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Alberta Premier Ed Stelmach shakes hands with Quebec Premier Jean Charest following Council of the Federation meetings in Toronto, Tuesday May 1, 2007.

Lars Hagberg/Canadian Press

A new Quebec-Alberta alliance is emerging to challenge some of Ottawa's key projects, breaking the relative calm Prime Minister Stephen Harper has enjoyed of late in federal-provincial relations.

Hints of heightened co-operation first surfaced Monday at a meeting of federal and provincial finance ministers in Prince Edward Island, when Alberta's Ted Morton blasted a plan agreed to by Ottawa and a majority of provinces to increase Canada Pension Plan premiums and benefits.

Quebec chose not to take a position, but said the concerns raised about the plan need to be addressed.

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Combined, the population of the two provinces is such that they could likely veto any national attempt to change the CPP.

Both provinces also oppose the Harper government's plans for a national securities regulator, and their close co-operation was in full view Tuesday when they held a joint news conference in Montreal to attack Ottawa's proposals on the issue.

Their united show of strength against Ottawa comes as both provincial governments are under political threat at home. Their stand suggests plenty of arm-twisting ahead if the Harper government is to succeed on pension and securities overhaul.

Quebec Finance Minister Raymond Bachand warned that replacing provincial regulators - as called for in a draft federal bill released last month and referred to the Supreme Court - is "absurd" and would create "disarray and confusion" for no tangible gain.

"This is not a mindless defence of the status quo. We are not opposed to improving the present system," Mr. Morton added.

Speaking at times in French, Mr. Morton picked up on Mr. Bachand's comment that the federal Finance Department has been trying to take over securities regulation for the past 20 years.

Mr. Bachand described that desire as a "vieux rêve" - an "old dream." Mr. Morton added, "It is a vieux rêve of the bureaucrats in Ottawa."

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Mr. Bachand said he plans to return the favour of Mr. Morton's visit to Montreal by going to Alberta at the end of the summer.

The two provinces also succeeded in pushing a third issue this week. In PEI, Ottawa and the provinces agreed to strike new committees to study the state of federal transfers to the provinces. The three major transfer programs - for health care, social programs and equalization - all expire in 2014 after years of major increases.

Mel Cappe, a former Clerk of the Privy Council and president of the Institute for Research on Public Policy, said it is not surprising that the two provinces work together from time to time. However, he accused them of putting aside the national interest, particularly in opposing a national securities regulator.

"Neither of them is taking a national perspective. What's good for Canada?" he said. "It's those beggar-thy-neighbour polices that have fractured the country and they're not particularly desirable."

In spite of larger federal transfers in recent years, health costs continue to devour provincial budgets and squeeze out spending in other areas.

As a result, provinces have a lot riding on the post-2014 state of federal transfers, yet Ottawa has made no commitments.

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While both Quebec and Alberta pushed for the study of transfers, their new alliance will be tested when it comes to making decisions. Quebec stresses the importance of transfers to fund health care, while Albertans often question why so much of their tax dollars and oil revenue flows to Quebec. Mr. Morton said on Monday that transfers are a "serious hindrance" to productivity and competitiveness.

With a report from Bertrand Marotte in Montreal

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