THE QUEBEC SPONSORSHIP SCANDAL AND ITS AFFECT ON NATIONAL

UNCLAS SECTION 01 OF 02 QUEBEC 000033

SIPDIS

SENSITIVE
WHA/CAN FOR TERRY BREEZE

E.O. 12958: N/A
TAGS: PGOV PREL CA
SUBJECT: THE QUEBEC SPONSORSHIP SCANDAL AND ITS AFFECT ON NATIONAL
UNITY


1. (SBU) Summary: The scandal involving misuse of public funds
for shoring up federalism in Quebec has caused a strong drop in
support for federal Liberals in Quebec and a concurrent surge in
support for the Bloc Quebecois. Quebecers are angry at what
they perceive as "Quebec-bashing." Jean Charest and the
provincial Liberal party have so far remained above the fray and
are distancing themselves from their federal counterparts,
although there are indications that the scandal may get worse.
Charest's vision of a new era of federalism is being sorely
tested, but Quebec's initiative on forming a Council of the
Federation will go on, with the next meeting taking place in
Vancouver February 23-24. End Summary.


2. (SBU) Prime Minister Paul Martin passed through Quebec
February 16 for damage control on the sponsorship scandal and to
stop the hemorrhage of public support for the Liberals. In a
recent Leger Marketing poll, 75% percent of Quebec respondents
thought that Martin knew about the subsidies, or at least,
should have known. A February 11-12 CROP poll showed a drop in
support for federal Liberals in Quebec to 35%; the Bloc
Quebecois showed 47% support. President of the National
Assembly Michel Bissonet (PLQ) admitted to CG Keogh February 20
that the Bloc might gain around 20 seats in the next general
election because of the scandal. Note: February 17, Minister
for Natural Resources Sam Hamad downplayed the depth of negative
public reaction, telling CG the Bloc is an "empty" party, where
voters temporarily park their votes when they are mad at the
government. End Note.


3. (SBU) Bissonet said that Quebecers are angry and offended
for having been implicated in a flag-waving campaign that went
wrong, and that has set off the Canadian blame-game that is
cynical about bending over backwards to placate Quebec
separatists. Politicians in Quebec wince over the image of a
corrupt political culture in the province, with its invidious
comparison to European politics. They tend to dismiss the
current outcry as "Quebec-bashing," although they acknowledge
that political scandals relating to countering separatism have a
long history in Quebec. Certainly, the logic of heavy
federalism behind the subsidies scandal has never gone down well
with the provincial Liberals. Jean Charest has been at pains to
emphasize his loyalty to Quebec and determination to defend the
province's interests. He was not close to former PM Chretien.
Embattled at home, Charest Liberals are now distancing
themselves from Martin Liberals who have become a liability for
the PLQ, and vice versa.


4. (SBU) In a February 17 editorial interview with Le Solely,
Martin insisted heads would roll if they were implicated in
impropriety. Among provincial names mentioned prominently in
the press in the scandal are Jean Pelletier, head of ViaRail and
former Chief-of-Staff for Chretien, Andre Ouellet, head of
Postes Canada, and Michel Vennat of the Banque du Developpement
du Canada. Local press have reported on criticism of Minister
for Heritage Canada Helene Scherrer, who had dealings with one
of the implicated companies, Groupaction, to manage a $250,000
sponsorship for the World Junior Downhill Ski competition in the
Quebec region (allegedly the firm was paid a $30,000 commission
to show the Canadian flag in and around the site).


5. (SBU) Scherrer strongly denied any impropriety in a February
18 conversation with CG. "I was not even elected when involved
in the ski event. The program was there for people to use. If
anyone had known about malfeasance, they would not have touched
the money." As for the Bloc Quebecois gaining from the scandal,
Scherrer accused Bloc Chief Gilles Duceppe of encouraging groups
in his riding to apply for federal funds - $1.9 million in
FY2001-2, $2.3 million in FY2002-3 -"when he was supposed to
know something fishy was going on."


6. (SBU) So far the provincial Liberal Party (PLQ) has escaped
direct involvement in the scandal, and continues to promote its
vision of Quebec finding a new place in Canada. February 19, at
a meeting of Consuls General in Quebec, Charest insisted: "this
government has nothing to do with it." He called the scandal
"shocking" but said the storm would pass. Norman MacMillan,
President of the Liberal Caucus, insists that the PLQ, including
Jean Charest and his entourage, had no knowledge of the
accounting fraud. He noted the worst excesses took place in 1997
after the failed sovereignty referendum. At that time, Charest
was head of the federal Conservative Party, in opposition to the
Liberals. Respected journalist Alain Dubuc (former chief
editorialist of La Presse, now Editor of Le Soleil) concurs that
Charest had no involvement in the federal sponsorship scam.


7. (SBU) Of course, rumors abound. One high-level government
contact hinted to CG that the revelations so far are the tip of
the iceberg and that the PLQ will eventually be implicated.
While some commentators point out that Charest himself is
relatively insulated from the scandal, others insinuate that the
weak link is Groupe Everest, one of the companies involved in
the scandal, which managed Charest's 1997 campaign. MNA
Bissonet believes the scandal will deeply undermine the Martin
forces in the province and said the scandal could have a
"Watergate" dimension.


8. (SBU) Until the recent scandal, political observers here
have tended to characterize Quebec Liberals as a house divided:
federalist Liberals, either in the Chretien or Martin camps,
center-left Bourassa Liberals, conservative Charest Liberals.
One result of the current scandal, however, has been public
papering-over traditional divisions. There is less evident
partisanship. Charest told the recent CG gathering that his
three main priorities relate to the demographic problems of an
aging population, "fiscal imbalance"/budget priorities, and
promoting cultural diversity. On the latter point, he noted
the federal government has been the main supporter of cultural
institutions in Quebec, e.g. Radio Canada, and that if federal
monies dried up it would cause a lot of problems.


9. (SBU) Quebec's initiative on forming a Council of the
Federation will go on, however. Minister of Intergovernmental
Affairs Benoit Pelletier told CG February 19 that all Provincial
and territorial premiers (possibly with the exception of
Nunavut) will be meeting February 23-24 in Vancouver. This 5th
reunion/first full meeting of the Council will create a
Secretariat to be based in Ottawa, a body to handle fiscal

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imbalance, and will agree on a common agenda. Asked if
relations with Ottawa have been affected by the subsidies
scandal, he confirmed it would complicate relations, in that
Ottawa might not want to make any concessions to Quebec in the
current environment. Negotiations with Health Minister
Pettigrew are not yet arranged. "Everything is on hold because
of the scandal," but Pelletier said he thought things would work
better after the federal elections.


10. (SBU) Comment: Charest is keen to propagate new relations
with the rest of Canada's provinces and with Ottawa and to
promote national unity, although not at Quebec's expense. His
vision of a new era of federalism is being tested by the
sponsorship scandal; the widespread cynicism over political
corruption that it has engendered is obviously a source of
frustration as the Quebec Premier tries to establish a new place
for Quebec within Canada and on the international scene.
Charest does have the advantage - unlike PM Martin - of time.
He knows where he wants to go. With 4 years of his mandate
still ahead of him, he is focused on mending fences with some of
the civic groups he alienated through precipitous legislation at
the end of 2003. After the elections, if the Liberals regain
power, and if Martin is the leader, he also hopes to renegotiate
Quebec's place on the international scene. Some of these larger
visions may go on hold though if indeed the subsidies scandal
continues to grow. Quebecers are likely to insist on
individuals being held accountable.



KEOGH