Canada: Chretien's Next Honeymoon May Get Cut Short

It's a running joke in Canada that Prime Minister Jean Chretien can speak neither of his country's official languages well. Election time is no exception. As he barnstorms around Canada just days before a June 2 national vote, Chretien routinely slaughters both French and English in his speeches. Nevertheless, the pugnacious French-Canadian is on his way to a solid victory. Polls predict that the ruling Liberal Party will win about 40% of the vote in the five-party race and a comfortable majority in the House of Commons.

Canadians seem ready to endorse Chretien's management of the economy. Since taking power in 1993, when he inherited a fiscal mess, the Prime Minister has engineered a dramatic turnaround. He is on track to balance the budget by 1999, wiping out a deficit that equalled 6% of Canada's gross domestic product when he took power. Rock-bottom inflation of under 2% has enabled the Bank of Canada to slash short-term interest rates to the lowest levels in years--over two percentage points below U.S. levels. "Canada has come roaring back," says John McCallum, chief economist at Royal Bank of Canada. He predicts Canada will grow 3.5% this year and next, outpacing almost all other Group of Seven nations. Unemployment, now 9.6%, should dip below 9% for the first time since 1990.

NEW APPEAL. Like President Clinton, Chretien has bolstered his position by shifting to the right. Once "almost maniacally opposed to the [North American] Free Trade Agreement," Chretien did a "total about-face," says Thomas P. d'Aquino, President of Canada's Business Council on National Issues. Chretien has outdone his predecessors in cutting spending. Now he's talking about slashing Canada's high personal tax rates.

With the Liberals so far in front, the real race is for second place--and the right to lead the official opposition. Three parties have a shot. The Calgary-based Reform Party, which favors a smaller federal government and a tough line toward separatist Quebec, is poised to win most seats in Alberta and British Columbia. After suffering the worst defeat by a ruling party ever in 1993, the Progressive Conservative Party is on its way back under its charismatic leader, Jean Charest. His appeal for national reconciliation has bounced the party into second place in many polls.

If the Tories regain their strength, it will be a return to normalcy in Canadian politics. For the last four years, the separatist Bloc Quebecois ranked as the official opposition, even though it backs the breakup of Canada. But support for the Bloc has been plunging under its new leader, Gilles Duceppe, who has run a disastrous campaign.

A poor election showing by the Bloc, however, won't excuse Chretien from facing Canada's knottiest long-term problem. If the economy stays on track, his key challenge could be another separatist threat from Quebec. Quebec Premier Lucien Bouchard, who came within a whisker of winning the 1995 sovereignty referendum, is expected to sweep Quebec's provincial elections in 1998. If he does, he's likely to call a new referendum by 1999.

Chretien would be handicapped in a rematch over sovereignty. Quebeckers link him with failed efforts to meet their demands. Polls show only 35% of Quebeckers have a favorable view of Chretien, while 60% view Bouchard favorably. And the one thing that might save Canada--a new offer to Quebec--may be hard for Chretien to sell, given the Reform Party's opposition.

Nothing would knock the wind out of Canada's economic sails faster than a oui vote for Quebec sovereignty. With polls already suggesting that a new referendum would be too close to call, Chretien may not have much time to enjoy his economic successes.

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