The Lost Massey Lectures (33 page)

The biggest inter-provincial trade in manufactured goods is that between Quebec and Ontario. It has grown a good deal in recent times. It doubled in value between 1967 and 1974. Of course, those increases are partly owing to inflation. If there were figures for increases in volume, they would be less. Nevertheless, the increases in value of manufactured goods traded between Ontario and Quebec go far beyond gains in value of manufactured goods exported to foreign countries. Quebec is no province's poorest customer for Canadian-made goods, not even British Columbia's.

The trade links between Quebec and the rest of Canada—especially with Ontario and the Maritimes—would still exist if Quebec
were to become independent. They would have to continue to exist. The alternative would be intolerable economic privation for all concerned, perhaps even economic collapse or something close to it. There is no point in fantasizing how Canada could cut off trade with an independent Quebec, treating it the way the United States treated Cuba after the Cuban revolution.

Of course some people do talk as if an independent Quebec could be blockaded, ignored or isolated. From time to time the press reports sentiments like this: A proposed new corridor road across Maine would speed truck and tourist traffic between the Atlantic Provinces and Central Canada and it would take on added importance—here is the kicker—in the event of separation of Quebec from Confederation.

The man who said that is the past-president of the Atlantic Provinces Chamber of Commerce.
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Of course, much traffic between Quebec and the Maritimes already runs through Maine because the route is shorter and more convenient in spite of the nuisances of crossing international boundaries. There spoke a man who accepts such border crossings with equanimity, even with some enthusiasm, yet boggles at the thought of people and goods traversing an independent Quebec. I think we must assume such remarks are cries of emotion, not rational remarks about trade. Yet even premiers and finance ministers make spiteful and frivolous remarks in this vein. They must think it is good politics, or perhaps their own emotions get the better of their reason.

Owing to the geographical position of the Maritimes, with Quebec lying between them and central Canada, free and unimpeded flow of trade back and forth through Quebec, as well as into and out of Quebec, would be especially important to the Maritimes.

On every count I find Lévesque is quite right in identifying free trade as a practical connector in sovereignty-association. Because
it would be mutually beneficial, and certainly workable, it would also be a powerful connector.

The second connector he proposes is similar in principle: free travel of persons, meaning that Canadian citizens and Quebec citizens could travel back and forth as a right, without passports. He also proposes, as a possible point for negotiation, dual citizenship with joint issuance of Canadian-Quebec passports for foreign travel.

Both of these connectors, free trade and free travel, would leave present trade and travel arrangements essentially as they are now. So would customs union, or partial customs union, if that were included, as he suggests.

The next two connectors he proposes do entail some changes. They're meant, as I read their meaning, to give assurances to Canadians that Quebec sovereignty would not threaten their lifelines.

The St. Lawrence, over much of its course, runs solely through Quebec territory, yet of course, it is vital to Ontario directly and to all the rest of Canada indirectly. So Lévesque has proposed a maritime community, which the white paper spells out as a membership for Quebec alongside Canada and the United States on the International Joint Commission for the St. Lawrence Seaway.

The fourth connector he proposes is military, and therefore deals with an inherently touchy subject. He proposes that Quebec participate in the same military alliances as Canada, which means participation in
NATO
and
NORAD
. Offhand, such a suggestion might seem logically to fall into a category of cooperative programs, but he includes this proposal as part of the framework of association, as does the white paper. I think he is correct to include it as a basic connector. A sovereignty such as Canada simply could not permit an associated sovereignty, such as
Quebec, to take a different military line, or no military line, where defense arrangements are concerned. Nor could it possibly be in Quebec's interest to do so either. Thus this is another essential of the framework.

Now we come to Lévesque's last connector, his proposal that Canada and a sovereign Quebec share the same currency.

