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Economists Say Cost of Split Will Be Borne by Both Sides If Canada, Quebec Separate

The statistics go both ways in the argument over the economic impact of a sovereign Quebec, but the majority of recent studies say both Quebec and the rest of Canada would suffer from a breakup.

Jean Campeau, a businessman who once ran Quebec's US$30 billion provincial pension fund and who leads a group of business leaders in favor of sovereignty, has produced economists and statistics indicating there will be little or no cost to separation.

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Other economists, however, say the costs will be steep and that an independent Quebec would mean a drop in the standard of living of Quebeckers and harsh economic times for the rest of Canada.

"Only Ontario and British Columbia would benefit in the face of a large-scale decentralization," says a May study by the Economic Council of Canada.

The major reason those two provinces would benefit is that they provide the bulk of the $4.38 billion (Canadian; US$3.66 billion) in transfer payments which flow to Quebec from the federal government.

The study says a breakup of Canada, whether it is in the form of a totally separate Quebec or one joined in a weaker union, would be an economic disaster for the province.

"In the face of a serious disruption of the economic union, the costs reported here could be substantially higher in the long run, while the short-term costs might well be enormous," the report says.

Another study, done by an economist at the University of Quebec, shows that an independent Quebec would mean higher interest rates for all Canadians, but especially higher rates for Quebec.

"There would be a stiff downward pressure on the Canadian dollar as foreign holders of Canadian stocks and bonds became nervous and sold," says Yves Rabeau, author of the study.

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Professor Rabeau says perhaps the most damaging blow to Quebec's economy would be the loss of the $4.38 billion in transfer payments, meaning the new country would struggle under enormous debt. "Quebec would have to finance $9 billion to $14 billion a year. It's technically impossible. I don't see how we can finance a debt of that size."

Both Rabeau and the Economic Council of Canada say agriculture in Quebec would be ruined by independence. Quebec now produces almost 40 percent of Canada's milk products with 25 percent of its population. But the removal of federal subsidies to Quebec dairy farmers would make dairy farming unprofitable and make Quebec a dairy importer.

"Sovereigntists assume the quotas will stay. This is absurd," Rabeau says. "Ottawa would give the quotas [to produce milk] to other farmers in Canada."

These arguments are dismissed by people determined to lead Quebec to independence. Mr. Campeau's group of businessmen commissioned a public opinion survey by the Montreal firm of Leger & Leger. The object was to test how business leaders in Canada would react to dealing with an independent Quebec.

"We interviewed 301 businessmen all outside Quebec and mainly at the presidential and vice-presidential level," says president Marcel Leger, once a provincial Cabinet minister in a separatist government.

The survey found that:

* 54.8 percent would recognize a sovereign Quebec; 36.5 percent would not.

* 48.2 percent would favor some sort of common central bank; 35.9 percent would not.

* 79.4 percent would maintain business relations with an independent Quebec; just 10.6 percent would not. (Where totals do not equal 100 percent, the remainder were unsure.)

Mr. Leger says his client felt the results were positive for the pro-independence group that had sponsored the survey. And his latest survey of the Quebec population showed that 47.7 percent were for sovereignty, 29 percent against, and 20 percent undecided.

The figures in favor of sovereignty have been higher in the past, especially after the collapse of the Meech Lake constitutional accord two years ago. But the lingering recession in Quebec has some provincial politicians worried.

The leader of the pro-independence Parti Qucois, Jacques Parizeau, told a reporter in an unguarded moment that given the state of the economy it would be better if a referendum on independence could be put off for a year or two.

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