How the Swiss see the ‘Swiss option’

Switzerland is formally independent but totally interconnected with the EU, and the largest creditor of the most important country in the euro zone.

Hans Steketee
13 September 2012

Ammonia and mushrooms, "It’s the smell of success", cheesemaker Alois Fleischlin smiles, tapping a brown disk the size of a tractor tyre. Cheese – an old trick to make milk non-perishable – and Switzerland are synonymous. Here, in the sandstone cave of Kaltbach, near Luzern, Emmentaler and Gruyère cheeses are ripening in damp tunnels for nine months before they see any daylight.

A recent addition is Kaltbach Extra, a hard cheese that, thanks to its "cave-matured, tangy aroma", is popular at dinner tables in Germany, the Netherlands and America. This is quite a new phenomenon. When Swiss cheese went abroad, it was either in grated form or in meltable blocks for raclette. Smart promotions by Kaltbach’s parent company, Swiss dairy giant Emmi, partly accounts for its success abroad. The economic climate is another reason. In 2007, Brussels scrapped import tariffs for most Swiss dairy products giving Switzerland access to the huge EU-market. For every three cheeses Emmi now sells one abroad and exports are growing in spite of the expensive Swiss franc. 

Kaltbach perfectly demonstrates what eurosceptics mean when they talk about Switzerland or Norway as a model: outside the euro and the European Union, these countries are politically independent and apparently doing very well economically. 

Geert Wilders, leader of the Dutch populist Freedom Party, is campaigning to take his country "out of the euro, out of EU". In the Netherlands, which is going to the polls on 12 September, Wilders’s ideas are only shared by a minority of voters – so far. In Britain however, which is outside the euro and has always been nervous about closer European integration, euroscepticism may become much more popular in the run-up to the next elections in 2015.

How does this so-called ‘Swiss option’ look from a Swiss perspective?

"Switzerland is formally independent but on crucial points totally interconnected with the EU", says Frank Schimmelfennig, a professor of politics at Zürich’s polytechnic university, ETH. "For this position in life it is paying a high price."

The current euro crisis is hitting Switzerland hard: two thirds of Swiss exports - with an emphasis on chemical and pharmaceutical products, heavy machinery and precision instruments like watches – are within the EU, four fifths of its imports come from EU countries and the weak euro has pushed the Swiss franc up. Although the Swiss national bank (SNB) has set limits to the exchange rate, this is largely artificial, since they can only be maintained by buying large amounts of euros.  

The SNB is said to hold 100 billion euros worth of German debt, making it the largest creditor of the most important country in the euro zone. After years of expansion the Swiss economy is showing signs of weakness: GDP shrank by 0.1 per cent in the second quarter, it was revealed last week.  “We should remind ourselves that Switzerland is not an island", wrote the newspaper, Neue Zürcher Zeitung

Consumer prices have always been high in Switzerland and they are still climbing. Evident in the car park of the Carrefour supermarket in Ferney-Voltaire, just on the French side of the border near Geneva, where one in two cars has a Swiss license plate.  “When it is a question of money, everybody is of the same religion", Ferney's most famous inhabitant wrote in 1760. Meat, dairy and coffee – even coffee made by the Swiss company Nestlé – are now at least twice as cheap in France. That stream of fully laden supermarket trolleys are proving Voltaire right.

Once upon a time, Switzerland was eying up EU membership, but after a referendum in 1992 its application is on ice. The Swiss were too attached to their historical neutrality and their own coin. Being a rich country they did not want to become a net contributor in the EU and above all they were afraid that their coveted system of direct democracy, where citizens can vote directly on all sorts of policies, would be submerged by EU legislation and jurisdiction.

Now Switzerland keeps the EU at arm's length. Unlike other non-EU-member states - Norway, Lichtenstein and Iceland - Switzerland is not a member of the European Economic Area (EEA), which governs the internal market's free movement of goods, persons, services and capital. Instead, Switzerland has gained ‘à la carte’ access to the common market via a series of bilateral treaties, including the Schengen passport-free zone, reached during years of tough negotiations with Brussels.

