Dream on, Marois. Quebec’s a monetary basket case
Was there ever an independence movement so ersatz as that which pretends to want to separate Quebec from Canada? Not only unique for the thinness of its grievances, it offers a vision of independence that, more and more, looks an awful lot like dependence.
As she parades about the province, Pauline Marois has been describing a world after separation in which almost nothing would change. There would be no border controls. Quebecers could keep their Canadian passports. They’d even keep the dollar. True, she concedes, this would mean being governed by another country’s monetary policy, but perhaps Quebec would have a say in that, too: “we may wish to get a seat at the Bank of Canada.”
This last point has made the Parti Quebecois leader the target of much ridicule outside the province — “dream on” would be the gist — but it’s not as much of a stretch as all that, when you think of it. Remember that this would be in the wake of what is assumed would be an essentially painless separation: perhaps there’d be some unpleasantness at first, some bruised feelings, but eventually squarer heads would prevail. After all, this is money we’re talking about. Would Canada, or whatever was left of it, really say no to a common currency, after saying yes to its own dismemberment? A country that would meekly hand over a sixth of its territory on demand is unlikely to kick up a fuss over a bank directorship.
At any rate, that is how the province has been taught to believe the world works: Quebec makes demands, and Canada coughs up. That’s not just PQ propaganda. It’s the experience of much of the last 50 years — a string of federal concessions, of powers or money or both, stretching all the way from the Quebec pension plan to this month’s agreement allowing Quebec to opt out of the Canada Job Grant. Indeed, even as Marois was reassuring Quebecers that nothing much would change, the province’s Liberal leader, Philippe Couillard, was demanding the rest of Canada accept further changes to the constitution. The habit is deeply ingrained on both sides. Why wouldn’t it continue after secession?
Of course, it’s debatable whether Canada could prevent Quebec from using the dollar, even if it wanted to. It’s more likely to be Quebec that rejected it, though not without first enduring a great deal of economic dislocation. Consider first what an important lever the new country would have discarded: monetary policy is much more significant, as far as the everyday workings of the economy go, than fiscal. For a movement that likes to insist it is not driven by tribal emotion but merely wants to seize “the tools” to better craft policy to its own needs, it has always been an odd contradiction.
But now consider specifically what that means. Even as a province of Canada, Quebec is carrying an enormous debt burden, upwards of 50 per cent of GDP. On any assumption of how the federal debt would be divided in secession negotiations — gliding lightly over how it could be negotiated — that figure would climb nearer to 90 per cent. Without a currency of its own, Quebec would have no recourse to the printing press, should it have trouble paying its debts: It would all be denominated in another country’s currency, Canadian dollars or other.
What is more, lacking its own currency, it would have no ability to devalue, should it find its exports were uncompetitively priced on world markets. So either it would have to engineer an internal devaluation, that is by forcing down nominal wages and prices — have you met Quebec’s unions? — or it would soon find itself running short of foreign exchange reserves. It is entirely possible financial markets would notice this dilemma, and mark up the interest rate on Quebec’s bonds to take account of the risk, so compounding its debt problems. As a province, after all, Quebec could call on the federal government for assistance. As a country, it would be on its own.
If this sounds familiar, it should: It’s the same dilemma facing some of the more heavily indebted countries in Europe, until now the leading experiment in sharing a single currency among multiple countries. Only, in fact, Quebec’s situation would be much worse. Europe’s single currency has been kept from blowing apart only by the most heroic efforts, including massive transfers of funds. They’ve kept it together, just, because they are determined that it should not fail: because the single currency is integral to the larger project of European union. In the case of Canada-Quebec, there would be no such project, or determination. Far from trying to preserve the union, we would have just finished breaking it apart.
And that’s in the best case scenario, of an amicable, negotiated separation. Imagine the consequences in the far more likely — though still vastly unlikely — event of a unilateral secession bid. With the kind of capital flight it could expect to endure then, Quebec would almost certainly be forced off the dollar, probably in a matter of days. (After the 1995 referendum, Jacques Parizeau let on that he had a plan to avert financial chaos, had the yes side won: He would have thrown the full weight of the Caisse de depot, with what was then its $50 billion in assets, into shoring up the dollar. Quebecers should count themselves lucky he didn’t: currency markets can chew through that in an afternoon.)
For its part, Canada, far from trying to keep Quebec within the same currency area, would be doing everything to encourage its departure, the better to limit the damage to its own interests. Who would want such an unstable partner in a currency union, even one that had not just torn the country apart?