Such a proposal might have seemed plausible between 1945 and 1971, during the period when what was called the Bretton Woods agreement on international currencies operated. That system, which was dreamed up in the United States, was adopted by Canada and much of Europe. It was an attempt to eliminate fluctuations in the exchange rates among currencies. All the currencies involved were rather firmly pegged to the U.S. dollar. Thus they fluctuated very little in relation to one another or, of course, in relation to the dollar. It was thought that international monetary stability would be achieved by this scheme.

But under the cover of this artificially imposed stability, discrepancies among the real values of currencies were building up, and in 1971 the system collapsed because it had become so out of touch with realities that it could no longer work. For one thing, countries that had been experiencing rapid rates of inflation at home were, in effect, exporting their inflation to other countries. Their currencies, although actually declining in value, still commanded high exchange rates. The United States was not the only offender of this sort but it was the most serious offender because the U.S. dollar was the anchor currency. In addition, the United States began running big deficits in its balance of trade and this led to a vast over-supply of U.S. dollars in Europe. That made nonsense of European monetary reserves, because U.S. dollars were included among the bank reserves against which European loans were made. From the mid-1960's, the system was thus heading for serious trouble, and the collapse, when it finally came,
created a financial crisis. It also initiated a period during which many currencies had to be abruptly and drastically revalued.

Changes and adjustments which should have been taking place gradually over a period of a quarter of a century had been dammed up. Nowadays, when it is convenient to blame all inflation on the oil exporting countries, we sometimes forget that the serious depreciation of the U.S. dollar actually began in the 1960's and created havoc internationally.

Now here is the important point we need to understand when considering the advisability of shared currencies. National policies of many kinds influence the value of a country's currency. For instance, if incomes within a country are increased—by any means whatever—and at the same time there is no corresponding increase in production and productivity, then the money loses real value. We say too much money is chasing too few goods. Although non-governmental factors influence a country's balance of trade and also the domestic buying power of its money, national policies are among the most important influences in most countries today, including Canada.

René Lévesque wants Quebec to have full sovereignty over taxation and social problems. He also wants Quebec to have control over policies concerned with investment, borrowing, use of savings, and subsidies, as well as many other matters that directly and indirectly can inflate a currency or have an influence on a country's balance of trade, or both, and therefore can affect both the domestic and international value of a currency. These are powers now largely, although not entirely, held by Ottawa. Indeed, Lévesque complains of just exactly that when he says Quebec does “not control the real economic levers, which remain in the federal domain.”

Suppose Canada and Quebec actually have become associated sovereignties, and suppose each actually is exercising the kinds of
power that I've mentioned. Nowadays, when our currency is ravaged by inflation or otherwise seems badly managed, we blame Ottawa. Under the arrangement proposed by Lévesque and the Quebec white paper, Ottawa and Quebec would be blaming each other. Unless everything went very well indeed, they would likely be furious with each other.

Both Lévesque and the white paper say the answer to that is that the two governments could cooperate on matters affecting the currency. Yes, so they could. But there goes independence.

The trouble is that the governmental powers which affect a currency are the very core of sovereignty. Lévesque himself recognizes this whenever he talks about them in other connections. If I were a negotiator for Quebec, I would certainly want to aim at having and keeping the very core of independence. Or, if I were a negotiator for Canada, I would feel the same way about protecting Canada's sovereignty and independence. I would be afraid for Quebec to have sovereign powers whose use could jeopardise Canadian currency, yet I would see no point whatever in Quebec having sovereign powers if it weren't going to use them. And I would reason much the same way if I were a negotiator for Quebec.

Lévesque's general remarks on currency, both in his book and in his public comments after the white paper was tabled, sound as if at some time in the past he became a fan of the Bretton Woods agreement and has not given the matter further careful thought in recent years. His comments, including those on European currencies, are so out-of-date. Bretton Woods, before its messy breakdown, was supposed to lead to a shared European currency. It led to no such thing. Lévesque does not seem to understand that the members of the European Economic Community have excellent reasons for not proceeding toward a shared currency.