Being an outsider feels good to most Swiss, but the corporate sector is keen to point out the many disadvantages. To begin with, not all markets are equally open to the Swiss. Telecoms and electricity are one example. Financial services is another. Talks over a financial services agreement have broken down because Switzerland wanted to shield its banks from European regulation, but this has also largely prevented Swiss insurers from expanding into Europe. “The EU is hardly interested in an agreement covering a single sector", says Michael Wiesner of the Swiss Insurance Association, “we are therefore urging the Swiss government to sign a financial services agreement with the EU."

It remains to be seen how strong the Swiss negotiating position will be. Swiss-EU representatives may formally be equals, but in practice the relationship is "asymmetric", says professor Schimmelfennig, "at the end of the day, the EU is more important for Switzerland than vice versa."

European legislation - from food safety to transport or the environment ­- is continuously in flux, but it is impossible to change Swiss-EU bilateral treaties with every new directive from Brussels. Impossible not only from a practical point of view, but also because the 27 members of an enlarged Union are indicating less and less patience with negotiating special deals for Switzerland after their own, often difficult, negotiation processes. So most of the time Switzerland has no other choice than simply to adopt European laws.  

This so-called autonomer Nachvollzug is a political sticking point, especially for the right-wing populist Swiss People’s Party (SVP), which currently has the most seats in parliament.  It has the power to rally the Swiss against the EU with a referendum at any time. On the other hand, Brussels and Swiss business are lobbying the government to give up its Sonderweg (special position) and conform itself to the EU. The result is an impasse, as Schimmelfennig says: 

“We are one of the European countries where the people don’t agree with the government in believing that more integration is needed. But in practice we are so dependent on the EU that integration is inevitable. We have to live with EU-rules, but without the influence to shape them."

Current member states do have that advantage. Whoever leaves the Union gives this up. It is not very likely that, in the case of Britain leaving the EU, Brussels would grant it the same good will it used to reserve for the Swiss, Schimmelfennig says.  Also, he adds, it would not be very clever as “London has been closing special deals with the EU for years, and this works far better from within than from the outside."

Switzerland has always been a special case, and will probably remain so. But the question is how special? It looks increasingly likely that Swiss banking secrecy is on its way out now that banks have had to open their books (and coffers) to American tax authorities, and details about European tax evaders have begun to leak out. 

PVV-leader Geert Wilders may claim that the Netherlands would no longer “have to shovel money to eastern and southern Europe" if they were to leave the EU. But it is a fact that Switzerland has been supporting European reconstruction funds for new member states in eastern Europe and the Balkans with billions of euros. True, these were nominally ‘voluntary’ payments, but meanwhile the Swiss government has described its contribution to a larger European Union as “essential". 

Nevertheless, support for Swiss EU membership remains low, mainly because its historical position as an outsider is widely seen as good for economics. “It is better in the jungle than in the botanical garden", says Xavier Comtesse of the liberal think tank Avenir Suisse in Geneva. “Being outside has made us the most innovative economy of Europe. Knowing that you are on your own forces you to be creative."

By the end of the seventies, the Swiss watch industry was dying on its feet due to competition from Japan, Comtesse says. But it engineered its resurrection when it brought Swatch onto the market: a cheap but stylish watch which became an enormous success, while recognising simultaneously that there was a huge demand for luxury ‘timepieces’.

Companies like Patek Philippe, Breguet and Blancpain still make their watches in the same area in the Swiss Jura. However, many of those quintessentially Swiss companies have their roots abroad, founded by French refugees like the protestant Huguenot watch and clock makers and their descendants, who escaped persecution in Catholic France in the seventeenth century. Up to a point, the same is true in 2012: part of the workforce in the Swiss Jura consists of laid-off workers from the French car industry. 

Open borders and mobile labour, both skilled and unskilled, are an absolute pre-condition for innovation, Comtesse says. And that’s another thing, the EU, and globalisation in general, have put an end to the idea that laws and rules stick to particular territories. “It’s essential that you stop believing in this idea", he says: 

“Yes, Switzerland proves there is life outside the Union. But if you want out because you think that then you can insulate yourself from the other lot, you are doing it precisely for the wrong reasons.”

This article was originally published in Dutch as 'Zwitserland als het beloofde land' in NRC Handelsblad on September 8, 2012


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