Even as a province of Canada, Quebec is carrying an enormous debt burden, upwards of 50% 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%. 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. The Adobe Flash Player is required to view this content. Please click here to install it. 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.
Posted on: Thu, 13 Mar 2014 08:16:22 +0000
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