This record is a partial extract of the original cable. The full text of the original cable is not available.

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 
 
SIPDIS 
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