Wednesday, September 10, 2008

Quebec, Canada, Federalism, and Separatism: Questions Abound

This train of thought began boarding the station as a result of an aside in the commentariat discussion of one of Paul Kedrosky's blog posts.

Although the market for such insurance is relatively illiquid, the price suggests the market believes the US government is more likely to default on its obligations than some other industrialised countries. “The USA is now ‘riskier’ than Norway, Germany, Netherlands, Sweden, Finland, Austria, France, Denmark, Quebec and Japan,” said Tim Backshall, chief strategist at Credit Derivatives Research.
"Andrew": I was surprised to see Quebec on the list of "other industrialised countries." I must have forgotten about Quebec's breaking away from Canada. Je me souviens? Apparently not.
"Bassfisher": It's about default and the cost of insurance, not defederation. Even if Que left the dominion of canada, they are able to pay their way. Quebec arranged its own credit rating with canada's blessing, same as my wife has her own a/cs.

If Quebec separated, I'm genuinely curious how well they would be able to service their debt issues once they no longer received Government of Canada largess and Provincial transfer payments, not to mention using a currency of their own devising and not the Loonie. Arranging their own credit rating while still being underwritten by the Canadian Government is a whole other kettle of fish from maintaining their rating while being economically independent, whether self-sufficient or otherwise.

If I'm off base, or completely ignorant, feel free to enlighten me.

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Anonymous said...

In days of yore, the intention of at least some separatists was to keep the Canadian dollar, the Canadian passport, and several other Canadian amenities, while being "entirely independent." It was pointed out that it can be difficult to develop and maintain an independent financial policy when a political entity does not have an independent currency. That did not seem to carry much weight with proponents.

√Čric G. said...

Quebec would have no problem covering its own debt. It is a common misperception that Quebec survives off of transfer payments. The fact of the matter is that an independent Quebec would be able to economise on many different things. The transfer payments are relatively small, the argument comes from the 'services' Canada provides Quebec as part of its federal jurisdiction. Quebec would be able to take over Canada's jurisdictions and handle them more efficiently, simply because of a smaller population and more targeted budgeting. The PQ released a financial analysis two or three years ago, vetted by some independent economists, that showed that an independent Quebec would actually run a surplus based on current budgets.

And as for the Loonie, an independent Quebec would continue to use the Canadian dollar until a decision was made to use another currency or Quebec's own currency. Such a decision would of course take time to make and implement, so there would be no immediate economic collapse of the 'Quebec dollar' that would trouble the new country.