thirteen years ago, when Lord Shaughnessy made his maiden speech in the House of Lords, Canada was somewhat of a hot topic in the United Kingdom. British parliamentarians were under furious pressure from Quebec nationalists and Canada’s native groups in 1982, part of a lastditch effort to block Pierre Trudeau’s patriation of the Canadian Constitution. Interest in native issues persists—there are always plenty of British politicians who can rouse themselves into indignation over the Canadian government’s treatment of what many in the Lords still call “the Red Indian.” It is not quite the same

in the City of London, the financial heart of the capital, where Canadawatchers are starting to talk openly about risk factors attached to the Quebec situation. But on the political front and in the streets, there is virtually no curiosity about the Quebec referendum redux, with its retread cast from the 1970s and 1980s.

In fact, unless it involves a brutal hazing ritual on videotape or an accused serial killer named Bernardo, news from Canada gets little international coverage—not even in the old mother countries, France and Britain. Just as Canada has embraced continentalism and turned

towards the developing markets in Asia and the Americas, post-Cold War Europe has averted its transatlantic gaze. European governments are preoccupied with their own problems: whether to expand their economic union into a stronger political one and how to contain the Balkan war, with one eye warily fixed on the still-dangerous Russian bear. In that environment, Quebec’s lawyerly debate on separation rarely attracts attention. “There will always be traditional Gaullists in France who are sympathetic to Quebec,” notes Benoit Bouchard, Canada’s ambassador to France. “But I never, never, never hear

about the issue during the course of normal business.”

Of course, Quebec separatism still has a bit of bite, and can cause a headache or two for Ottawa abroad. Bouchard himself found that out when he tried to downplay Quebec Premier Jacques Parizeau’s achievements during the Péquiste leader’s visit to Paris in January. To the delight of separatists back home, the Canadian ambassador was chastised by the travelling Quebec press corps for supposedly insulting Philippe Séguin, president of the French National Assembly. Bouchard had called Séguin a “loose cannon,” his riposte to the

French politician’s warm endorsement for Parizeau. “But it never made the papers,” said an unrepentant Bouchard in an interview with Maclean’s last week. “French politicians just enjoy taking a more daring, more dangerous approach to foreign affairs.”

Britain’s Prime Minister John Major also rankled Canadian officials in January when he warned against opposition calls to give Scotland more local autonomy, asking if Scots really wanted to be the Quebecers of the United Kingdom. Canadian high commission officials quickly sought—and got—reassurances from the Tory govern-

ment that they had not meant to insult Quebec or to meddle in Canada’s internal affairs. “We are not looking to export this issue overseas,” said one Canadian diplomat who helped carry the message to his counterparts in Britain’s Foreign Office. “Foreign governments are asking us: ‘Is there something we can do?’ And our answer is always: ‘Thanks, but no.’ Our attitude is that no news is good news.” Canadian diplomats need not worry. European political circles do not turn on the latest dollop of constitutional news from Quebec City. While Winnie Ewing, Scotland’s fiery nationalist leader, reminisced fondly about Canada’s past federalist-separatist battles between Pierre Trudeau and Lévesque during an interview with Maclean’s last year, she also revealed that she knew little about the current resurgence of nationalist ardor. And Louise Beaudoin, now a PQ cabinet minister who has previously represented Quebec’s interests in Paris, noted during Lucien Bouchard’s trip to France last May that the French had become cautious on the issue. “Now they say to us: ‘You can’t come back to us every 15 years and expect us to get worked up,’ ” she said.

Essentially, few foreigners expect Quebee to take the ultimate step of breaking up a G-7 country. And that is why, in the one

segment of the international community that does watch Quebec developments with

interest, those people whose business it is to follow Canadian affairs, there is little sign of panic. The political chicanery may take place in Paris. But the trade relationship that matters to Quebec is the British connection—U.K.-Quebec trade is 80-per-cent greater than the province’s trade with France.

