Northern Disorder

In the early morning hours of Oct. 25, the tensions that have long threatened to tear Canada apart were all but forgotten. Half a million exultant baseball fans--many waving Canadian flags and singing O Canada--filled the streets to celebrate the victorious Toronto Blue Jays, the first-ever Canadian team to win the World Series. But it was a fleeting moment of national pride. The very next day, voters overwhelmingly rejected a proposed package of constitutional changes aimed at keeping the country united.

Now, Canada has been plunged into turmoil that could have implications for all of North America. Dashed, in all probability, are the reelection hopes of Prime Minister Brian Mulroney. Chances are diminished that Canada will ratify the North American Free Trade Agreement. And, most far-reaching of all, the decisive no vote in the French-speaking province of Quebec gives a big boost to the independence movement there. "This time, we said what we don't want," declared an exultant Jacques Parizeau, leader of the nationalist Parti Quebecois. Vowing to mount an all-out push for sovereignty, he added: "Next time, we'll say what we want."

The referendum's rejection was a stunning rebuke to Canada's ruling elite. When political leaders proposed the accord on Aug. 28, they assumed it would be enough to satisfy Quebec's demands for more autonomy, as well as calls from such Western provinces as Alberta and British Columbia for more say in national affairs. On board were Canada's top political parties, all provincial premiers, and most of Canada's business Establishment and major newspapers.

`AN ASSAULT.' But they badly underestimated the public's antipathy to Ottawa. Some 54% of voters and 6 out of 10 provinces flatly said no. "It was an assault by those on the outside" against the insiders, says Canadian pollster Angus Reid. Overnight, Canadian leaders were facing deeper divisions than ever. There's little danger that Canada will be breaking apart soon. But as new regional protest parties rise, the next federal government is likely to be weaker and less able to tackle the nation's pressing economic problems.

The first casualty is likely to be Mulroney, who must call a national election in 1993. More than anyone else, Mulroney was seen as the architect of the package. Its repudiation is perhaps the final humiliation for a man whose approval ratings have sunk below 20%. Now, few political experts believe Mulroney has any hope of winning the next election, and some say he may even resign this winter.

The fallout extends to Mulroney's Progressive Conservative Party. In the next election, they "will be the big losers," predicts Lorne Bozinoff, executive vice-president of Gallup Canada Inc. The big winners are likely to be two regional parties--the separatist Bloc Quebecois in Quebec and the Calgary-based Reform Party, led by populist politician Preston Manning. That would lead to the fracturing of the next Parliament into five parties, forcing the Liberals to form a weaker coalition government that would be unable to take strong action on pressing problems such as the Canadian deficit.

That scenario spells trouble for NAFTA. A clear majority of Canadians oppose both the 1989 U.S.-Canada Free Trade Agreement and the pending NAFTA accord, which includes Mexico. Getting NAFTA approved "was always going to be a tough sled," concedes Thomas P. d'Aquino, president of the Business Council on National Issues. But now, with politicians forced to pay closer attention to public discontent, there's a greater chance Canada will reject the deal.

Mulroney has the votes right now to push the accord through Parliament, even though the opposition Liberal and New Democratic Parties are against it in its current form. But he will be under increasing pressure to hold off a NAFTA vote until it is approved by the U.S. Congress. That could mean that Parliament may not act before the next Canadian elections, which must be called in the next year. "And I would very much doubt that NAFTA would pass in Parliament following the Canadian election," predicts Alfred Powis, chairman of the giant natural-resource company Noranda Inc. That's because a new coalition government would better reflect popular opposition to the trade accord.

BIG CHILL. For the Canadian economy, the no vote couldn't have come at a worse time. Ravaged by a recession far worse than in the U.S., the economy is essentially dead in the water. Unemployment is 11.4%, and growth is all but invisible. Now, Canadian business and foreign investors must grapple with the added burden of political uncertainty. "The financial markets have spoken very clearly," warns Trade Minister Michael H. Wilson. Their message, he adds, is obvious: "A no vote . . . is negative for the economy."

Indeed, the growing certainty of a no vote pushed the Canadian dollar down to around 80 , from 84 in midsummer. That forced the Bank of Canada to raise its bank rate as high as 7.93%, up from 4.93% in early September. While markets strengthened following the vote, they are likely to remain unsettled by the country's murky future. Lloyd Atkinson, chief economist at the Bank of Montreal, thinks Canada will have to pay a "premium" for its money, with short-term interest rates hovering at least 2.5 percentage points higher than those in the U.S.

The likely result: continuing high unemployment, slower growth, and a weak dollar. "And the vote obviously won't be helpful in attracting foreign investment," adds Noranda's Powis. Indeed, on Oct. 27, Dominion Textile Inc., Canada's largest textile company, warned it may move its headquarters office out of Montreal if the questions over Quebec continue.

Now, everyone is watching for the political fallout. The no vote energized the Parti Quebecois, which is currently running neck-and-neck with the ruling Liberal Party and its leader, Quebec Premier Robert Bourassa. The separatists have their next chance in provincial elections, which must be held by 1994. If the Parti Quebecois wins, they have vowed to hold a referendum on Quebec sovereignty within a year.

Canada has been through so many years of constitutional wrangling that it was easy for many to shrug off the October vote. But in fact, Canada may have taken an irrevocable step, rejecting one of its last chances to heal its divisions. This "will come back to haunt us," predicts Constitutional Affairs Minister Joe Clark, who spent the past 18 months putting together the failed accord. Now, a breakup is no longer unthinkable. The reverberations of Canada's loud no will be felt for a long time.

       -- By staking his reputation on a yes vote, an already unpopular Prime 
      Minister Brian Mulroney could now face defeat in next year's election
       -- Parliament will be splintered as the two parties that fought for a no vote, 
      the Calgary-based Reform Party and Bloc Quebecois, win seats
       -- In Quebec, the Parti Quebecois will step up its campaign for sovereignty
       -- Free-trade accord with the U.S. and Mexico may be rejected
       -- Investment and the economy could stall in the face of uncertainty
       -- Interest rates are dropping but will remain far higher than U.S. rates
      DATA: BW
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