UPDATE 2-Election campaign starts in Quebec, separatists lead

Wed Aug 1, 2012 1:34pm EDT

* Quebec premier takes risk by calling election for Sept. 4

* Election to take place before damaging inquiry starts work

* Polls show governing Liberals trailing separatists

By David Ljunggren

Aug 1 (Reuters) - Quebec Premier Jean Charest took a big political risk on Wednesday by launching an election campaign despite polls that show him trailing separatists who want independence for the Canadian province.

Charest called a provincial election for Sept. 4, which means the vote will take place before a potentially damaging inquiry into corruption in the construction industry resumes work later the same month.

The inquiry is expected to unearth close ties between the powerful industry and all Quebec's political parties. Charest's Liberals, in power since 2003, could be particularly vulnerable.

Charest says only the federalist Liberals can be trusted to focus on the economy rather than stirring up what he says is irresponsible talk about independence. Quebec, the size of Western Europe with a population of just 8 million, has a high debt load and relies heavily on trade with the United States.

"The choice is clear, between stability and instability," he told a news conference, citing economic problems in Europe.

A summer election could mean a low turnout and this tends to benefit the party in power. In addition, Charest is an experienced election campaigner.

A Leger Marketing survey for the QMI news agency on Wednesday put support for the separatist Parti Quebecois at 33 percent with the Liberals at 31 percent.

The way the vote is distributed means the Parti Quebecois would gain enough seats to win a minority government if an election were held now.

"It is time to change this worn out and corrupt government," Parti Quebecois leader Pauline Marois told party activists.

If the Parti Quebecois wins a minority government it would need support from other parties to push through key legislation, and would therefore probably not be able to hold a referendum on breaking away from the rest of Canada.

Previous PQ governments held referendums on separation in 1980 and 1995, but both failed.

Marois has declined so far to say when a PQ government led by her would call a referendum, angering hard liners inside the party who want to push for independence as quickly as possible.

If the prospect of Canada falling apart does become real, the Canadian dollar would most likely be hit. But just the election of Parti Quebecois might not disturb markets drastically and would leave them taking a wait-and-see approach, said Doug Porter of BMO Capital Markets.

"After all, there are a lot of things to focus on these days, and some of the risks are much more clear and much more present," he said in an e-mail.

Analysts say that for all Charest's talk of focusing on the economy, the main aim of a Sept. 4 election is clearly to avoid harmful revelations from the corruption inquiry.

"It's kind of like Mitt Romney's tax returns: the government claims there is nothing in there they should be concerned about but they don't want people to see it before they go to vote," said University of Montreal politics professor Pierre Martin.

"So it's not going to be a good period for the Liberal government to see that much attention directed at some of its own members caught in allegations of scandals and corruption," he told Reuters.

Charest also courted controversy in May by pushing through a new law to crack down on students protesting planned tuition hikes. Student groups are trying aggressively to mobilize the normally unenthusiastic youth vote.

Marois -- whose party's slogan is "It's up to us to choose" -- supported the protesters and one of their leaders is now running for the Parti Quebecois.

Charest, echoing her slogan, said Quebecers had "the right to choose between referendums and (rule of) the street on one hand, and jobs, the economy and democracy on the other".

A new party, the Coalition for the Future of Quebec, is in third place with 21 percent public support in the Leger poll. The party has never contested an election before, and it is not clear what impact it could have on the overall campaign.

The Coalition wants more rights for Quebec but says all talk about sovereignty should be put off for a decade to focus on improving the economy.

Charest's government, stressing the need to protect the economy, vowed on Tuesday to oppose a hostile C$1.8 billion approach by U.S. retailer Lowe's Cos to take over Canadian home-improvement retailer Rona Inc, which is deeply rooted in Quebec.

The issue is likely to feature in the election campaign, which will be over long before Canada's federal government has to decide whether to approve any formal bid by Lowe's.

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