In his book, Lévesque introduces his comments on currency by
saying, “As you know, this subject belongs in an area about which, as a whole, public opinion very easily becomes nervous. There is an aura almost of black magic to the word ‘monetary.'” The impression I get is that Lévesque himself is easily made nervous by the subject. Here I am conjecturing, but perhaps he fears that derogatory predictions about the probable value of a Quebec currency could easily be used to panic people in Quebec, no matter how ill-founded or unfounded the predictions might be.

But be that as it may, two of the things Lévesque wants for Quebec—sovereignty and a shared currency with the rest of Canada—are simply irreconcilable. Is there any way around this?

The experience of Ireland suggests a possibility. To see why, we must make a brief and sketchy sortie into some Irish economic history. At the time Ireland wrested its independence from Britain in 1922, it wanted free trade with Britain and it also wanted its own currency and central bank. Britain would agree on free trade, but only if Ireland agreed to keep the Pound.

Of course Ireland did not participate, in the years that followed, in British decisions that either directly or indirectly helped influence the fate of the Pound. And of course Ireland itself was so small a part of imperial Britain that nothing done by Ireland could much affect the value of the Pound. But because Ireland had wanted its own money, for reasons of pride if nothing else, a fiction was arranged. Irish coins were minted, very handsome coins with their own pictures: harps, pigs, sailboats. No British royalty on them. Bills were printed and called the Irish Pound. But the Irish Pound was the British Pound by a different name just as the Scottish Pound is to this day. The Irish coins were British coins with different pictures. The Bank of Ireland was a branch of the Bank of England.

In 1973 Ireland joined the European Economic Community, but the Irish Pound remained the British Pound. Then in January
1979 an interesting thing happened. Ireland joined the European Monetary System and Britain did not. That move severed the Irish Pound from the British Pound. Now Ireland had its own currency in fact. The new, independent unit of currency was named the Irish Punt.

Under the European system, national currencies now float against each other, fluctuating up and down within certain specified ranges for each. When a given currency transgresses those limits, the central banks buy or sell it in large quantities, whichever is appropriate, to prevent more massive fluctuations, especially those that could be triggered by currency speculators. Of course similar devices are used, when needed, to calm down the U.S. dollar, the Canadian dollar, the British Pound, and various other currencies as well. Every so often in Europe, when it is clear that realities are changing, the ranges of float for various currencies are altered. That lesson of Bretton Woods has been learned.

When the new Irish Punt joined the European Monetary System, it was assigned a range of fluctuations through which it was expected to float, below the value of the British Pound. The Punt was generally expected to fall rather badly and not to be stable. The Punt did drop very briefly to 91 British pence. But then it swiftly rose in value and hovered close to the top of the fluctuation range assigned to it, much to the surprise of many experts.
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Through 1979 the Punt's value remained at about 97 British pence, which is as if the Canadian dollar had been worth 97 U.S. cents, instead of the 84 or 85 cents which was its usual 1979 value.

Even more interesting has been the Punt's stability. Throughout the year it remained more stable than the British Pound. Although the Punt is a minor currency—the population of Ireland is less than half the size of Quebec's, after all—it has behaved like
Europe's strong currencies, as one expert at the Bank of Canada's office here in Toronto put it.

The Irish, obviously, had developed confidence that they could depend on their own currency. Otherwise they would not have severed their connection with the British Pound.

My suggestion is this. If Canada and Quebec do construct a framework of sovereignty-association, it might best be done in stages, like the way Norway achieved its self-government and independence from Sweden—in stages. The complete framework of sovereignty-association might require too much adjustment for either Quebec or Canada to make at one time. If the changes were made progressively, then during the period when Quebec was in the process of achieving more autonomy and independence it could arrange a fictional currency like the old Irish Pound. This would actually be a shared currency, that is, Canadian currency under a different name. Then in due course, as Quebec gained both independence and self-confidence, it could convert the symbolic currency to its own actual currency, much as the Irish have done.