And the City of London’s investment community remains sanguine about Quebec independence, says David Tory, managing director of Merrill Lynch International in London, a leading underwriter of Quebec bond issues (which also, coincidentally, employs Quebec finance minister Jean Campeau’s son, Louis Campeau). Says Tory: “They have been told so many times that we are coming to a critical point, with everyone waiting for the meltdown only to find that nothing had changed, that they are now not as concerned about Quebec as those Canadians who might be looking at the issue up close.”

As a result, foreign investors insist that their main worry when it comes to Canada is the size of the federal debt and deficit, not the possibility of Quebec independence. “With or without Quebec, Canada is still going to have that debt issue,” says Karim Basta, a vice-president at Merrill Lynch’s New York City office. Still, Merrill Lynch executives were sufficiently concerned about how City of London investors regarded their client that they helped the Quebec government hastily

convene a luncheon at London’s Waldorf Hotel on Feb. 17. Representatives of 27 investment houses were invited to hear Alain Rheaume, Quebec’s deputy finance minister, give a status report on the Quebec situation.

The meeting might have been expected to produce sharp questions from jittery investors, coming, as it did, more than a week after Rheaume’s boss, Campeau, had speculated to reporters in Montreal that an independent Quebec might renege on paying its share of the national debt. But the questions from the floor were never challenging, says Roy Fraser, vice-president of debt origination for the Banque Nationale de Paris, who attended the meeting. “Most people just want the referendum over with,” says Fraser. ‘The attitude is: just decide something. No one likes uncertainty.”

For now, investors appear content to

accept opinion polls that suggest that Quebecers will not leave Confederation. But the touch of uncertainty about the longterm future does carry a price. “Our analysis is that independence is not going to happen, but quite clearly politics is an issue, and some people will hesitate to buy Quebec paper ahead of a referendum,” says Roger Paice, senior vice-president at ScotiaMcLeod in London. “Obviously, no credit offers zero risk,” says Merrill Lynch’s Tory. “And Quebec offers a slightly higher price because of the uncertainty.” Last week, Quebec government bonds offered a significantly higher rate of return than those of other provinces. Even debt-laden Ontario was selling 10-year bonds at only 41 basis points (41/100ths of a percentage point) higher than Canadian government bonds; Quebec’s bonds traded at 81 basis points above the Canadian rate.

“If you do not have to make an investment decision in Quebec right now, you are better off waiting a couple of months,” says Otto Niederhofer, president of VAW Aluminum Canada Inc. from his head office

in Bonn, Germany. VAW owns 20 per cent of the $1.4-billion Alouette aluminum smelter in Sept-Iles, Que., an investment made in 1989. The German company is not overly concerned about separation, says Niederhofer, because it exports its products to European markets. On the other hand, he says, companies that established businesses in Quebec in order to take advantage of the North American Free Trade Agreement (NAFTA) are unsettled by Washington’s assertion that an independent Quebec would have to reapply for admission to the free trade zone. “NAFTA is what people are looking at,” he says. “Since an independent Quebec would have to reapply, people are saying: Why not wait to see how it turns out?’ ”

Such sentiments indicate one danger of dragging out the “to leave or not to leave” debate. It would be folly to believe that

Canada and Quebec’s low international news profile means that no harm is being done to the country’s economic condition by the confusion. Take the case of Quebec City’s bid for the 2002 Winter Olympic Games. Quebec politicians complained loudly when Canadian International Olympic Committee representative Richard Pound suggested that the province’s uncertain political future was hurting the bid. But Pound insists that the issue must be addressed, not ducked. “Quebec politicians reacted hysterically to something that is so self-evident,” a mystified Pound said in an interview last week. “It’s often the first question people ask us. The Quebec issue is out there for people who know and, whatever you think of IOC members, they know about international affairs.”

That is a message Canadian and Quebec politicians can ill-afford to ignore: most of the foreigners who care about Canada’s political future are the ones who have a hardheaded self-interest at heart.



in Toronto